Understanding dynamics and policy for renewable energy diffusion in Colombia

Colombia has committed to reduce greenhouse gas emissions in 20% by 2030 with respect to business-as-usual in the COP21. One policy is the Renewable Energy (RE) law launched in 2014, aiming “to promote the development and use of non-conventional energy sources” with indirect incentives, such as tax reduction or exemptions. Direct incentives, such as price-based, are not included in the law. Experiences in other countries have proven that direct incentives are more efficient than indirect ones to promote RE. The purpose of this study was to evaluate incentives for RE diffusion in Colombia through a simulation model for energy policy recommendations. We tested four incentives: tax reduction, feed-in-tariffs, tradable certificates, and technical subsidies; and four RE sources: small hydro, biomass, wind, solar and geothermal. Simulation results show that a combined scenario using feed-in-tariffs and technical subsidies can boost the deployment of RE, avoiding significant price increases for the final consumer. None of the incentives leads to reaching the RE target, given the growing demand for energy. Complementary policies could focus on improving energy efficiency.