Uruguay: Energy Resources

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Access to electricity is very high: 98.7%, being above average coverage for countries with public electricity service. The Uruguayan and Argentine power grids have been interconnected for almost 20 years via a system of 500 kV lines. In January 1997, Uruguay and Brazil signed an agreement which allowed for the connection of their power grids.

Energy procedure

The Uruguayan Government, by means of UTE (the national vertical integrated electricity utility) and after two successful auctions for low-scale wind projects (total 50 MW awarded) promoted an auction in 2010 to acquire 150 MW of wind power expected to come online by 2014 through 20 year contracts. Contracts are signed between the winning generators and UTE and a full set of regulatory instruments were created by the Government allowing UTE to carry out such tender processes then pass the cost to consumers it serves. UTE received 950 MW of proposals from 22 projects of 15 companies for a 150 MW tender. The clearing rules of the auction were pretty complicated (for instance, projects with higher share of equipment components manufactured in the nation were favoured and a two-round auction system was implemented, in such a way that first participants bid without transmission costs and on the basis of the results they had to rebid with such costs after a reference network was planned by UTE).

Energy Efficiency GEF Grant (ongoing) The Energy efficiency project is partially financed by a USD 6.9 million grant. The development objective of this project is to increase the demand for and competitive supply of energy efficient goods and services, contributing to:

   improved efficiency of energy use;
   reduced reliance of the Uruguayan economy on imported electricity and fuels; and
   reduced emissions from the energy sector.

The Project’s global environmental objective is to promote energy efficiency through (i) building capacity and know-how among stakeholders; (ii) stimulation of consumer demand; and (iii) promotion of project development and investment financing. The project consists of three main components: Energy Efficiency Market Development (implemented by MIEM); Utility Based Energy Efficiency Services (implemented by UTE); and Project Management (implemented by MIEM and UTE). The project has supported the development of a regulatory framework in energy efficiency in the country as well as its inclusion in the public agenda.

At the centre of Uruguay’s future energy plan, wind lays as its most abundant natural resource. Uruguay’s strong wind currents make it a prime location for wind power generation, leading the Mujica administration to set a target of installing 500MW of wind power capacity by 2015. Earlier this year, Méndez commented that while the Government’s official target is to generate 15% of its power from wind and biomass sources by 2015, it may actually be able to generate 25 to 28%, almost double. The goal, Méndez said, was to “go as high as possible” in the production of RE, with Montevideo awarding contracts to energy technology companies to build large-scale wind farms. 

Uruguay has already awarded concessions for projects for one-third of the 500 MW that will have to be incorporated into the network by 2015. The winners were Spanish firm Teyma and Argentine companies Impsa and Fingano, which will each invest about US$100 million to build their wind parks in the departments of Tacuarembó and Maldonado. In the final agreements, signed in the second half of April, UTE committed to buy all the energy produced during 20 years at a cost of US$85 per MWhour.

Alongside its investment in wind power, Uruguay is also trying to increase the amount of energy generated by means of biomass. The nation’s agricultural sector produces a large quantity of agro-industrial waste, which the Mujica administration hopes to use to produce biofuel. In March 2010, Uruguay already had installed ten biomass power plants, and plans to have 200MW of installed biomass generation capacity by 2015. In conjunction with its hydroelectric generation, investment in these green, renewable energies will enable Uruguay to completely wean itself off foreign oil energy imports, a goal which Méndez hopes can be achieved by 2013.

Energy debates

As demand for electricity increases and the industrial sector continues to grow, Uruguay’s large-scale hydroelectric power projects do not appear to have the capacity to meet the needs of future Uruguayans. To address these challenges, Montevideo is creating an energy plan designed both to secure the future of energy generation up until 2030, and to replace hydrocarbons with renewable resources.

Nevertheless, the Government has recognized the challenges of the energy sector and has reaffirmed its commitment to

   establishing a new 500 MW interconnection with Brazil and upgrading the existing transmission and distribution systems;
   increasing energy efficiency; and
   creating a larger role for non-traditional RES (wind, biomass and small-scale hydro in particular) in Uruguay’s energy matrix.

Energy sources

Total installed electricity capacity (2011): 2,541.7 MW Hydro-electric: 60.5% Thermal: 34.1% Wind, biomass: ~5.4%.

