STUDY CASE: VIABILITY OF AN WIND FARM IN CABO DE LA VELA – LA GUAJIRA, COLOMBIA

USING RETSCREEN SOFTWARE

1. INTRODUCTION

This project consists in develop an analysis of viability of a wind farm in Cabo de la Vela – La
Guajira (Colombia). The Colombian hydraulic resources are the country’s main source of energy.
But this makes it possible for the country to be negatively affected by climate variation like “El
Niño y la Niña” or ENSO (El Niño Southern Oscillation) [1]. Which consists of a single climate
phenomenon, it has two phases that require certain changes in both the ocean and the
atmosphere [2]: El Niño, characterized by a warming of the ocean surface; and La Niña,
characterized by a cooling of the ocean surface. These alterations of the surface and subsurface
thermal structure of the ocean are connected with the weakening of the eastern trade winds,
corresponding to a variation of the atmospheric mass between the west and the east of the
equatorial pacific [3].

The devastating droughts and floods associated with ENSO occurrences are the consequence of
teleconnections between extreme fluctuations in sea surface temperatures in the tropical Pacific
basin and regional climates and have a huge socio-economic impact that is also strongly linked to
the vulnerability of populations and productive sectors [3].

Because of El Niño, the water level of reservoirs of hydroelectric power plants reduced
dramatically in 2016, leading the nation to a new energy crisis whose instant solutions consisted of
increasing tariffs, the introduction of old thermoelectric plants, allowing the connection of
cogeneration companies, the importation of electricity from Ecuador [4] and aggressive camping
of water and energy saving; public service companies offered incentives to those who added to
the reduction of consumption and penalties to those who increased it, all with the aim to avoiding
imminent rationing [5, 6]. This crisis made it clear that as the impacts of the ENSO also increase
the vulnerability in country’s energy matrix, which until that year was consisted of 70% hydraulic
energy, 29.3% thermal energy and only 0.68% non-conventional energy sources [7].

Colombia currently has the sixth cleanest energy matrix in the world, however, but owing to the
elevated hydraulic component (see Fig. 1), it also offers a strong exposure to hydro-climatological
risks and uncertainties [8]. That is why the government has set a goal to diversify the energy
matrix by encouraging the introduction of unconventional wind and photovoltaic solar energy
sources into the central network. According to the National Planning Department, the
diversification of the energy matrix will reduce costs associated with respiratory diseases in cities,
which in 2015 amounted to nearly $15.4 billion Colombian pesos [7], in turn will enable higher
competitiveness and resilience to climate variability [9].

Thus, in February 2019 a tendering of long-term energy purchase agreement was carried out
without success. However, the responsibilities for six wind energy projects for 1 160 MW situated
in the La Guajira department and two 238 MW solar energy projects situated in the Cesar

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department have been allocated [8, 10]. In addition, the energy cost was established between 40
and 60 $/MWh [11].

Fig. 1. Energy Sources in Colombia [1]

In Colombia wind energy can be an attractive technology because it is competitive, attracts foreign
direct investment, generates qualified employment, brings leading technology and is clean [11].
Although in Colombia there are only 50 MW of installed capacity corresponding to non-
conventional energy sources (solar, wind and biomass), the production of 500 MW of wind energy
per year has been estimated, which is 20% of the energy demand for next 10 years [11]. Mines and
Energy Minister, María Fernanda Suárez has informed that 10 percent of the energy matrix is
expected to be conformed by non-conventional energy sources in 2030 [9, 12].

Despite the government’s goal for increasing wind power production, until now there is only one
project called “Parque eólico Jepírachi” (Jepírachi wind farm) whose proprietor is EPM E.S.P
(Empresas Públicas de Medellín). This project is considered as pilot enabling the transfer of
technology, training and expertise for future wind projects at the country [13].

Jepírachi wind farm is located at northeastern region of Colombian Atlantic coast between Cabo
de la Vela and Puerto Bolivar, this area belongs to a Wayuu indigenous refuge. Has 19.5 MW of a
nominal power capacity and 15 wind turbines (Nordex N60/250, 60 m of diameter and 60 m of
height) of 1.3 MW each. In this peninsula, the trade winds blow with an average wind speed of 9.8
m/s almost all year. The turbines are spread in two lines of eight and seven, respectively. The wind
farm began operating on 19th April 2004 and had an investment of 28 million dollars [14].

