Analysis: How Uruguay has the world’s second-highest share of renewable energy in its matrix

RIO DE JANEIRO, BRAZIL – Wind is clean, it cannot be stored, it cannot be controlled, it controls its intensity when and how it pleases. Moreover, wind does not pollute the environment.

But wind is also free, no one pays for it, it is used by whoever has it, if at all. In Uruguay, wind is constant. Therefore, wind is also economic. The resource costs zero, and it is in the air.

Uruguay is the country with the world’s second-highest share of renewable energy in its power supply. Wind energy by far accounts for its largest share, second only to Denmark. Next come countries such as Ireland, Germany, Greece, Spain, the United Kingdom, Portugal, Australia, the Netherlands, Switzerland and Belgium, in this order.

In Uruguay, a total of 43 wind farms generate energy, currently representing 33% of electric energy sources. The remainder comes from hydropower (29%), wood and biomass waste (23%), diesel (10%), solar energy (3%) and fuel oil (2%).

The total matrix generates 1,410 ktoe. This is 1.4 million tons of oil equivalent. Of this total, 96% comes from renewable energy sources.

2020 was the first year in the country’s history when wind energy surpassed hydropower. In addition to this type of energy becoming increasingly important, there are other factors behind the phenomenon. “The year 2020 was the driest in the country, and this factor meant that wind energy’s contribution was particularly large because we had less water,” says engineer Fernando Fontana, advisor to the president of the National Administration of Power Plants and Electric Transmissions (UTE).

Cables are unable to store energy; they are not batteries. If on one side there is generation, on the other there must be consumption, and the energy balance must remain constant every second. If this is not the case, the system goes out of balance. “It’s like riding a bicycle when you’re going up a steep hill: you have to keep up the speed,” says Ventus’ director of institutional relations and regulation Óscar Ferreño.

Ventus is a Uruguayan company that provides services for all stages of renewable energy and infrastructure projects.

Wind and solar energy are considered “non-dispatchable.” When wind blows, turbines provide energy; when there is no wind, they do not. Power regulation depends on nature. “Since wind and solar have nowhere to be stored, they are called non-dispatchable. As wind power has no cost, they are the first energies to be used,” Ferreño adds.

Thus, wind energy is integrated with hydroelectric power: First, wind power is used to meet the energy demand, and hydropower when it is ready to be used. The difference between wind and water is that the latter is stored. It is located in dams. “They are the perfect marriage,” he says.

Therefore, during the day, energy is taken from the wind. If it wasn’t used, it would go to waste because it’s not stored. “At night, when there is plenty of wind and little demand, we had to shut down the power,” says UTE president Silvia Emaldi.

In general, surplus energy is consumed at night by Argentina. “In this case, prices are low, they have a ceiling of US$28 per megawatt-hour, because otherwise we would discard it, and Argentina is seizing this opportunity provided by Uruguay,” she adds.

Energy is also flowing to Brazil. “They are in a much greater drought situation than us, and they buy all our available energy at market prices through our interconnections with them,” Emaldi says. One of the interconnections runs through the town of Melo, where 500 megawatts are generated, and another through the town of Rivera, with 70 megawatts generated. Both cities are near the border.

“These 570 megawatts are exported virtually all day long, and this year we have almost no surplus,” she says.

Although all the energy used for the electricity matrix comes from renewable sources, it still needs to be used to power mobility and industry.

Mobility in Uruguay still relies almost entirely on fossil fuels. “We are rapidly moving toward the electric transformation of mobility, but that is a major challenge for us,” says Ministry of Industry, Energy and Mines State Secretary Walter Verri.

In the primary energy matrix for 2020, which includes electricity, wind energy will account for 9%. According to Verri, this is not a poor figure, considering that hydroelectric power accounts for only 6%.

“If we were to power all cars with electricity, we would have to quintuple the current electricity system,” Ferreño says. In other words, it would require 6 time more wind farms than Uruguay currently has.

However, the transformation does not only depend on the government. People must be interested in electric mobility, although there are public transportation systems and cabs operating this way. “Nowadays, an electric car is not cheap, and there are some other disadvantages to overcome, such as range,” Verri says. As a result, electric cars still struggle to compete because of their high cost.

A study prepared by the Uruguayan Association of Private Electricity Producers (AUGPEE) estimated savings of more than US$744 million over the 2007-2019 period for the electricity system by incorporating renewable energy sources such as wind and solar.

In 2020, a particularly dry year, these renewable sources enabled savings of over US$125 million. “This is one of the reasons why we need to transition to electric mobility as soon as possible, not only for environmental reasons, but also for economic reasons. Today we are importers of a commodity, we are price takers,” Verri says.

THE PATH TO WIND POWER

There are two aspects: the size of the investment and the speed with which it was made. “This is due to some features of Uruguay that eased the process,” says Alejandro Perroni, a member of the Catholic University’s Honorary Council of the Observatory for Energy and Sustainable Development.

Uruguay has a long tradition of using renewable energies through hydropower. “It was one of the first countries in the region to exhaust its hydropower capacity; all the large-scale power plants Uruguay needed to build have already been built,” Perroni adds.

So why did Uruguay open its doors to wind energy? Because there were supply issues with power outages, the country was dependent on fluctuating oil prices, and hydroelectric generation depended on rainfall.

“We turned to wind power out of necessity. I think it is clear that Uruguay had to install power generation plants, and the framework law passed by the previous Jorge Batlle government opened the door to all these investments,” Verri says. That and, of course, a political system mature enough to reach a multiparty agreement on electricity generation. This legal framework was approved in 2010, although “we are still reviewing it at the moment,” Verri concedes.

The initial conditions for Uruguay were good at that time. According to Perroni, there was “a good and efficient transmission grid, strong international connections with Argentina and Brazil,” and external markets.

Wind farm construction has low variable costs because wind costs nothing. Windmill maintenance is low, but there is investment in machinery. “Low rates have made it possible for wind energy prices to become competitive, and the development of technology worldwide has lowered prices and improved the performance of the turbines,” Perroni says.

There is also legal certainty: Uruguay has an institutional structure and a tradition of contract compliance that makes the country attractive to investors. “The main players from a technical-financial standpoint who could come to Uruguay to invest have done so and developed their projects here,” he says.

In just a few years, Uruguay has become a global pioneer in the use of wind energy. It has forged its own path. According to the Ministry of Industry, Energy and Mines (MIEM), until 2006, the prevailing perception in countries like Germany and Spain was that feed-in tariffs were needed to incorporate renewable energy. This meant that technology could only be developed if the extra costs required were included in the tariff.

At that time, the idea of incorporating renewable energy sources at a competitive rate began to develop in the Latin American region. This meant that an energy source would be included when its introduction was economically viable for the power system.

In Uruguay, the first call for investors was made in 2006, and continued in 2009 and 2010. Based on the last call for proposals, the largest number of projects submitted through the competitive process were adopted in 2011. “In short, we have not copied any model, instead we have taken our own path,” MIEM says.