In Colombia, the energy transition has largely been discussed in environmental terms, leaving in the background what is really at stake for industrial and commercial consumers: the cost of electricity, how predictable that cost will be, and whether supply will remain reliable over the next decade—and, ultimately, what all of this means for their competitiveness. The decisions that will determine these conditions are being made now, and large consumers have too much at stake to remain outside the discussion. They stand to benefit most when the transformation is done well and are among the first to bear the consequences when it is not.
How much will electricity cost over the next decade? How predictable will that cost be? Will electricity be available when the next drought arrives? These are the questions large consumers are asking today as Colombia considers the transformation of its energy system. Seen from this perspective, the transformation is no longer a matter of taking a position. It becomes a set of concrete choices about the competitiveness of the country’s productive sectors.
Deploying Low-Cost Renewable Energy at Scale Can Reduce Electricity Tariffs and Make Prices More Predictable
Consumers today face electricity prices that continue to rise in real terms, a power system that comes under strain with every drought, and demand that is growing faster than supply. The system has little room to maneuver—not only in the balance between generation and consumption, but also in planning and operating practices that have not kept pace with its changing needs. This combination makes electricity more expensive and the system more vulnerable, forcing it to rely on the most costly generation available whenever a drought occurs. Transforming the power system through the large-scale deployment of solar and wind energy offers new alternatives and concrete responses to these pressures.
Electricity prices for industrial and commercial consumers have been rising for 25 years. Between 1994 and 2024, industrial and commercial tariffs increased by approximately 130% in real terms, an average of around 1.25% per year. The increase became more pronounced after 2008, when a new tariff formula came into effect and the Reliability Charge was introduced. In recent years, international fuel prices have added further pressure, which is passed on to electricity bills through the generation component¹. For electricity-intensive businesses, this means operating costs that continue to rise regardless of improvements in their own efficiency.
The generation component offers the greatest opportunity to reduce electricity tariffs in the coming years. It accounts for roughly one-third of the electricity bill and has experienced the largest increase in recent years¹. This means that decisions about the composition of the generation fleet over the next decade will directly affect electricity costs.
As the power system becomes more dependent on thermal power plants, generation costs become increasingly exposed to international fuel prices and their volatility. Colombia is already a net importer of natural gas, meaning that fuel prices are increasingly determined beyond its borders. During a prolonged drought, the system needs more thermal generation precisely when gas is scarcer and more expensive, and those additional costs are passed on to consumers.
Industrial and commercial consumers in the non-regulated market negotiate their electricity prices and absorb these costs without the cushioning provided to regulated consumers by tariff formulas and contractual hedging. For them, drought is not only a risk to electricity availability; it is also a risk to the price they will have to pay.
According to modeling of Colombia’s power system conducted by Ivy and POLEN³, an expansion pathway based on renewable energy could reduce the generation component of electricity tariffs by 53% and the overall unit cost by 29% by 2038.
Solar and wind are now the most economical technologies for installing new generation capacity⁴, but their low costs do not automatically translate into lower electricity bills. Regulation and market design are needed to pass these savings on to consumers.
Long-term contracts are the main mechanism for doing so. Well-designed auctions can secure low prices and keep them stable and predictable for 15 years or more. For a company planning investments over that time horizon, price predictability is just as valuable as a low price.
Consumers ultimately pay the price for the barriers preventing cheaper electricity from entering the system. These barriers are not related to technology costs or availability. They lie in grid connection timelines, delays in building the transmission lines needed to transport electricity, and operating rules that have not adapted to the changing power system.
Nearly half of the commitments associated with new power plants contracted in 2019 have yet to materialize, largely because the transmission line needed to carry electricity from La Guajira was not completed¹. Every project that fails to come online represents low-cost electricity that never makes its way into consumers’ bills.
Integrating Solar and Wind at Scale Reduces the Risk of Electricity Rationing for Large Consumers During Droughts
Large-scale renewable energy deployment offers more than cheaper electricity. It also strengthens the power system’s ability to maintain supply during droughts.
Reliability in Colombia’s power system has traditionally been understood in terms of water availability during dry months, because the system was designed and built around hydropower, with thermal generation providing backup.
The large-scale integration of wind and solar changes this equation, reshaping both how reliability is understood and the most economical way to ensure it.
Solar and wind do not compete with hydropower; they complement it. Every kilowatt-hour they generate is water that does not need to pass through a turbine and can instead remain stored in reservoirs to support the system during a future drought.
Making the most of this complementarity requires the power system to dispatch its resources optimally and recognize the contribution each makes to the system as a whole, particularly during dry months.
Under these conditions, Ivy and POLEN’s study of Colombia’s power system shows that reliable operation is possible with hydropower, solar, and wind jointly accounting for nearly 95% of electricity generation³. Uruguay followed this path in just over a decade and now has one of the region’s most renewable and stable power systems.
