Report: With El Niño Waning, Colombian Electric Companies Will Look to Grow Capacity

Fitch Ratings expects electric generation companies in Colombia to spend up to $6 billion USD over the next two years on expanding current installed capacity as the El Niño phenomenon continues to recede in the Andean nation.

Though the El Niño weather phenomenon that began last year has significant consequences for the nation — particularly with water reservoirs near Bogotá falling to alarming levels — the New York-based rating agency noted in a recent report that the major electric generation firms have “successfully weathered low hydrology conditions…with only moderate impacts on profitability and liquidity,” largely due to their “high-quality diversified asset bases, healthy cash flow generations and adequate leverage.”

In it’s analysis, it expanded upon the dynamics that have been shaping the sector in recent months.

“Throughout 2023, El Niño placed considerable strain on Colombia’s predominantly hydroelectric-based electricity generation, which accounted for approximately 74% of the total energy produced throughout the year,” stated Fitch Ratings

“From December onward, the water flow into the nation’s dams has been declining, culminating in a record low in March 2024 at 45.6% below the historical average for the month. Data from XM Compañía de Expertos en Mercados S.A. E.S.P. (XM) indicates that the storage capacity of hydroelectric reservoirs hit 17,360Gwh/month. By April, the water levels in these reservoirs were at 28.6%, marginally over the critical 27% mark that could trigger energy rationing.”

It pointed toward Medellín-based public utility EPM’s ability to add 600MW online last fall when it brought two more units online at its Ituango mega-dam.

“This addition propelled Ituango as the country’s top hydro project in energy output, cushioning the rise in daily energy spot prices which averaged, 659COP/Kwh during 2H23, compared to 412COP/Kwh in 1H23,” noted the rating agency. “Termocandelaria Power S.A. increased capacity at the Termocandelaria plant to 555MW from its combined cycle project. Between January and April 2024, total generation in Colombia reached 27,521Ghw, 37% of which came from non-renewable sources, compared to 14% during the same period in 2023. Meteorological forecasts signal increased precipitation from May onwards.”

Looking more broadly, Fitch stated that Enel Colombia and Isagen, along with EPM, “adhere to cautious contracting strategies that enable them to reduce reliance on higher-priced spot market energy purchases” and “have created a cushion that has allowed them to cope with the ongoing drought conditions in 2024 and fulfill their firm energy obligations.”

With this backdrop and forecasters continuing to expect the El Niño period to soon be in the rearview mirror, Fitch expects even more investment into capacity-expanding initiatives this year.

“Colombian electric generation companies’ capex plans are focused on boosting installed capacity amid concerns that current energy supplies may not keep up with demand,” wrote Fitch Ratings. “EPM is prioritizing the completion of its Ituango hydroelectric project. Key components of this initiative include sealing the right-hand tunnel of the obstructed Auxiliary Diversion System and the anticipated launch of units 5 to 8 by 2027, which are expected to contribute an additional 1,200 megawatts of capacity. Enel Colombia and Isagen are setting their sights on advancing renewable energy initiatives, encompassing both solar and wind projects. However, some of these projects have been experiencing notable setbacks due to environmental permitting issues and negotiations with local communities.”

Photo: Hidroituango hydroelectric dam. (Credit: EPM)