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 Fig. 2. Location Wind Farm “Jepírachi” [15]

It has a substation that transforms and stabilizes the energy and can be transmitted in high tension
lines. All “Jepírachi” energy is dispatched to all country through the National Interconnected
System (SIN by its Spanish acronym) as stablished by Colombian law [16]. The national electricity
network was fed with approx. 120 GWh during the first two years of operation [13].

Keeping in mind the past one, the objective of this project is to study the financial viability of
expanding the Jepírachi wind farm capacity to 195 MW using the same sort of turbine used by
EPM E.S.P., that capacity corresponds to one of the six projects auctioned at the beginning of the
year.

The document is organized according to RETScreen software: location, energy model, cost
analysis, emission analysis, finance, sensitivity and risk analysis and conclusions. In location is all
the information about the place of the project and the climate data location, in addition to an
assessment of the wind resource. The resources requirements, the type and amount of wind
turbines, the losses, initial cost and the energy export rate were established in energy model. The
costs analysis summarizes all the expenses and assumptions taken for the calculation. Previously
permitted to achieve the assessment of emission using the real energy matrix as baseline.
Transmission and distribution losses and the revenues for carbon market were included. Finally,
the finance, sensitivity and risk were elaborated by determining IRR (Internal Rate of Return), Net
Present Value (NPV), payback and cash flows projects. The sensitivity analysis identifies
parameters that allow the viability of a project, and the risk analysis enables to understand which
parameter has a positive and negative effect on the NPV and the energy production cost.

2. LOCATION AND EVALUATION OF THE WIND RESOURCE

The place of the project is the same as the Jepírachi wind farm (see Fig. 2) which RETScreen
catalogs as an extremely hot and dry climate zone (see Table 1).

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 Table 1. Climate Data Location [17]
VARIABLE Unit
Latitude 11.4
Longitude -72.2
Climate zone Extremely hot – dry
Elevation 137 m
Heating design temperature 20.7 °C
Cooling design temperature 30.5 °C
Earth temperature amplitude 9.5 °C

One of the most significant variables to be regarded in the wind energy projects is the wind speed,
winds with velocities equals or above 5 m/s proportionate an excellent alternative for the use of
this natural resource for energy generation [18]. The characterization of the resource is therefore
essential.

In Colombia the information is not enough because there are not enough meteorological stations
that involve using wind atlas or data from “near” measurements stations. The wind resource data
in this specific situation was from:

• Colombia Wind Atlas [18]: it was built by Institute of Hydrology, Meteorology and
Environmental Studies (IDEAM by its Spanish acronym) and the Energy Mining Planning Unit
(UPME by its Spanish initials). With this atlas, the average wind speed at 10 m of was evaluated
(see Fig. 3). Velocities between 0 and 2.5 m/s are represented by blue tones, velocities from 2.5
to 6 m/s are green tones and yellow – red colors are displayed for higher velocities between 6
and 10 m/s.

Fig. 3. Average Wind Speed at 10 meters high [18]

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 Fig. 3 shows three zones with potential wind energy: 1) the islands of San Andres, Providencia
and Santa Catalina, 2) the Atlantic coast including the departments of La Guajira, Magdalena
and Atlántico, and 3) the mountainous zone of Cauca and Nariño departments. Nevertheless, it
is important to note that La Guajira has the greater regimen of trade winds throughout the
year, with velocities above 5 m/s sometimes reaching 11 m/s, particularly in July. If all the
Caribbean coast is added, the power potential will rise to an installed potential capacity of 20
GW which, if properly exploited, can be used for replace a part of natural gas used to generate
electricity [13].

• Global Wind Atlas [19]: this is a web-based application to help identify potential high-wind
areas for wind power generation nearly anywhere in the world, and perform preliminary
calculations. The average wind speed at 50 meters was obtained with this atlas, which is the
hub height of the wind turbines (see Fig. 4). The velocity is about 8.66 m/s and it will be used in
RETScreen software for assessment.

