Uruguay: Renewable Energy

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What a few years ago seemed like a dream in a country with energy shortages, today is a reality. “In 2016, the electricity generation matrix was 96% renewable, with 63% hydro, 25% wind, 7% biomass and 1% photovoltaic. Only 4% of electricity generation was of fossil origin. ” Now, Uruguay exports its surplus energy, with on the spot modality.

Since 2005, Uruguay has started to promote the installation of energy production plants, based on renewable resources. Prior to this, it depended on the hydraulic matrix and sources derived from oil. The installation of biomass and wind power plants was promoted and encouraged.

Along with this, the use of energy efficiency was promoted. In just ten years it has achieved what many other countries dream of. It has become a world reference point, which has helped to convince the most sceptical. Other countries in the region have come to invest and promote renewable energy. A good example is Argentina, which is already well underway with the rounds of RenovAr 2016.

Uruguay: Achieves 96% in Renewable Energy

The international press has referred to this great achievement: the BBC published a report in March 2016, titled “How Uruguay managed to be the country with greater percentage of wind energy of Latin America,” in which La Nación of Buenos Aires has echoed, among others.

Uruguay approaches being the Leader in the Field of Wind Energy, Denmark produces 42% of its energy from wind. For its part, Uruguay this year is expected to reach 38% of energy from wind power sources. At the international level, the other countries with the highest percentages are Portugal, with 23%, Spain, 19%, and Germany, 15%.

Uruguayan has a very clear vision as to why a strong and diversified energetic matrix should be built: “As a consequence of climate change, rainfall patterns will change and dry seasons will become longer, more frequent and intense. Hence, depending on water energy is certainly a bet on energy insecurity.”

Sustainability of Energy as a Business

What at first sight seems a simple system has great complexities. The management of energy as a business has various modalities, such as a pre-sale system where a price per contract and a predetermined period have been fixed beforehand. Another modality is the spot system, regulated by supply and demand. In the case of Uruguay, both modalities are observed and are highly successful.

Regarding the financing of the construction of the plants, this is usually developed with financing from companies, bank loans and international organisations that provide funds and/or provide the insurance of reimbursement in case of non-payment of credit.

It requires expertise and willingness on the part of all the actors, that is to say, the governments that grant facilities to the investors, the investment companies that bear the risk for a project, and the international organisations that the support the initiatives of small countries that would otherwise would have difficulty in attracting investors.

In Uruguay, several factors were combined which helped the success of the great project to reconvert the energy matrix, in the first place, legal security. The country, although small, has a legal system that gives security for the foreign investor. A second consideration is the fact that there is legislation that favours the arrival of foreign investments, which grants up to 90% of tax exemptions for several years: a great incentive for permanent and solid investment, and which indirectly limits the presence of speculative capital.

As regards the resources that remain in the country: construction generates local jobs and requires local input. With the plants already in operation, the most labour-intensive are those that use biomass. The turbines and other technologies were purchased abroad.

Uruguay has an installed hydroelectric capacity of about 1500 MW. Its use is regulated to the extent that the wind resource is available, which allows better control of hydroelectric energy and uses it more efficiently when the rest of the matrix is not able to meet the demand.

Uruguay has a low population density and a high rate of electrification. As a result, a large number of networks in rural areas carry scarce energy, even when they require the same amount of investment in maintenance per kilometre as a transmission line that has high demand and is much more profitable. This explains why the prices that are paid per contract are between 15 to 20% higher than the average of the total cost of energy in the region.

For the Future

Uruguay plans to increase the use of electric power for transportation, especially in buses and taxis.

For a couple of years, the county has exported the surplus of its hydroelectric energy base. However, such energy depends on precipitation, and therefore cannot be secure.

Therefore, Uruguay has a plan to sell its surplus wind energy, which is expected to increase with the entry into service of new plants in 2017.

The strategic location of Uruguay allows it to contribute to both Argentina and Brazil. The depression that Brazil suffers has not brought the demand for energy as in Argentina, and in the northern part of the latter country there is a significant lack, especially in the seasons of greatest demand, winter and summer in the southern hemisphere, although Argentina expects to resolve its energy supply and transmission within a five-year period. In the meantime, Uruguay has a good business.

Another area in the portfolio for Uruguay is the development of solar energy, as a complement to wind energy. Eventually, as demand increases, or the regional market continues to require energy, bidding will be called for the development of non-conventional renewable energy plants, a way to reinforce the diversity of the matrix.

The thermal power plants, still in operation, will begin to go out of service, both because of their higher costs and because many of them are towards the end of their useful life.

In conclusion, Uruguay has invested heavily in its future. It is a country that has assured energy, with a good diversity of the energy matrix, and is prepared to continue growing – all a great success for the small country.

English Editor: Audrey van Ryn

Writer & Translator: Mª Verónica Brain

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and disposal.

www.gatewaytosouthamerica.com

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Post available in: English Español