29 September 2022
Cubico Sustainable Investments made early inroads in Colombia’s renewable energy market due to its strong industry experience, knowledge of market dynamics in other Latin American countries, partnership with a key local player and ability to expand its business model into new areas. In this article we explain how.
Countries which are highly dependent on generation from hydropower plants are subject to the volatility of the water cycle. In Brazil, for example, where two-thirds of electricity is produced by hydropower plants, droughts have been a regular part of life for the last 20 years. It has prompted the country to diversify its energy mix to include more solar and wind.
When Cubico Sustainable Investments opened its office in São Paulo in early 2015, the focus was on the burgeoning renewable energy markets of Brazil and Uruguay, where the company already owned operational wind farms. Given its experienced team and strong appetite for growth, Cubico was determined to expand into other countries in Latin America too, and its knowledge of the market dynamics of Brazil led it to look closely at Colombia.
Francisco Moya Reina, Head of Brazil and the rest of Latam at Cubico, says Colombia also experienced severe droughts in 2015 and 2016. This was mainly due to the climate phenomenon known as “El Niño”, which led to less rain and hindered the country’s hydropower-based electricity system. Renewables were little discussed in Colombia before 2016, but Francisco says that knowledge of similar effects on the generation matrix in other countries in the region helped Cubico spot an opportunity in the market.
“Early in 2015 and 2016, when nobody spoke about renewable energy in Colombia, I started to sound out the market. I was arranging meetings there to get to know the main companies and developers, and waiting for something to happen in the renewables space in the near future,” says Francisco. These changes are now underway.
This is just one example of how knowing local conditions can play a crucial role for renewable energy companies that want to succeed in their global expansion plans. In this article, Francisco explains how Cubico took its first steps in Colombia; why it is working with local player Celsia; and how it is now building transmission lines.
Bogota beginnings
Francisco worked for Banco Santander and was part of the team that spun off Cubico in 2015. That year he moved from Spanish capital Madrid to Brazilian city São Paulo to establish Cubico’s presence in the Latin America region.
Through his meetings in Colombia, one of his aims was to persuade key players in the market that wind and solar could help to solve the country’s solar woes. This approach had other big benefits for Cubico entering a new market.
First, it showed that Cubico was an active player in renewables in Colombia before any of its rivals; second, it helped introduce the firm to potential joint venture partners; and third, it gave the team more knowledge about market challenges and opportunities.
This helped lay the groundwork for the company’s first joint venture in Colombia. In 2019, Cubico opened a dedicated office in Bogota and signed its first partnership in the country with local utility Celsia to co-develop a 600 MW portfolio of solar farms.
This joint venture is beneficial to both parties, as it combines Celsia’s expertise of Colombia and transmission with Cubico’s knowledge of renewable energy and international standards for finance and governance. This helped the partners to navigate challenges such as the lack of power purchase agreements (PPAs) that would satisfy investors.
Francisco explains: “The most that off-takers would offer is five to seven years, when long-term investors normally need more than 15 years. We were able to go in and structure long-term PPAs.”
The partners have also worked together to address other challenges, such as a lack of experience of renewables among key stakeholders including regulators. This has been getting better as the country has now held two renewable energy auctions. The Covid-19 pandemic has also caused disruption, as it has elsewhere in the world.
Modernising the grid
One of the major obstacles for the growth of renewables in Colombia is a centralised electricity grid that is well-suited for large hydropower plants, but not for a system based on multiple solar and wind projects. Cubico was able to address this through its operational Caoba transmission line platform, a second joint venture formed with Celsia in late 2020.
Francisco says that investments in the grid are needed to foster and speed up the development of renewable projects in the country. As a result, it makes sense for Cubico to be flexible in its approach and begin developing transmission lines.
Francisco is confident that the green transition in Colombia is currently “unstoppable”, because the nation will need to diversify its electricity mix away from hydropower no matter who is in power. He says that 5 GW to 8 GW of renewable power is needed in the next eight to ten years.
Those local insights will continue to be vital.