Total primary energy supply (2007): 3,167 ktoe Oil and products: 59.2% Hydro-electricity: 21.9% Comb. Renew. and Waste: 16.4% Natural gas/coal/electricity: ~2.5%.

Regulatory roles

URSEA regulates operations in electricity, natural gas, oil products, water and sanitation. In addition to this, it advises the executive on concessions and market rules, and has functions of consumer protection.

Competition

About 56% of generation capacity belongs to and is operated by UTE, the state-owned utility. The remaining capacity corresponds to the Salto Grande hydroelectric power plant (945 MW), to cogeneration or to small IPP in non-conventional renewables. There are four private companies that generate electricity for their own consumption and sell their surplus to the grid: Botnia (biomass, 161 MW), Agroland (wind, 0.3 MW), Nuevo Manantial (wind, 10 MW) and Zenda (natural gas, 3.2 MW). The Azucarlito plant (5 MW) operates in the spot market.   Both transmission and distribution activities are fully under the control of UTE, as established by the 1997 law.  UTE also coordinates the integration and expansion of Uruguay’s electric sector. The Board consists of the Chairman and four Directors. Funding comes primarily from operational revenue.

Energy efficiency

Energy efficiency is becoming an increasingly important factor as a strategic element. Although Uruguay has relatively low energy intensity, there is significant potential energy savings to reach through new practices and investments in energy efficiency, which has been assessed higher than 30%.

Capacity concerns

Despite efforts to increase energy efficiency, demand has increased by over 4% per year since 2002. In addition, there have been repeated instances of drought (2006 and 2008 in particular), insufficient thermal back-up capacity, and difficulties in importing electricity from neighbouring countries. This has led to high supply costs and fiscal pressure as the Government sought to avoid passing on cost increases to end users. Supply challenges are compounded by weaknesses in several sections of the transmission and distribution network.

Government agencies

National Environmental Directorate (DINAMA)

The National Environmental Directorate (DINAMA) holds the responsibility for the environment in Uruguay. Responsibilities include the protection of wildlife and natural resources, as well as the promotion of sustainable energy use, as well as cleaner electricity production.

   Uruguayan Saving and Energy Efficiency Trust (FUDAEE)

The Energy Efficiency Law entrusted the Ministry of Economy and Finance (MEF) and MIEM the creation of the Uruguayan Saving and Energy Efficiency Trust (FUDAEE) with the aim to provide funding for technical assistance in energy efficiency, promote energy efficiency nationwide, finance energy efficiency projects implementation, promote research and development in energy efficiency and act as a contingency fund in crisis junctures of the energy sector. The FUDAEE is assigned by Law the following specific responsibilities:

   Managing Energy Efficiency Certificates transactions and ensure market transparency of those Energy Efficiency Certificates.
   Act as a guarantee fund for financing facility focused on energy efficiency projects.
   Finance research and development activities on energy efficiency.
   Provide funding for carrying out energy audits and studies in public and private sector.
   Manage grant funds and loans from international organizations or other sources that are intended to promote energy efficiency and greenhouse gases reductions in the energy sector.
   Funding awareness, education, promotion and dissemination campaigns on energy efficiency aimed at all energy users.
   Financing control and monitoring activities regarding energy efficiency labelling nationwide.
   Funding new facilities and equipment of national laboratories to ensure the necessary test capacities in order to promote and develop energy efficiency in the country.
   Funding the costs associated with the operation of FUDAEE, auditing and monitoring activities regarding Energy Efficiency Certificates released by the MIEM, and the planning, supervision, monitoring and training activities of the technical personnel of the UEE.
   Managing a contingency fund in contexts of power supply crisis; having as its main duty financing energy savings plans carried out by consumers and emergency operations in the energy market to ensure supply continuity.

Energy regulation role

No Government department has a role in electricity regulation in the country. MIEM has a controlling role in deciding energy policy in the country, as well as the promotion of private participation in the renewable energy sector, and the promotion of energy efficiency.

Ownership

The Administración Nacional de Usinas y Trasmisiones Eléctricas (UTE, www.ute.com.uy) is responsible for the generation, transmission, distribution and marketing of electricity in Uruguay. Current conditions of the regional electricity markets and security supply concerns have made it less urgent to disintegrate UTE in the short term. Current strategy of the GOU is to diversify power generation sources allowing UTE to become the main buyer in the wholesale market to provide incentives for private participation, particularly on renewable energy investment.