Fig. 4. Average Wind Speed at 50 meters high [19]

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• Climate data location: RETScreen [17] includes several data from meteorological stations
around the globe which that enable the evaluation of wind resources at a specific site. In this
case, the information is from a station situated at 96 km from the research site (see Fig. 5),
which means that the data is unreliable, that’s the reason for using the wind atlas.

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 Fig. 5. Distance between facility location and climate data location [17]

Table 2 contains the information from the meteorological station, the datasets were estimated
at 10 meters height.

Table 2. Climate Data Information [17]

Month Air Temperature (°C) Relative humidity (%) Wind Speed (m/s)
January 26.1 69.8% 3.9
February 26.4 66.9% 4.2
March 27.1 65.1% 4.3
April 27.8 67.5% 4.0
May 27.9 72.7% 3.6
June 28.0 72.8% 3.9
July 28.1 71.0% 4.0
August 28.2 72.4% 3.4
September 27.6 77.2% 2.6
October 27.0 80.7% 2.4
November 26.7 79.3% 2.9
December 26.3 74.2% 3.6
Annual 27.3 72.5% 3.6

3. ENERGY MODEL

The
Table 3 summarizes the resource assessment, with all the assumptions and corrections linked to
the location’s average wind speed. And Table 4 contains all the information about the wind
turbines that are Nordex N60 – 60m, in this case the shape factor indicates the prevalence of high
and constant winds.

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8
 Table 3. Resource Assessment [17]
Resource method Wind Speed
Wind speed – annual 8.66 m/s
Measured at 50 m
Wind shear exponent 0.22 1
Air temperature – annual 27.271 °C
Atmospheric pressure – 99.4888
annual kPa

Table 4. Wind Turbine [17]

Manufacturer Nordex
Model NORDEX N60 –
60m
Capacity per unit 1.3 MW
Number of units 150
Capacity 195 MW
Hub height 60 m
Rotor diameter per 60 m
turbine
Swept area per turbine 2 827.43 m2
Shape factor 3.522
Capacity factor 31.8%

1
[18] J. F. S. C. Ruiz Murcia, Julieta; Zapata Lesmes,
Henry Josué, I. N. d. Colombia, Ed. Atlas de Viento en
Colombia. SI3EA - Sistema de Información de Eficiencia
Energética y Energías Alternativas: IDEAM; UPME (in Spanish),
2017, p. 158. page 48, wind shear calculated from
observations of the IDEAM.
2
[18] ibid. page 47, table 2.3. shape factor parameter
obtained from model CFSR – WRF at 80 m height in July 2012.

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Thanks to the information provided by NORDEX [20], Fig. 6 displays the energy and power curves
using the shape factor from Table 4. Some of the important characteristics of this turbine model
are: the blade tips are pivotable and can be swiveled 85° relative to the main blade, acting as the
primary aerodynamic brake, the secondary brake is mechanical and consists in a disc brake. Two
wind vanes continually monitor the direction of wind at hub height, when the direction of wind
changes the nacelle is yawed actively through a ball bearing [20].

Fig. 6. Power and Energy curves [17]

Another significant aspect is system losses (see Table 5). RETScreen enables to the user enter the
information. According to RETScreen [17], the array losses are caused by the interaction of
multiple wind turbines with each other through their wakes. Array losses are relying on the
turbine spacing, orientation, site characteristics and topography. For a well-designed cluster
between 8 and 10 turbines, array losses should remain below 5%.

Airfoil losses are caused by soiling the blades from things as bugs and/or ice build-up. In this case,
the icing it’s not considering because the project is in an extremely hot and dry climate zone, but
the percentage assumed was defined considering the among of sand, salt and insects that can
found in the project site. Typical values range from 1 to 10%.

The miscellaneous losses include losses of energy production from stars and stops, off-yaw
operation, high winds and cut-outs from wind gusts, parasitic power requirements and any
transmission line losses from the wind project site to the point where the project connects to the
local distribution grid. Typical values range from 2 to 6%. In this situation, because of the big
distances for the transmission lines, it was described as the largest value.

Due to extreme location conditions and considering maintenance and possible wind turbine
failures, a proportion of 93% was established for the availability losses.

