Incentives for renewable energy in reformed Latin-American electricity markets: the Colombian case Mo ´nica Marcela Zuluaga * , Isaac Dyner Instituto de Energı ´a, Universidad Nacional de Colombia, Colombia Received 6 September 2005; accepted 11 December 2005 Available online 19 May 2006 Abstract Given the importance of renewable energy sources for reducing the threat of global climatic change without compromising economic devel- opment, this paper explores regulatory alternatives that may facilitate the introduction of renewable energy in the Colombian electricity market. The analysis is based on a simulation model of the electricity market that represents the behaviour of the agents involved, and their decision to invest according to proposed incentives. The possible expansion of renewable energy depending on different incentives is examined. This research is carried out in the Latin-American context, and accordingly we present the exploitation potential of renewable sources for electricity generation in the region. This paper shows how restructuring electricity markets, such as the Colombian and others in Latin America, may be an efficient means to promote the use of renewable energy. Ó 2006 Elsevier Ltd. All rights reserved. Keywords: Renewable energy; Electricity markets; Simulation; Colombia 1. Introduction The world is going through one of the most important en- vironmental movements that has taken place in history. Since the early nineteen nineties global-level meetings have taken place to discuss such issues: the United Nations Conference on Climatic change, 1992; the Kyoto Convention, December 1997, that agreed on the ‘Kyoto Protocol’; and more recently the Johannesburg Conference [1]. As a consequence of these events, various initiatives have focused largely upon promot- ing the appropriate use of natural resources in order to help protect the environment and to reduce global emission of the so-called ‘greenhouse gases’ which cause climate change, while at the same time seeking to avoid major disturbances in the productive capacity of economical activities [2]. In this context, the generation of energy from renewable sources is beginning to gather strength throughout the world, motivating leaders to implement policies aimed at increasing the number of projects according to this line of thinking. Latin America is no stranger to this, and has already developed many projects for the production of electricity through renewable sources, though largely with the support of multilat- eral donor agencies. Nevertheless, existing projects are insuf- ficient and have often been the result efforts made by foreign organisations, rather than from the initiative of Latin-American governments. Problems arise when efforts are made to integrate rene- wable energy into energy policy in the poorer regions of the world, as this may create barriers to development, unless un- dertaken with care. That is why we seek to examine in this paper the role of renewable energy in the restructured markets of Latin America, the incentives that have been applied, and the opportunities that exist. In the final part of this paper we analyse, based on a simula- tion model for the Colombian case, the effect that a series of incentive schemes may have on new installed capacity of renewable sources. In other words, we aim to answer the ques- tion of how different incentive schemes may play an important * Corresponding author. E-mail address: mmzuluagr@yahoo.com (M.M. Zuluaga). 0959-6526/$ - see front matter Ó 2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.jclepro.2005.12.014 Journal of Cleaner Production 15 (2007) 153e162 www.elsevier.com/locate/jclepro