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Cablegate: Colombia: Potential Destination for Opic-Supported Renewable

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UNCLAS BOGOTA 003236

SIPDIS
PASS TO BARBARA BRERETON, OPIC

E.O. 12958: N/A
TAGS: ECON EINV OPIC CO ENRG
SUBJECT: COLOMBIA: POTENTIAL DESTINATION FOR OPIC-SUPPORTED RENEWABLE
ENERGY INVESTMENT FUND

REF: 09 STATE 95170

1. Summary: Colombia is a rich environment for renewable energy
investment and would benefit from additional financing from the
USRG Emerging Market Fund, LP. Colombia is a regional leader in
the production of biofuels, specifically ethanol and biodiesel.
Wind, geothermal, and hydroelectric projects are moving forward,
but are at different stages. The GOC looks favorably on
investments in these or new areas such as cellulosic technology.
In September 2008, the United States and Colombia signed a
memorandum of understanding to advance bilateral cooperation on
renewable and clean energy, which provides a framework for
increased cooperation. Colombia supports the Energy and Climate
Partnership of the Americas and is pursuing a leadership role in
promoting renewable energy throughout the region. Per reftel
request, Embassy contacts were not aware of the USRG Emerging
Market Fund that is managed by the US Renewables Group. End
Summary.

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Biofuels Growth

---------------------

2. Colombia's goal is to provide a 20 percent mix of ethanol
(E20) from sugarcane, primarily, and yucca in gasoline pumps and a
20 percent mix of biodiesel (B20) from palm oil in diesel pumps by
2015. Colombia already provides B5 in most of the country and B7
on the Atlantic coast. In 2010, Colombia plans to provide B10
throughout the country. With regards to ethanol, Colombia
currently provides E10 in all major cities, except for the Atlantic
coast, which is expected to receive E10 in 2010 once an additional
ethanol refinery comes on line.

3. Jorge Bendeck, Executive President of the National Federation
of Biofuels, told Econoffs that the short to medium term objectives
are to expand sugarcane production from 250,000 to 350,000 hectares
and palm production from 350,000 to over 500,000 hectares.
According to Minister of Energy and Mines Hernan Martinez,
Colombia's long term goal is to convert three million hectares of
fallow cattle land into sugarcane and palm fields for the
production of ethanol and biodiesel. (Note: second generation
biofuels, such as switchgrass, could eventually be incorporated or
substitute sugarcane production. End Note.)

4. Colombia's aggressive goals are backed by government mandates
as well as a law that requires the phase-in of flex-fuel technology
(E85) in all new gasoline-fueled vehicles starting in 2012. The
requirement begins with 60 percent of small cars (2000 cubic
centimeters engine displacement or less) in 2012 and extends to
larger passenger vehicles the following year. By 2016 all new
passenger vehicles manufactured or imported into Colombia must
incorporate flex-fuel technology.

5. Biofuels are a priority for the Colombian government.
According to Environment Minister Carlos Costa and other senior
government officials, Colombia's biofuels policy supports three
major objectives: 1) create jobs in rural and post-conflict zones;
2) remain self-sufficient as an energy producer; and 3) protect the
environment while reducing Colombia's carbon footprint. Given the
high unemployment rate (11.7 percent in September) and its desire
to support an ambitious agreement at the Copenhagen Climate Change
Summit, Colombia is likely to continue its biofuels policy.


6. Aerocivil (Colombian FAA), with U.S. Trade and Development
Agency (TDA) funds, is currently developing a study on the
potential application of renewable energy sources to navigational
aids at locations in different parts of the country, replacing
diesel-fired generators.

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Wind Opportunities

-------------------------

7. Colombia has an estimated wind power potential of 21 gigawatts
(GW) in the northeast state of La Guajira, which is home to class 7
winds (i.e. over 10 meters per second), according to local
analysts. Colombia's installed wind capacity totals 19.5 MW.
Fifteen windmills make up the Jepirachi Wind Project, which the
Medellin Public Utility (EPM) company developed under a World Bank
carbon finance mechanism (Prototype Carbon Fund). ISAGEN,
Colombia's third largest power generation company, is planning to
develop a 32 MW wind farm five kilometers from the EPM project.
(Note: ISAGEN is state-owned, but plans to sell its 57 percent of
the company by early 2010 to raise capital for country-wide
infrastructure projects. End Note.)

8. The ISAGEN wind farm will be split into 12.5 and 19.5 MW parks
to avoid a Colombian regulation that requires any electricity
provider of 20 MW or more to be centrally dispatched. This
regulation is a disincentive for the development of large wind
farms, which cannot produce a constant level of electricity 24
hours/365 days per year. The government is considering a revision
to this regulation, but is facing opposition from representatives
from thermal, coal and hydroelectric power plants.