The Administración Nacional de Combustibles, Alcoholes y Portland (ANCAP, www.ancap.com.uy) is the state-owned oil company, being responsible for the production of petroleum products and their distribution.

Degree of independence

According to the law, URSEA is an independent regulatory body, with financial and legal autonomy from the Government.  It is constituted by a chair committee of three members, who are appointed for six years by the President after previous consultation to the Board of Ministers.

Energy debates

Mesa Solar Created in 2008, Mesa Solar is a multi-sector network for the promotion of solar energy. Its members include universities, public institutions, consultants, private companies. Mesa Solar aims at building up a viable solar thermal sector in Uruguay, creating measures for the promotion of the sector's development and coordinating efforts among its members. The network has already shown some noticeable results:

   Drafting the Solar Law (Law 18,585 of 18 September 2009). The law states the nation's interest in the research and development of solar thermal energy and requires all sport clubs, hotels and hospitals to use solar energy for water heating.
   The Government is launching measures, including  technical standards for energy-efficient solar collectors, training for industry technicians, as well as measures to disseminate information on solar energy among the population.
   Facilitating the foundation of a Solar Chamber of Uruguay that represents a group of importers, businessmen, manufacturers and consultants in solar energy. The first target for this Solar Chamber is drafting a National Solar Master Plan.
   Starting training courses in cooperation with universities in designing and planning solar systems for technicians.
   Encouraging the state energy utility, UTE, to pioneer the use of solar energy by equipping their swimming pools with solar thermal systems.

Energy framework

The Energy Strategy Guidelines for Uruguay was defined in 2006 by the Ministry of Industry, Energy and Mines (MIEM). This strategy includes:

   diversifying energy sources to reduce costs and emissions, as well as increase energy security;
   increasing private participation in new renewable power generation;
   increasing regional energy trade; 
   facilitating the availability and acquisition of energy efficient goods and services, including efforts to raise public awareness regarding demand-side management interventions.

Reliance

Uruguay is plagued by a lack of fossil fuel resources. As Uruguay’s Secretary of Energy Ramón Méndez explained to the Clean Energy Congress in March 2011, Uruguay has “no oil, no natural gas, no coal.” Imported oil makes up a majority of the remainder of Uruguayan energy, accounting for 27% of the country’s total imports in 2010, a costly endeavor when world oil prices are high. Thus, when there has been a shortfall in energy generation in Uruguay, it has been necessary to import not only oil, but also electricity from neighboring Argentina and Brazil.

This imported electricity is a vital source of energy for Uruguay when hydroelectric generation falls short of demand during periods of protracted drought. For example, following three consecutive unusually dry months in 2008, Uruguay suffered an energy crisis which led former President Tabaré Vázquez to implement a “National Plan to Save Energy” and to impose restrictions on the use of energy in homes. The lack of rainfall forced the Vázquez administration to compensate through an investment of over USD500 million in fossil fuel power generation. This incident clearly demonstrates the financial implications of drought and of insufficient hydroelectric energy generation on the Uruguayan state.

Role of the government

The Ministry of Industry, Energy and Mining (MIEM, www.miem.gub.uy), through its National Directorate of Energy and Nuclear Technology (DNTEN), is the principal authority in the sector.  Other agents include:

   URSEA, an agency within the executive branch, which regulates operations in electricity, natural gas, oil products, water and sanitation. ; and
   ADME is nominally the power system’s dispatcher and clearing house; however, UTE continues to operate the market and to dispatch the production facilities.
   The Planning and Budget Office (OPP) of the Executive Branch, exerts over public enterprises, including the energy sector ones, budgetary oversight on investment levels, tariffs and control of debt ratios.

Regulatory framework

Regarding solar energy, the Solar Law (law 18,585) approved in September 2009, besides granting tax incentives establishes that, in two years, construction permits of buildings for hospitals, hotels and sports clubs will only be authorized when they include equipments enabling  them to cover at least 50% of their energy consumption for water heating with solar energy.

