International perspectives

Uruguay: Revolution Rather than Energy Transition?

In less than a decade, Uruguayan citizens have been privileged witnesses of a fast change, a true revolution, in the energy sector, and they are beginning to perceive its results.

By Wilson Sierra, Universidad de la República, Montevideo, Uruguay May 2016

Uruguay is one of the smallest countries of South America, with nearly 3.5 million inhabitants. The country has a good record in democracy, human development and equity, as well as an inclusive agenda on human rights. From the energy point of view, Uruguay lacks gas, oil, and coal reserves, but is rich in domestic natural resources suitable for a clean energy transition.

Political shift and energy policy – how Uruguay has pushed its energy transition forward

The beginnings of a true energy revolution were set into motion over a decade ago. The presidential and political shift in 2005 sparked a review of the prevailing energy paradigm – the new government envisioned energy as a strategic asset to be leveraged in government planning, rather than an asset confined to the market alone.

With a revised approach to energy, the government approved a national energy policy in 2008 (“Energy Policy Uruguay 2005-2030”). This policy included a long-term perspective and also incorporated the social, ethical and cultural implications in addition to the classic technical-economic analysis of the energy issue.

The Energy Policy Uruguay represents a strong commitment to renewable energy sources and energy efficiency and considers access to energy as a human right. In 2010, it received a unified endorsement from all political parties with parliamentary representation.

The goals of the Energy Policy Uruguay were structured to address four areas: institutional, energy supply, energy demand, and social aspects. Overall, the policy aims to achieve energy sovereignty, reduce costs, activate national industry, and reduce dependence on oil.

The “Energy Policy Uruguay 2030” established strategic guidelines which included goals for the short (by 2015), medium (by 2020) and long term (by 2030), as well as courses of action to reach such goals. Detailed below are the short-term goals and the proposed courses of action regarding renewable energy:

By 2015, native renewable energy sources are to comprise 50% of the total primary energy matrix.

  • Electrical energy: The integration of non-traditional renewable sources to account for at least 25% of the power generation, particularly:
    • Wind Energy: 1,000 MW installed by 2015
    • Biomass: 200 MW installed by 2015
  • Bioethanol: Mandatory minimum of 5% of total blend with gasoline, by January 1st, 2015
  • Biodiesel: Mandatory minimum of 5% of total blend with diesel, by January 1st, 2015
  • Solar thermal: Introduction of this technology by residential, industrial, commercial and service sectors
  • Small hydro plants (SHP): Incorporation of small hydropower installations to irrigation dams

Results of the energy transition

In an analysis of Uruguayan global primary energy mix from 2000 to 2005 (the baseline scenario), it is possible to identify at least three weaknesses: minimal diversification (only 4 energy sources in the mix), high dependence on fossil fuels and imported energy sources (representing almost 65% of the total mix), and a significant climate vulnerability. Over this time period, the share of renewable energy was limited to hydropower and biomass thermal energy (wood) for industry and residential sectors.

By the end of 2015, Uruguay had been able to turn its energy transition into the following successes:

  • Growth in the share of renewable energy – Renewable energy made up more than 93% of Uruguay’s electricity generation. Renewables reached a share of 57% of the total primary energy supply. Uruguay reached four times the global average in its share of renewable energy (both in the overall energy and the electricity mix). The growth in wind power (exceeding a 37% share in the electric mix) situated the electric system on the frontiers of technology with regard to the management of intermittent sources.
  • From energy importer to exporter – Regionally, the role of Uruguay has shifted from being an energy importer (34% of electricity demand in 2006 was supplied by neighboring countries) to a net energy exporter (10% of electricity generated locally in 2015 was exported).
  • Reduction in greenhouse gas emissions – By 2017 Uruguay will achieve an absolute greenhouse gas emissions reduction of 84% within this subsector compared to the annual average for the period 2005-2009 (with a higher consumption). By 2017, emissions from the domestic power generation system will be 17 g CO2/kWh, which is 3% of the global average.
  • Economic benefits – Renewables have led to a 44% reduction in the cost of supplying electricity. This transition has also created new jobs. In 2015, the level of employment in the renewable sector (11,050 jobs, not including the 6,550 jobs in the public utility sector) reached 1.5 times that of those generated from oil refineries and distribution of natural gas combined (7,460 jobs).

It is worth noting that this energy transition has been developed without subsidies. Instead, it has been based on auctions that allocate long-term contracts with the public utility. Simultaneously, innovative ways of financing projects have been developed, in the last few years Uruguayan citizens have been financing renewable energy projects through the local stock market in association with the public utility.

Concluding Comments

These achievements have been made possible through a number of determining factors, including key institutional support, involvement from academia, and civil society participation. The state-owned companies have served as the main drivers of the transition.

Other areas of public administration have strongly supported the renewable energy integration process by reviewing the regulatory framework, adapting standards and requirements, facilitating logistics, or training human resources. Organized civil society has participated significantly in generating opportunities for exchange, reflection, or confidence-building amongst the various actors involved.

Finally, the energy transition has been accepted by financial institutions and investors who have had trust to implement projects in the country, largely due to the political stability, consistent state policy in the energy sector, and the strength of the renewable energy measures.

In summary, Uruguay’s energy transition has been a success because it has enabled diverse key actors, under the leadership of the state, to come together and collectively ensure its implementation.