Colombia to Strengthen Energy Security and the Financial Sustainability of Its Power Sector with IDB Support

WASHINGTON — The Board of Executive Directors of the Inter-American Development Bank (IDB) approved a $450 million Programmatic Policy-Based Loan (PBP) to help strengthen energy security and the financial sustainability of Colombia’s power sector.

The operation will encourage private investment in power generation and transmission, improve the execution of public resources aimed at expanding access to electricity in rural areas, promote the sector’s financial sustainability, and help reduce the fiscal deficit associated with subsidies. It will also contribute to the objectives of the IDB’s South Connection regional program by promoting greater integration of South America’s electricity markets.

The program sets the conditions for adding 24 GW of capacity to the system and will benefit approximately 17 million users of Colombia’s National Interconnected System by helping bring new supply online to close the projected deficit and strengthen energy security.

Approximately 1.3 million households that currently lack access to electricity will benefit from the gradual expansion of coverage. Private investors, developers, and financiers will have access to market mechanisms that facilitate investment in generation, transmission, and storage.

On the fiscal front, the government will benefit from reduced transfers for subsidies.

The program will drive a profound transformation of Colombia’s electricity market through a set of reforms and actions that include:

• Long-term contracting auctions to finance generation and storage.
• Regulations enabling the use of batteries.
• Release of blocked grid connection capacity.
• New power transmission works in the Caribbean region.
• Regional integration with the Andean countries and Panama.
• Creation of the Single Fund for Energy Solutions (FONENERGÍA) for rural electrification, which will unify and coordinate previously fragmented funding sources.
• Replacement of consumption subsidies with distributed self-generation.

The $450 million loan has a 20-year repayment term, a five-and-a-half-year grace period, and an interest rate based on SOFR.