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 that total, 856MW were commissioned by the end of 2015.
The government of Uruguay established a 15% clean energy installed capacity target by 2015. As of the end of 2015, Uruguay had exceeded the target, with a total clean energy installed capacity of 34% including biomass, solar and wind plants. The country 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 through project- or technology-specific tenders, usually based on 20-year power purchase agreements.
Uruguay relies primarily on hydroelectric sources to meet its power needs. In 2015, 59% of the 13.3TWh generated in the country came from large hydro plants, while 18% came from biomass, 15% from wind and less than 1% from PV plants. The remaining 7% was supplied by plants burning oil and diesel.
From 2006 to 2012, UTE held six technology-specific renewables auctions, two for biomass plants and four for wind farms. The biomass auctions have not been successful, failing to contract new capacity. However, the wind tenders contracted all 1GW of capacity solicited.
The tenders offered a premium for projects that use local content equivalent to more than 40% of the value of the total project. This meant that Uruguay has attracted record levels of investment in the recent years. In 2015 alone, $1.1bn was invested in the country’s wind 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. In the coming years, wind investment activity should slow down, while solar projects will attract more funds.
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. Since January 2015, it has been mandatory in Uruguay to blend 5% biodiesel and ethanol with conventional diesel and gasoline. Biodiesel and ethanol producers are exempt from income tax on industrial and commercial activities for ten years.
Uruguay scored 2.29 in Climatescope 2016, a substantial increase on its 2015 tally of 1.69. The country climbed four places to rank 4th overall, and most notably, it took the number one spot globally on Enabling Framework Parameter I.
The country’s score on Parameter I was 2.55, up from 2.04 the year before. This world-beating total reflected the presence of policies such as tax incentives and auctions, as well as its supportive power sector structure.
On Clean Energy Investment and Climate Financing Parameter II, Uruguay took 3rd place with a score of 2.14. Slightly more than $1.3bn was invested in the sector in 2015, a similar amount to the two previous years.
The country scored 1.41 and was placed 31st on Low-Carbon Business & Clean Energy Value Chains Parameter III, its lowest position in 2016. Several project developers were present, but very little equipment manufacturing.
On Greenhouse Gas Management Activities Parameter IV, Uruguay was ranked 8th thanks to its considerable carbon-offsetting activities and policies, including a GHG emissions reduction target and Partnership for Market Readiness initiatives.
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