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 Table 5. Losses [17]
Array losses 2%
Airfoil losses 2%
Miscellaneous losses 6%
Availability 93%

The initial costs (equipment and installation costs) for the proposed case were assumed using the
RETScreen Cost Database which estimates a cost of 2 100 $/kW for projects of 100 MW and 1 900
$/kW for projects of 1 000 MW. As well as, with the growth of power capacity, the initial costs
tend to reduce, therefore the initial costs were presumed to be 2 000 $/kW.

4. COST ANALYSIS

For the cost analysis the electricity export rate was 60 USD $/MWh [11]. The initial costs
associated to feasibility study, development and engineering were assumed using another study
case available at RETScreen.

Table 6. Summary of initial cost and electricity export revenue [17]

Initial costs $ 390 000 000
O&M costs (savings) $ 12 480 000
Electricity export rate 60 $/MWh
Electricity exported to grid 542 381
Electricity export revenue $ 32 542 835

For “Jepírachi” wind farm, the installation of the machines as well as maintenance and technical
operation for one year was for approx. 19 USD million. During this period, Nordex managed the
training of EPM engineers [21]. Taking the above into consideration, for this analysis a cost for the
turbines of 1 200 $/kW was estimated.

For the road construction, this cost was presumed to be thought in the maintenance of the
existing roads, hence the price is comparatively small. Approximately 9 km of roads have been
paved for “Jepírachi” Project [22].

According to “Anexo 2 – Circular 036 del 2006” from Energy and Gas Regulation Commission
(CREG by its Spanish initials) [23], the technical components for transmission line per km are
approximately $ 1 116 404 and the technical components for substations are approximately $ 2
480 718. Using Google Maps, an estimated 132 km of transmission lines and one substation will
compensate the actual network.

For balance of systems and miscellaneous, the cost assigned to spare parts is described as a
percentage of the total system costs. As RETScreen suggests, an inventory of spare components
representing at most 3% of the complete price of the system should be sufficient for big projects
operating under normal conditions. The transportation cost was assumed taking into

11
consideration that all the turbines had to be imported from Germany. Table 7 presents the
summary of all costs used for the project feasibility analysis.

Table 7. Summary of Cost Analysis

Costs Unit Quantity Unit Cost Amount
Feasibility Study Cost 1 $ 3 000 $ 3 000
Development Cost 1 $ 3 000 $ 3 000
Engineering Cost 1 $ 3 500 $ 3 500
Power System
Turbines kW 195 000 $ 1 200 $ 234 000 000
Road km 9 $ 5 000 $ 45 000
construction
Transmission line km 132 $ 1 116 404 $ 147 365 328
Substation Project 1 $ 2 480 718 $ 2 480 718
Power System Subtotal $ 383 891 046
Balance of system and miscellaneous
Spare parts % 3.0 % $ 234 000 000 $ 7 020 000
Transportation Project 1 $ 6 000 000 $ 6 000 000
Contingencies % 10.0 % $ 396 920 546 $ 39 692 055
Interest during 15 % 12 months $ 436 612 601 $ 32 745 945
construction
Balance of system and miscellaneous Subtotal $ 85 458 000
Total initial costs $ 469 358 546
O&M $ 12 480 000 $ 12 480 000
Contingencies % 10.0 % $12 480 000 $ 1 248 000
Annual Costs Subtotal $ 13 728 000

5. EMISSION ANALYSIS

For the analysis of Green House Gases (GHG), the baseline was defined using the real energy
matrix (see Fig. 1). The summary of the emission factor can be noted in Table 8. Transmission and
distribution losses (T&D) were configurated in accordance with International Energy Agency [24]
which reports that in Colombia these losses are roughly 11%.

Table 8. Base Case Electricity Analysis [17]

CO2 CH4 N2O GHG
Electricity
Fuel emission emission emission T&D Emission
Fuel Type generation
Mix factor factor factor Losses factor
efficiency
kg/GJ kg/GJ kg/GJ tCO2/MWh
Diesel 30.3% 70.2 0.0035 0.0104 28.4% 1.042
Hydro 68.4% 0 0 0 100.0% 0
Biomass 1.1% 0 0.0299 0.0037 23.3% 11 % 0.032
Solar 0.1% 0 0 0 100.0% 0
Wind 0.1% 0 0 0 100.0% 0

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 CO2 CH4 N2O GHG
Electricity
Fuel emission emission emission T&D Emission
Fuel Type generation
Mix factor factor factor Losses factor
efficiency
kg/GJ kg/GJ kg/GJ tCO2/MWh
Electricity
100.0% 84.3 0.0058 0.0127 0.316
mix

Table 9 summarizes the comparison of GHG emissions between the evaluated cases. And Fig. 7
shows that the gross annual GHG emission decrease in approximately 89%.