Colombia needs new generation capacity soon to guarantee supply in the short term, as electricity demand continues to outpace supply and El Niño places renewed pressure on the system.
This is where installation speed becomes more than a technical detail. Building a solar or wind farm takes one to two years, while a thermal power plant takes between five and seven years. In all cases, permitting and grid connection can add several years in Colombia—and these processes are the real bottleneck.
The difference in construction times determines which alternatives can respond more quickly to immediate needs while preparing the system for future pressures.
Natural gas, meanwhile, is now a scarce resource that should be used where it delivers the greatest value or where fewer alternatives exist.
Colombia became a net importer of natural gas, and domestic production covered 81% of supply in 2024, compared with 92% the previous year².
Approximately one-third of the gas consumed in Colombia is used to generate electricity. Yet economically viable and reliable alternatives already exist for this purpose: combining solar and wind with the hydropower base the country already has.
In other applications, such as process heat, industrial furnaces, and industrial feedstocks, alternatives are more limited, more expensive, or slower to adopt.
Expanding the power system using the lowest-cost options available today would reduce the pressure that electricity generation places on limited gas supplies, making more gas available for other uses where replacing it is more difficult.
A Clean and Competitive Power System Opens Markets for Colombian Industry
The same technologies driving the energy transformation also allow consumers to play a much more active role in the development of the power sector.
Beyond purchasing electricity through long-term contracts, consumers can generate part of the electricity they use, manage their demand, and even sell electricity back to the system.
Power system digitalization gives consumers access to valuable information that was previously unavailable, along with greater control over when and how they use electricity.
This more active approach to consumption could also create services and products that do not yet exist in the Colombian market.
Each of these decisions changes consumers’ position within the sector. A consumer that purchases electricity, generates its own power, and manages its demand gains firsthand knowledge of how the system works and where improvements are needed. This gives consumers their own evidence and arguments for participating in discussions that will shape the sector’s future.
Beyond operating costs, electricity has become a factor in decisions about where to locate production and which markets businesses can access. Much of Colombia’s international competitiveness is at stake.
Electricity prices and access to clean power are now considerations for multinational companies deciding where to establish production facilities. These factors carry particular weight as supply chains are being reorganized toward the region.
Moreover, several economies that are important to Colombia’s foreign trade are incorporating emissions intensity into their market-access requirements. For example, the European Union has established the Carbon Border Adjustment Mechanism (CBAM), which imposes a carbon-related charge on imports from certain sectors⁵.
A clean and competitive power system is therefore no longer simply a reputational asset: it has become a strategic economic asset for the country.
Colombia starts from a favorable position. Whether that advantage translates into tangible benefits for its industry will depend on the decisions made over the coming years.
The Agenda the Productive Sector Has a Stake in Advancing
Three decisions emerge from this analysis that will shape electricity prices, security of supply, and competitiveness over the coming decades. The productive sector should have a seat at the table when they are discussed:
1. Integrated planning that brings generation, transmission, and demand together in a single process and can be translated into actual projects.
2. Long-term contracting mechanisms that pass the low cost of new generation on to buyers while providing investors with the certainty they need.
3. Optimal dispatch of energy resources, particularly water stored in reservoirs.
This is not an exclusively environmental discussion, as it is often framed. Industrial associations and consumer organizations have direct reasons to participate.
The energy that will power Colombian industry over the next decade is being decided through discussions about system expansion, contracts, and operating rules—discussions that are moving forward with limited participation from those who will ultimately pay the electricity bill.
Colombia’s productive sector has both an opportunity and a direct interest in these decisions.
A well-executed transformation means lower costs, more stable prices, and a power system capable of responding during periods of scarcity.
But that outcome is not guaranteed. It depends on the regulatory and market design decisions made now—and on who has a seat at the table when those decisions are made.
References
1. PSR and PHC, Evolution and Challenges of Electricity Service Provision in Colombia: A 30-Year Analysis. Study prepared for the Ministry of Mines and Energy and CREG with support from the World Bank, presented at a sector workshop, 2026.
2. UPME. Colombian Energy Balance , 2024; Technical Study for the Adoption of the 2023–2038 Natural Gas Supply Plan – Supplementary Document , 2025.
3. POLEN Transiciones Justas and the Ivy Foundation. Just Energy Transition in Colombia: A Technical Roadmap for a Reliable, Clean, and Lower-Cost Power System, 2025.
4. IRENA. Renewable Power Generation Costs in 2025 . Abu Dhabi, 2026.
5. European Commission. Carbon Border Adjustment Mechanism (CBAM), Regulation (EU) 2023/956.