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Geothermal Prospects

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9. The Colombian Mining Service and Geological Survey has
identified three areas in Colombia with strong geothermal power
potential: 1) near the Azufral volcano, Narino state; 2) near the
Chiles volcano, Narino state; and 3) Paipa, Boyaca state. The U.S.
Trade and Development Agency (TDA) has funded a feasibility study
to support the development of a 50 MW geothermal power generation
project with ISAGEN. After completion of the study, ISAGEN has
moved forward with additional funding from the Inter-American
Development Bank to conduct further geological studies. ISAGEN
plans to begin drilling in 2011. Post learned recently that the
Medellin Utilities Company (EPM) is also interested in developing
geothermal resources and may request TDA assistance.

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Hydroelectric Projects

----------------------------

10. According to GOC figures, hydroelectric power currently
accounts for 78 percent of Colombia's electricity generation


(13,600 MW). More than 3,000 MW of additional capacity is under
construction at six new plants scheduled for completion by 2018.
Colombia sells excess capacity to regional neighbors, including
Venezuela and Ecuador, and plans to sell additional capacity (up to
300 MW) to Panama. A longer term project envisions providing
electricity to the Caribbean, notably Dominican Republic and Puerto
Rico, via submarine cables.

----------------------

Waste-to-Energy

----------------------

11. In March 2009 during the Inter-American Development Bank
annual conference, the Embassy's Commercial Section coordinated a
meeting between TDA representatives and the manager of Medellin's
solid waste management company (EVM) and the President of
Medellin's public utilities company (Empresas Publicas de Medellin)
to discuss a potential waste-to-energy project. The Colombians are
developing prefeasibility studies and a solid waste
characterization assessment prior to making a request for TDA
feasibility study funds.

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Memorandum of Understanding

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12. The United States and Colombia signed a memorandum of
understanding in September 2008 to advance cooperation on renewable
energy by promoting research exchanges, alternative development
activities, investment in clean energy, and the alignment of
biofuels standards and codes. To date, State Department and U.S.
Department of Agriculture funds have supported exchanges of experts
on sustainable biofuels development. Additional areas of interest
are being reviewed to support renewable energy initiatives and
climate change-related programs.

--------------------------------------------- --------------

Energy and Climate Partnership of the Americas

--------------------------------------------- --------------

13. Colombia supports President Obama's Energy and Climate
Partnership of the Americas and has shown an interest in taking a
leadership role in one or more areas: Biodiesel, Public Sector
Reform in the Energy Sector, Second Generation Biofuels, and Long
Distance Electricity Transmission.

--------------------------------------------- ----------------------
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Investment Opportunities for USRG Emerging Market Fund

--------------------------------------------- ----------------------
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14. Colombia provides incentives for the development of renewable
power generation, clean fuels, and renewable energy value chains.
Many of the ongoing and proposed projects will be asset-focused,
particularly since many of the technologies are produced outside of
Colombia. Wind projects are largely asset-focused and have low
windmill technology risk (energy distribution is more complicated).
Development of geothermal projects are largely dependent upon the
appropriate feasibility, geological, and drilling studies.
Biofuels projects in the ethanol and biodiesel areas are capital
intensive, concentrated on refineries and infrastructure. Second
generation biofuels have a great potential for investment
opportunities, but the technology and scope are still undeveloped
in Colombia. Regarding cash flows, the majority of projects listed
above are financed by established private sector companies. That
said, additional funding from investment funds is always welcome
depending on the structured agreement.

15. The transfer of clean energy expertise to Colombian
enterprises is a key bargaining chip in offering investments in the
renewable energy sector. Securing management positions in project
companies and control of strategic decision-making is probably more
difficult to achieve in large companies and trade associations,
which are the primary backers of the larger-scale renewable
energies. There are small to medium size companies in renewable
energies, but their focus is primarily in wind and less developed
biofuels, such as jatropha, algae, and yucca ethanol.

16. There is a need for capital investments in the renewable
energy sector, according to the National Biofuels Federation and
government officials. Colombia continues to grow its renewable
energy sector and has already reaped benefits from carbon credits.
The World Bank, IDB, and the Andean Development Corporation (CAF)
have helped finance several projects in Colombia's renewable energy
sector. U.S. investors also have shown interest in funding local
projects.

17. Per reftel request, Embassy contacts were not fully aware of
the USRG Emerging Market Fund, nor did they have an opinion about
the fund manager, US Renewables Group. Colombia's economic
development plans appear consistent with the objectives of OPIC's
investment fund program.
NICHOLS

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