One of South America’s smaller countries, Uruguay has become a dynamic wind market thanks to a set of reverse-auction mechanisms that have contracted 1GW of wind capacity so far. Of this total, 481MW were commissioned by the end of 2014. The government of Uruguay established a 15% clean energy installed capacity target by 2015. As of the end of 2014, Uruguay had achieved the target, with a total clean energy installed capacity of 24% including biomass, solar and wind plants. The country now aims to generate as much as 38% of its electricity needs from wind energy alone by 2017.
Uruguay’s electricity market is overseen by the Ministry of Industry, Energy and Mines and controlled by state-owned vertically integrated utility Administración Nacional de Usinas y Trasmisiones Eléctricas (UTE). UTE allows the participation of independent power producers (IPPs) through project- or technology-specific tenders, usually for 20-year power purchase agreements.
Uruguay relies primarily on hydroelectric sources to meet its power needs. In 2014, 82% of the 10.3TWh consumed in the country came from large hydro plants, while 13% came from other renewable sources (biomass, solar and wind). The remaining 5% was supplied by plants burning oil, diesel and natural gas.
From 2006 to 2012, UTE held six technology-specific renewable auctions, two for biomass plants and four for wind farms. The biomass auctions have not been successful, failing to contract new capacity due to lack of new available biomass resources. However, the wind tenders contracted all capacity solicited – 1GW. The tenders offered a premium for projects that reach a local content superior to 40% of the value of the total project. This meant that Uruguay attracted record-levels of investment in the past years. In 2014 alone, $1.2bn was invested in the country’s renewable energy sector.
In 2013, Uruguay launched a solar tender, aiming to contract around 206MW of photovoltaic utility-scale capacity to be delivered by 2015, divided into three ranges: less than 1MW, between 1MW and less than 5MW, and from 5MW to 50MW. As of November 2014, 16 PV projects, with a total capacity of 199MW, had been awarded contracts. Moving forward, wind investment activity should slow down, while solar projects will attract more funds in the coming years.
Other renewable energy incentives include VAT exemption for wind generation and income tax reduction for clean energy and energy efficiency projects. Retail consumers may apply to UTE’s net metering program and receive credits for clean energy generation delivered to the grid. In addition, Uruguay has set a 5% biodiesel and ethanol blend with conventional diesel and gasoline, respectively, to be achieved by end of 2015.
Score Summary
Uruguay ranked eighth in Climatescope 2015, two levels lower than in last year’s survey. Its overall score was 1.69.
Uruguay’s biggest improvement came on Enabling Framework Parameter I, where it registered gains in the Clean Energy Penetration Category. Those gains were offset by a retreat on Clean Energy Investment and Climate Financing Parameter II, in which the country failed to match its previous performance on the Growth Rate of Clean Energy Investments and Local Investments indicators.
Uruguay in 2015 was ranked first among all Climatescope countries on Enabling Framework Parameter I, with a 2.04. The country was ninth on Parameter I last year, with a 1.43 score.
Uruguay’s Parameter I gain was neutralized by its fall from first to ninth position on Clean Energy Investment and Climate Financing Parameter II. Its 2015 Parameter II score was 0.89 versus 2.03 last year.
On Low-Carbon Business & Clean Energy Value Chains Parameter III, Uruguay’s 2015 score of 1.41 elevated it to 29th place, a six-position improvement from last year. Its earlier Parameter III score was 1.16.
On Greenhouse Gas Management Activities Parameter IV, Uruguay’s 2015 metrics of seventh place at 2.64 were little changed from its 2014 metrics of eighth place at 2.65.