Table 9. Comparison of GHG Emission Between Baseline and Proposed Cased [17]
CO2 CH4 N2O GHG
Fuel GHG
Fuel emission emission emission Emission
Fuel Type Consumption Emission
Mix factor factor factor factor
MWh tCO2
kg/GJ kg/GJ kg/GJ tCO2/MWh
Baseline 100% 84.3 0.0058 0.0127 542 381 171 505.7
0.316
Proposed 100% 0 0 0 59 662 18 865.6
Gross annual GHG emission reduction 152 640.1

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 Fig. 7. Gross annual GHG Emission Reduction [17]

At international level there are incentives such as carbon markets, however, they are inexistent in
Colombia. But, the Minister of Environment and Sustainable Development has created the
“National Carbon Tax” (Ley 1819 de 2016 [25] y Decreto 926 de 2017 [26]) which consists of the
payment of 5.17 $/tCO2 and it is related to the amount of carbon emitted to the atmosphere as a
result of the combustion of fossil fuels [27, 28]. Under the legislation, wind energy projects are not
obligated to pay this tax, but this can be used as an analogy for a Certificate of Emission Reduction
and to calculate “GHG Reduction Revenue”.

The carbon tax was used as “GHG reduction credit rate”, the period stipulated was 21 years and
must be validated every 10 years, and the escalation ratio is equivalent to inflation rate [27].
According to the Banco de la República [29] the inflation ratio average value corresponding to the
present year (January – June 2019) is 3.24%.

Defining the transaction fee is also essential for the GHG reduction revenue (see Table 10). Under
the Clean Development Mechanism (CDM), this fee is described as a percentage of the Certified
Emission Reductions units (CREs) generated to be paid into an Adaptation Fund to help particularly
vulnerable developing countries adapt to climate change [17]. In this case, the project is situated
in a developing country, so there is an exception for these fees in order to promote the equitable
distributions of projects.

Table 10. GHG Reduction Revenue [17]

Gross annual GHG GHG Credits Net annual GHG emission GHG Reduction
emission reduction tCO2 Transaction Fees reduction tCO2 Revenue
152 640.1 0% 152 640.1 $ 789 149

6. FINANCIAL, SENSITIVITY AND RISK ANALYSIS

The government have some incentives for such initiatives, they are enlisted in the law “Ley 1715
de 2014 [30]”. In order to make an assessment as realistic as possible, the incentives used are
summarized below [31]:

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a. Reduction of the investment costs: Value Added Tax exclusion (IVA), this tax is 19% on the
initial investment, and exemption on the import duty (about 10% of the imported equipment).
b. Accelerated depreciation: the normal depreciation for equipment established by Colombian
law is 10 years, in this case the incentive involves a 5-years depreciation. This incentive rises
the financial losses in the first year that enables tax payment to be reduced or even an
exempted.
c. As has been said before, the losses can be used for reduce taxes, not only in the first year. The
losses can be accumulated in the following years and be distributed in all the consecutive fiscal
years without time constraints, this is only applicable for corporate funding. With the Project
financing, in the years with losses, there is no tax payment. Finally, this incentive has the effect
of anticipating which year the company begins to pay taxes.
d. Reliability charge: it is a remuneration scheme that allows investment in the electricity
generation projects in order to efficiently ensure energy demand attention in critical supply
circumstances through long-term signaling (12 years) and the generator revenue stabilization
[32]. This charge is being auctioned for the reconfiguration of revenues and the entry of non-
conventional renewable energy into the national network, however the present price is 15.59
$/MWh [33].

Table 11 summarize the incentives applied for the study case the superscript indicates the letter of
the incentive described before.

