Colombia’s pathway to a clean energy future hinges on a dramatic scale-up of renewable generation. National estimates suggest that between 2023 and 2052, installed capacity in solar and wind must expand by 40 to 150 times to align with energy and climate goals.

Achieving this transformation is within reach, but it requires overcoming systemic barriers that continue to shape the country’s investment landscape. Elevated capital costs, lengthy permitting processes and persistent challenges in securing grid connections constrain developers from structuring viable projects and deter institutional investors.

In Colombia, stakeholders including public authorities, project developers, financiers and civil society representatives gathered for a facilitated discussion led by WRI. The discussion aimed to understand and address obstacles to clean energy finance, with a focus on scaling up on-grid solar. Guided by a framework for structuring such discussions, currently under development by WRI, stakeholders found Colombia clean energy finance is underperforming compared to its potential. It was noted that while key building blocks are in place, diversifying revenue sources and implementing regulatory changes will be necessary to scale more quickly. Here, we look at Colombia’s current energy landscape and how the workshop helped stakeholders arrive at an investment solution to help scale up the country’s renewable energy needs.

Today’s Colombian Energy Landscape Calls for Diversifying Energy Sources 

Colombia’s renewable energy story has been shaped by a combination of a liberalized market and strong institutions. Since the 1990s, electricity has been traded through two main channels: long-term bilateral contracts (known as power purchase agreements), which give investors stability, and a spot market for short-term transactions. This mix has encouraged competition and opened space for a more diverse set of players.

Behind this market is a solid institutional framework. The Ministry of Mines and Energy leads policy design, while the Energy and Gas Regulatory Commission sets rules and tariffs. The Mining and Energy Planning Unit develops long-term expansion plans, and XM operates the national grid and manages the wholesale market. Adding to this ecosystem, the Non-Conventional Energy and Efficient Energy Management Fund (FENOGE) finances renewable energy and efficiency projects, channeling both public and private resources into sustainable solutions.

In the regulatory sphere, Law 1715 of 2014 introduced tax incentives and created the Fund for Non-Conventional Energy and Efficient Energy Management (FENOGE, by its Spanish acronym), laying the foundation for the development of Non-Conventional Renewable Energy Sources in Colombia, including technologies such as biomass, small hydropower, wind, geothermal, solar and marine energy. Later, Law 2099 of 2021 modernized this framework by expanding policy instruments to attract private investment and diversify the energy mix. Building on these two laws, enabling frameworks for structuring, operation and remuneration were developed, complemented by government strategies such as Energy Communities, which aim to reduce access gaps and ensure that the energy transition also benefits vulnerable populations.

Clean energy goals 

Colombia’s power sector is often cited as one of the cleanest in Latin America, with a grid mix dominated by renewable resources. By 2023, the country’s installed capacity reached roughly 20 gigawatts (GW), nearly 70% of which came from hydropower, while solar had just begun to emerge with a share slightly above 2%. Yet this apparent strength masks a growing vulnerability: Climate change and the intensification of weather-related events caused by changing ocean temperatures (like El Niño and La Niña) have amplified water risks, exposing the electricity market to volatility and supply stress.

Against this backdrop, diversification is essential. Colombia must reduce its heavy reliance on both hydropower and fossil fuels, which still account for a significant portion of generation. Projections from the National Energy Plan illustrate the scale of the challenge and opportunity. Non-hydro renewables, like wind and solar, currently at only 540 megawatts (MW), could expand to 23 GW in the conservative scenario and up to 81.6 GW in the most ambitious. Within this growth, solar and wind power would play the leading roles, contributing 59% and 24% of additional capacity in the conservative scenario, and 31% and 49% respectively in the most ambitious scenario.

These trajectories align with Colombia’s privileged solar resource, where average annual irradiation (energy from sunlight) reaches up to 5.5 kilowatts per hour per square meter per day in the Caribbean region and center sectors. Unlocking this potential, however, requires predictable market conditions and a stable, competitive regulatory framework to attract private investment. Such measures would not only accelerate the deployment of renewables but also strengthen Colombia’s path toward a more resilient, diversified and sustainable energy future.

Detailed account of financing needs 

Despite having ambitious energy transition scenarios, actual investment in renewable energy in Colombia still falls short of projected needs. Clean energy investments in the country reached approximately $411 million in 2023. In contrast, estimates from the World Energy Forum indicate that Colombia will need to invest between $35 billion and $104 billion by 2052 to meet its renewable energy expansion targets, including the necessary strengthening of transmission and distribution networks to effectively integrate these projects​. Based on an annualized CAPEX (capital expenditure, long-term investment costs for assets) projection, this translates into a sustained investment effort of between $1.2 billion and $3.6 billion per year over the next three decades. While the public sector has prioritized financing for renewable resources, available financing is limited — making the mobilization of private capital essential to closing the financial gap. 

Financing Colombia’s Clean Energy Transition

To better understand how to finance clean energy with appropriate financial instruments for a given context, WRI developed an approach that helped stakeholders identify themes to consider using a set of questions. A pilot consultation in Colombia demonstrated how this approach could help stakeholders understand their financing environments and opportunities. Here’s what they found could drive deployment of on-grid solar.

