Uruguay seeks to eliminate “barrier” for investments in green hydrogen: what will change?

The Uruguayan government resolved to move forward with a decree to recognize renewable energies as a source of firm power in the long term, when today this guarantee of supply for large consumers was only recognized through thermal sources, Industry Minister Omar Paganini said Tuesday, during a talk he had with a group of journalists in his office.

With the change, the Executive Power assures that it seeks to eliminate an entry barrier in costs for investments in green hydrogen projects. “If the supply guarantee requirement is made only with fossil sources, it ends up being a barrier to entry,” said Paganini.

The new decree will establish a procedure to certify a firmness component contributed by renewable energies, with variable percentages in case it is wind or solar.

The formula will consist of taking 1% of the most critical hours of the year at the energy level and prorating the participation of each type of source, explained the minister. Based on that, the firmness of each one will be recognized, an aspect that will be reassessed every year.

WHAT WAS HINDERING INVESTMENTS IN GREEN HYDROGEN?

The current regulations do not take into account renewable energies as a firm power source and the government assumes that as an obstacle to the arrival of investments, said Paganini.

The minister also pointed out to journalists that the headquarters of large companies – especially European ones – reject projects that include thermal energy sources. In this way, he pointed out, companies are not tied to the contracting of fossil fuels.

The Executive Branch also hopes to generate greater competition in the market for companies considered large consumers, which have the possibility of accessing contracts as free consumers and not as regulated clients of the state-owned UTE, the most frequent modality in the Uruguayan market.

The change will enable the investor who seeks to install a green hydrogen project to do so without having to hire a firm elsewhere. A new project, for example, that has a wind or solar farm will be able to count those resources as part of its firm power.

In any case, it may happen that you must supplement it with other sources, although at a lower cost than if you had to contract all the firm power from thermal sources. Firm power contracts may be with UTE, with UTE and a private party, or with more than one private party.

The law on the regulatory framework of the Uruguayan electrical system regulated in 2002 established the possibility of a wholesale market, which enables the sale and purchase between private parties.

Although, in fact, the market did not develop, today dominated by the UTE through regulated contracts. This private generation market must ensure a guarantee of supply.

And, according to current regulations, for a large consumer to have a free contract, they must cover part of their energy demand with generators that provide firm power.

Until now, UTE had regulated contracts with its large clients, although this year it began to negotiate free contracts, which enable lower prices.

Also this year, Coca-Cola and Central Lanera, up to now two large consumers of UTE, agreed to buy energy from a private photovoltaic park, with which this free contract market takes its first steps.

RAISE THE BARRIER

Why, then, with this does the government assure that it seeks to favor the installation of investments? According to the minister, the rates of the state UTE are high compared to others in the region, for which reason the Executive Power ensures that this aspect ends up being a barrier in the installation.

With the new regulations, these investors could be self-sufficient at least partially or promote contracts between private parties, which lead to developing the market and reducing costs without being tied to the entity’s rates.

The main goal is to remove an entry barrier for new investment, Paganini said. “We don’t want to ask someone, who is going to make an investment, to also put in diesel machines that they are not going to use,” he said.

In turn, large companies that enter into the so-called free energy contracts make it easier for them not to have to contract fossil energy to certify firm power.

The change will generate a loss of clients for the state-owned UTE, assumed the minister. And that the company will have greater competition for its large clients.

From the opposition of the Frente Amplio they question the regulatory change for pointing out that it harms the public company.

They also consider that the execution of free contracts by UTE lowers the cost for private companies, to the detriment of consumers with a residential rate.

The fact that the source of firmness was thermal energy favored UTE, since it had that installed capacity. Another possibility in the current scenario was contracting a third party that could insure it or buy its own machine that would give it, although it would not be used in fact.

ENERGY SUPPLY THROUGH RENEWABLES

In the average of the years between 2017 and 2020, 97% of the electricity generated in Uruguay came from renewable energies. According to data from the Ministry of Industry, 44% was hydroelectric, 32% wind, 18% biomass and 3% solar.

For its part, in the energy supply matrix, in 2019 63% came from renewable sources while the remaining 37% is of fossil origin (36% oil and 1% gas).

With information from Bloomberg Línea