Table 11. Financial parameters

General
Inflation rate [29] 3.24 %
Discount rate 6%
Reinvestment rate 6%
Project life 25 years
Finance
Incentive and grands a $ 127 567 229
Debt ratio [31] 65 %
Debt $ 305 083 055
Equity $ 164 275 491
Debt interest rate [31] 11.4 %
Debt term [31] 10 years
Debt Payments 52 675 501 $/yr.
Income tax analysis
Effective income tax rate [34] 71.6 %
Loss carryforward c Yes
Depreciation method Straight-line3
Depreciation tax basis 4 81.8 %
Depreciation period b 5 years

3
The capitalized cost of the project is depreciated with a constant rate over the depreciation period.
4
[17] RETScreen Expert - Professional. (1997 - 2019). Correspond to the power system percentage of the
total initial costs in order to depreciate only the engineering, energy system, balance of system and
miscellaneous costs while the feasibility and development cost would be fully expensed during year 0

15
 Tax holiday available? No

The annual revenues are summarized in Table 12. And the Table 13 summarize the net yearly cash
flow for Year 1, as it can be observed there is a loss of approximately 26 million dollars.

Table 12. Annual Revenue [17]

Electricity export revenue
Electricity exported to grid 542 381 MWh
Electricity exported rate 60 $/MWh
Electricity export revenue $ 32 542 835
Electricity export escalation rate [29] 3.24 %
GHG reduction revenue
Net GHG reduction 152 640 tCO2/yr.
Net GHG reduction – 25 yrs. 3 816 003 tCO2
GHG reduction revenue [27] 5.17 $/ tCO2
Net GHG reduction – 21 yrs. 3 205 442 tCO2
GHG reduction credit scalation rate [29] 3.24 %
Clean Energy (CE) production revenue
CE production 542 381 MWh
CE production credit rate d 15.59 $/MWh
CE production revenue $ 8 455 713
CE production credit duration d 12 years
CE production credit escalation rate [29] 3.24 %

Table 13. Yearly cash flows – Year 1 [17]

Annual costs and debt payments
O&M $ 13 728 000
Debt payments – 12 yrs. $ 52 675 501
Total annual costs $ 66 403 501
Annual savings and revenue
Electricity export revenue $ 32 542 835
GHG reduction revenue – 21 yrs. $ 789 149
CE production revenue – 12 yrs. $ 8 455 713
Total annual savings and revenue $ 41 787 697
Net yearly cash flow – Year 1 $ -26 615 804

Finally, the financial viability is presented in Table 14. The analysis was based on the Internal Rate
of Return (IRR), if the internal rate of return is equivalent to or higher than investor’s required rate
of return (6% for this case), then the project is likely be deemed financially acceptable. If it is less
than the required rated of return, the project will typically be dismissed.

Table 14. Financial viability [17]

Parameter Value
Pre-tax IRR – equity 6.6 %
Pre-tax MIRR – equity 6.3 %

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 Parameter Value
Pre-tax IRR – assets 0.14 %
Pre-tax MIRR – assets 2.2 %
After-tax IRR – equity 2.5 %
After -tax MIRR – equity 4.3 %
After -tax IRR – assets -2.6 %
After -tax MIRR – assets 1.1 %
Simple payback 12.2 yr.
Equity playback 17.6 yr.
Net Present Value (NPV) $ -71 236 139
Annual life cycle savings $/yr. -5 572 569
Benefit – Cost (B-C) ratio 0.57
Debt service coverage 0.55
GHG reduction cost 36.51 $/tCO2
Energy production cost 116 $/MWh

As it can be seen, the IRR before taxes was 6.6% which is greater than the investor’s required rate
of return meaning an acceptation of the project, but after taxes this IRR decrease considerately
until 2.5%, causing the project to be rejected, this proof the necessity of obtain a taxes reduction.

The payback is referred as a measure of time that indicates how many years are required to
recover the investment [17]. This indicator was favorable, but it is still a long time that may result
unattractive for the investor.

Another significant indicator is the project’s Net Present Value (NPV), which is the value of all
future cash flows, discounted at the discount rate, in today’s currency. Under the NPV method,
the present value of all cash inflows is likened to the present value of all money outflows
connected with an investment project [17]. Positive NPV values are an indicator of a possibly
viable project, while a negative NPV values indicates that the investment would result in losses
below the expected return hence the project should be dismissed. In this case, the NPV obtained is
negative which again implies that the project should be rejected.