The Biofuel Law 18,195, passed in 2007, and the related regulation issued in 2008, mandates for the domestic market that diesel be mixed with 2% of biodiesel during 2009-2011 and with 5% thereafter. Gasoline will have to be mixed with 5% of ethanol in 2015.  Following are other main points of the law:

   Regulates the production, commercialization and use of biofuels (ethanol, biodiesel and blends).
   The national oil company ANCAP will no longer have the monopoly of producing and exporting biofuels. Imports and domestic commercialization will continue to be exclusively in the hands of ANCAP.
   The allowance of small-scale production (4,000 litres/day) of biodiesel for self-consumption.
   Biofuel exports will now need previous authorization.
   The Government provides tax exemptions to biofuel investment and can waive some taxes on biofuels that are consumed.
   The law establishes product standards and quality.

In September 2009, the Energy Efficiency Law was finally enacted including important modifications provided by the Parliament commissions to the original draft presented in the previous year. Law No. 18,597 –“Promoting Energy Efficiency” finally establishes a proper legal and institutional framework for the country's energy sector and it is strictly necessary in order to break down barriers to energy efficiency and generate efficient mechanisms for promoting the efficient use of scarce energy resources.  The Law establishes four basic lines of action:

   Building of institutionalism needed to develop energy efficiency at nationwide and to establish medium and long-term energy efficiency strategy.
   Ensuring consumers an adequate access to information in order to promote decisions considering the efficient use of energy resources.
   Providing finance and economic incentives for energy efficiency projects.
   Removing tax and administrative barriers for energy efficiency.

Regulatory barriers

The barriers to the development of RE projects in the country are:

   Unconsolidated regulatory and institutional framework
   Power wholesale market model established by law is not applied
   Limited incentives for development of RE

These barriers increase the vulnerability to volatility of hydrology and prices of imported fuels.

Under the energy law, UTE’s share of Uruguay’s power generation market may lessen, as more private players enter the market.  However, after passing the modifications to the electricity law, secondary legislation was not forthcoming and the system continued to operate without any significant change. The new model was regulated in 2002 and it was expected that new operators would enter into a competitive market. The market did not develop as planned, and demand actually decreased due to the economic crisis in the region. For instance, natural gas provision, which could have supplied new power generating units, did not materialize. Although URSEA and ADME were established, they cannot fulfil most of the functions established in their mandate.

Energy regulator

Since 1997, Uruguay’s regulatory agency, Unidad Reguladora de la Energía Eléctrica (UREE), has overseen the country’s power market.  In December 2002, the Government bundled UREE into a larger agency, known as Unidad Reguladora de la Energía y Agua (URSEA). www.ursea.gub.uy

Renewable energy

Hydropower Between 2003 and 2007, 68% of Uruguay’s energy needs were met by hydroelectric dams on the Uruguay River. The largest of these impoundments, the Salto Grande, a facility shared with Argentina, has generated up to half of Uruguay’s electricity in the past. Apart from the bi-national Salto Grande, with a total capacity of 1,890 MW, existing plants are Terra (152 MW), Baygorria (108 MW), Constitucion (333 MW).   All the potential for large hydro in Uruguay has already been developed.

Solar energy Uruguay has good potential for solar energy, with an average horizontal irradiance of 5.2 kWh/m2/day. Statutes are in place to guarantee the use of solar water heating in any public building with over 20% of total energy demand from water heating. There are pilot projects, mainly for municipal lighting.

Wind energy In Uruguay, the wind resource is favourable, but its cost – estimated at US$45-50/MWh for large projects (50-100 MW) is still uncertain. As result, the estimated wind potential of 600 MW cannot yet be taken as feasible, from an economic standpoint.

The first wind farm in Uruguay, the 10 MW Nuevo Manantial project (in Rocha), which will sell the electricity generated to UTE, started operations in October 2008. In January 2009, UTE’s 10 MW wind farm in Sierra de los Caracoles (Maldonado Department) also started operations. According to the National Directorate for Energy and Nuclear Technology (DNETN), grid-connected wind power generation is one of the domestic resources with more potential in Uruguay for the medium and long term.

Biomass energy Rice husk, whose economic volume could generate up to 20 MW at competitive prices; firewood has already been used as a substitute for fuel oil in the 1980s, and cellulose projects expect to generate up to 65 MW for sales to the network.

Geothermal energy Whilst the geothermal potential of the Chaco-Paraná basin has been previously examined, no study has yet been conducted as to the potential for geothermal energy use in the country.