During the 1980’s and 1990’s, Uruguay depended mostly on hydropower to generate electricity. Hydro accounted by 94% of the electricity generated in 1990 for example. However, when the El Niño phenomenon brought droughts to the region, the diversification of the energy matrix became critical for Uruguay.
Government Initiatives Played a Major Role in Development
The government launched the national energy plan to diversify the energy matrix in 2005. Guidelines were established to develop the energy sector from 2005 through 2030. The government instituted an auction system for wind, solar, biomass, and small hydro plants. It also set up fiscal incentives to attract private investment. The goals were ratified with the Decree 354 on the Promotion of Renewable Energies, which also allocated funding to renewable energy projects.
The government initially focused its efforts on developing wind energy. The National Electricity Utility (UTE) devoted most of the auctions to wind energy. The first auction took place in 2006 and targeted 20MW of wind, 20MW of biomass, and 20MW of mini-hydro. UTE allowed projects of up to 10MW to participate and obtain 10-year power purchase agreements (PPAs). The second auction was in 2009 and UTE auctioned 150MW of wind, resulting in 20-year PPAs with three generators.
The third auction in 2011 saw UTE contract 192MW from generators. This auction also granted developers “carbon credits” from the Clean Development Mechanism (CDM). A fourth auction allowed unsuccessful bidders to contract PPAs at a fixed price of 63.5/MWh established from the third auction. In all, a total of 538MW being contracted.
Wind developers were given additional incentives such as additional PPAs, wind dispatch, and tax exemptions. After the fourth wind auction, the government allowed private wind generators to apply for 20-year PPAs at the same price from the preceding wind auction (USD 63.5/MWh). In addition, wind developers were granted with no operational restrictions and zero marginal costs (so wind generators would be always dispatched). Wind developers also benefited from tax exemptions. The exemptions are currently set at 60% through 2020, and 40% from 2021 through 2023.
Government Puts Rules in Place to Support Solar
In 2013, the government set the requirements for participation in the solar photovoltaic auction, and aimed to contract 200MW. Depending on capacity, solar farms were allocated within three different tranches: 500kW to 1MW, 1MW to 5MW, and 5MW to 50MW. The first two tranches consisted of 25-year PPAs, while the third used PPAs ranging between 20 and 30 years. Solar generators also received the same dispatch and tax exemption benefits as wind developers.
All of these efforts to diversify the energy matrix and reduce the dependence on fossil fuels have put Uruguay as one of the leading countries towards a decarbonized future. In roughly ten years, wind, solar and biofuels have risen to roughly 50% of the energy mix.
In 2018 Uruguay ranked second only to Denmark in wind and solar power market share. We expect this dramatic growth in Uruguay to continue over the next two to three years. Please contact Paola Moreno, Senior Consultant, for more information on how to capitalize on the energy auctions in Uruguay.