Fig. 8. Yearly Cash Flows [17]

Fig. 9. Cumulative Cash Flows [17]

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Fig. 8 shows the annual cash flow, beneficial cash flows beginning at 12 year. For the cumulative
money flows, Fig. 9 shows a favorable conduct that corresponds to equity payback until the 18th
year is achieved.

The sensitivity analysis was performed on Pre-tax IRR – equity, the sensitivity range was 30% and
the threshold was 6% and corresponds to a value under which the suggested project is not
financially viable. The chosen factors were initial costs vs. electricity export rate, initial costs vs.
debt ratio and initial costs vs. CE production credit rate. In the Fig. 10 the orange cells indicate an
unfeasible project. As the real assessment indicates an unviable project, this sensitivity analysis
enables checking when the project can be feasible.

Fig. 10 shows the results of sensitivity analysis, in this case all the assessed factors achieve feasible
outcomes when the initial costs are reduced between 15% and 30%. Nevertheless, in order to
obtain an attractive project for the investors, it is essential to increase both the electricity export
rate and the CE production credit rate and, reduce the debt ratio.

Fig. 10. Sensitivity analysis [17]

The risk analysis was performed on Net Present Value (NPV) and energy production cost. For the
first one, Fig. 11 show that the most important impact on the variability of NPV is associated to
initial costs, operation and maintenance (O&M) and the debt interest rate; which indicates a
negative relationship between these parameters, i.e. it is necessary decrease this variables in
order to increase the NPV. And a positive relationship was observed for electricity exported to grid
and the electricity export rate with the financial indicator, i.e. if these parameters increase, the
NPV increase.
Regarding the second one, in Fig. 12 an adverse relationship can be observed between the energy
production cost and the electricity exported to grid, which means electricity exported to grid must

18
be increased in order to reduce the production cost. And a beneficial relation between O&M, debt
interest rate and debt ratio, i.e. reduce these variables allows decrease the energy production
cost.

Fig. 11. Risk analysis for Net Present Value (NPV) [17]

Fig. 12. Risk analysis for Energy production cost (NPV) [17]

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7. CONCLUSIONS AND RECOMMENDATIONS.

The increase in the initial cost is mainly due to the low-energy transmission infrastructure in La
Guajira, this region of the country would require an approximate cost of 700 million dollars for its
effective connection with the national energy network [13]. As can be concluded from this project,
the project is inviable if the investor has to pay for the transmission lines. Therefore, it is essential
that the government assumes a percentage of the financial responsibility with this significant
impediment, in order to magnify the possibility of implementing wind energy projects in the
country.

The T&D losses involves that the project had GHG emissions, so it is important to controlling and
monitoring this aspect in order to reduce it or prevent its increase.

The project is financially unfeasible. But nevertheless, there are still some ways to improve it. One
of them is increasing the electricity export rate, but taking into consideration that the weighted
average electricity cost of new onshore wind farms in 2016 was between $50 and $120 per MWh
depending on the region, but costs can be as low as $30 per MWh for the most competitive
projects without financial support [35]. Moreover, this value tends to get lower, for instance, in
2017 the price in Alberta (Canada) was $37 per MWh [36], and in 2018 the worldwide average
value was $55 per MWh [37].

Another way to improve the project is to decrease taxes, which are really high for the country
compared with other countries [34]. As can be observed, the IRR decreases by nearly 60% after
payment. However, one of the incentives considers exemption from payment while the project
has a negative performance, but access to this benefit is tedious, delayed, and there is no a
specific procedure to access to it [31].

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Other way is for Colombia to join the carbon Emission Trading this will increase the revenue
represented in the elimination of GHG. For instance, in Quebec the cost is about $15.77 per tCO2
[27], which is about 60% higher than the value used for this analysis. This will help to obtain a
favorable NPV.

This study permitted to identify the government incentives for non-conventional energy projects
in Colombia, but these are relatively news and need a stronger framework. Which could be why
there are not enough non-conventional energy projects implemented in the country. Finally, it is
essential for the government to evaluate better alternatives for the growth of energy projects that
enable the investor have IRR favorable (more than 10%) and in turn the payback of the initial
investment be reduced.

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