The Net-Zero Circle

With over 10 years of experience in investment banking at Bancolombia, and having led projects in energy and natural resources, how do you see Colombia positioning itself as a leader in the energy transition within Latin America? What role does Bancolombia play in supporting this transition?

Colombia can position itself in three areas as a leader in energy transition in Latin America. I envision that leadership being fulfilled in the following order: i) reduction of GHG emissions to comply with international commitments made by the government, ii) necessity to diversify its energy matrix, and therefore achieving resilience and excellence in power supply, and iii) as a clean energy exporter to its neighbors and hydrogen to more distant markets.There are other indirect ways Colombia can position itself as a leader, by providing clean energy at competitive prices and with high reliability for energy intensive industries like: data centers, raw material production, manufacturing, etc. It’s important to bear in mind that there is an ongoing conversation about near shoring in the Americas.

Colombia’s energy transition plan highlights key areas like renewable energy, hydrogen, and offshore wind projects. From your perspective, which of these areas holds the most immediate investment potential, and what financial structures or incentives could accelerate their development?

Today’s growth is being accomplished mostly in solar projects, which are the projects with relevant advantages over other technologies in terms of more beneficial conditions for their development (or less hurdles) and by the fact that it is today a mature technology in many ways. I think there are relevant financial and tax benefits provided by banks and the government, respectively. However, the challenge today is to scale up at the speed required by the demand, and as societies electrify their energy needs, more speed will be needed. We should aim at faster licensing and permitting (this requires close interaction with governments) for the projects and the grid, and this requires from capital providers more speed in delivering project structuring and financial close.

Given your experience in the electrical industry as Financial Planning Director at Celsia and CFO at HMV, how do you assess the financial viability of green hydrogen projects like the Ecopetrol H2 Pilot Project? What are the main challenges in financing these types of initiatives?

I believe that pilots might still be too small or early stage for companies to seek independent project facilities. However, see the main challenges in financing hydrogen are:

Price competitivity for self-consumption in refineries: today grey hydrogen is used in refineries as a raw material for the processes. Substituting grey hydrogen for green hydrogen is an additional cost for the production of refined products that will require a discussion as of how to transfer that additional cost to end users.

Technology maturity: manufacturers are still on the road of maturing their technologies, some of those manufacturers are still start-ups, so comfort with the technology might still be a step behind in comparison to other mature industries where project finance is the norm.

Offtake contracts: for third party offtake contracts (different from refining self-consumption) there is a market to create and develop.

Financing pricing: there might be a difference in expectation from sponsor excitement about green hydrogen projects and the capacity of the banking market to price a non-mature market with maturing technologies.

The Colombia Energy Transition Summit focuses heavily on B2B and B2G interactions to foster partnerships. In your opinion, what are the key elements international investors should consider when entering Colombia’s energy market, particularly in terms of regulatory frameworks and infrastructure readiness?

Social and regulatory compliance: a good observation of the challenges in this fields will help investors gauge the effort and the hurdles that developing projects in Colombia faces.

Industry regulation: investors must be keen in their review of local regulation. We all want to avoid a misevaluation of a project.

Tax structure: taxes have a relevant complexity in Colombia.

As the director of Energy and Natural Resources at Bancolombia, what innovative financing mechanisms or strategies is Bancolombia implementing to align with Colombia’s climate goals, and how do you see these mechanisms supporting the adoption of technologies like carbon capture and biofuels?

We currently have a Sustainable Credit Line, which has a discount on pricing relative to our normal credit facilities. This facility has benefited all our renewable projects and does have a relevant impact in project returns.I believe as mentioned before, that we have a relevant challenge in providing more agile solutions that enable an acceleration of the transition. We also have the goal of involving capital markets in a higher degree.I think as technologies like carbon capture begin to enter the region, we will be interested in financing those projects, as we are fully committed to supporting a sustainable future. As a county, we need to bring together investors, banks, regulatory agencies, the government to develop a framework that provides the ground for these new technologies. That framework must provide the right incentives for an ecosystem to develop. Following capital providers, come advisors, manufactures, engineering companies, etc. which will make things happen.

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