  • Participants first classified the technological maturity of utility-scale solar in Colombia as “mainstream,” considering that while key challenges are recognized, there is still a lack of consensus on priorities, limited clarity in policy and regulatory concepts and concerns about the potential exclusion of communities. This assessment reflects the renewable energy policy framework established since 2014, which includes availability of tax incentives, installed capacity by 2024 and number of projects with assigned connection points. Despite the progress, persistent barriers remain — particularly around regulatory certainty, lengthy permitting processes and the mobilization of private capital.
  • Next, participants evaluated market readiness, which they determined was average, consistent with BloombergNEF’s ClimateScope tool used to corroborate stakeholders’ analysis. The electricity market is open and supported by a clear institutional framework, which provides regulatory certainty. However, confidence has eroded due to delays in transmission capacity allocation, environmental licensing and prior consultations. Additional measures have also affected market dynamics, such as the “pay for transference” charge — introduced in 2023 and often perceived as comparable to a tax, as it is progressively applied up to 6% of gross energy sales for large projects — and the imposition of caps on the shortage price, typically reached during El Niño events. While these caps mitigate risk for energy buyers by limiting price spikes, they reduce incentives to sign long-term bilateral contracts or power purchase agreements, thereby weakening investment signals for new renewable capacity.

The assessment of technology maturity and market readiness provides an essential analytical framework for decision-makers and serves as an initial input for answering the next set of questions in WRI’s approach.

While working through the analysis, participants valued being able to see a comprehensive view of a project’s trajectory — from its origins in public policy to its final financing structure. In Colombia, practitioners found it particularly useful to:

  • Identify barriers and enabling solutions: The exercise made it possible to identify critical obstacles and propose measures to overcome them, highlighting the need to streamline environmental, social and technical permitting through regulatory adjustments or risk-mitigation instruments; to strengthen Advanced Market Commitments via innovative long-term auctions that reduce uncertainty, prioritize strategic grid nodes and remove hourly generation restrictions; and to promote a financial or regulatory mechanism to back guarantees on future generation commitments and establish a prioritization procedure that addresses the limitation of connection points to the National Interconnected System, caused by the oversaturation of requests — a high percentage of which lack financial closure — identified as one of the main bottlenecks for the deployment of renewable energy projects in Colombia.
  • Support project developers: The methodology enabled a comprehensive analysis of risks throughout the project life cycle, strengthening the assessment of its feasibility. A key finding was the need to diversify revenue sources beyond a bilateral power purchase agreement, incorporating spot market operations, participation in long-term auctions, income from carbon markets — still incipient in the country — and complementary technical services. This approach conceives projects as diversified revenue portfolios, reducing volatility and enhancing financial resilience. Workshop participants indicated that the financing structure must be closely linked to the revenue portfolio —that is, to the distribution between energy sales through power purchase agreements and the spot market. The former serves as a guarantee of stability, while the latter is more volatile. In this regard, a coordinated analysis between financing sources and revenue streams is recommended.
  • Open avenues for financiers: The workshop also provided an opportunity to explore financial innovations and risk-sharing mechanisms. The role of the Non-Conventional Energies and Energy Efficiency Fund was highlighted as a potential source of concessional capital to improve lending conditions while strengthening its long-term self-sufficiency. Among the proposals discussed were the design of instruments to trade the income tax deduction incentive, as well as the promotion of public–private partnerships aimed at expanding leverage options. These mechanisms could not only enhance project bankability but also deliver additional benefits attractive to public budgets, particularly in the context of fossil fuel companies transitioning toward investment in renewable energy.

Next Steps Toward Clean Energy in Colombia

The WRI workshop enabled diverse stakeholders in Colombia to identify, analyze and propose systematic solutions to the barriers limiting the renewable energy investment pipeline, with an emphasis on utility-scale solar. Such projects are essential to ensuring energy security, diversifying the power matrix, reducing costs for end users and decreasing dependence on fossil fuels.

The applied methodology helped uncover key constraints, such as the need for long-term mechanisms that act as risk-mitigation vehicles; the environmental, social and technical permitting processes that hinder an investment-friendly environment; and the urgency of diversifying financing sources to reduce the high cost of capital faced by developing countries like Colombia.

For policymakers, the process has the potential to serve as a roadmap for renewable energy projects, making it possible to map barriers and solutions that enhance regulatory certainty and attract investment. For developers, it can be a lifecycle planning instrument that strengthens risk management. And for financiers, it could open opportunities to innovate with blended-finance schemes, whose potential in Colombia remains largely untapped. 

This approach could serve as a practical roadmap for advancing Colombia’s solar agenda and be extended to other high-potential renewable technologies — such as geothermal, wind, small hydropower, and biomass — by anticipating and prioritizing key bottlenecks over the long term. Across Latin America, the framework can facilitate peer learning by identifying market barriers and adapting policy and financing solutions that have proven effective in similar contexts.

This update is part of a WRI project to identify tailored financing solutions to power the transition to renewable energy. Our approach guides policymakers and investors in assessing the maturity of a technology and the readiness of a country’s market as well as potential revenues and costs to pinpoint effective financing options and determine viability. 

Learn more about this approach and how it has been used to match clean energy finance needs with the appropriate financial toolkit in Rwanda.