Power policy

Uruguay has the highest rate of non-hydro clean energy penetration in Latin America and wind and solar met 32% of national power demand in 2019. The substantial presence of renewables reflects Uruguay’s strong clean energy policy regime and its longstanding National Energy Plan, which mandated 15% renewables by 2015. The plan also required that 300MW of wind and 200MW of biomass be added to the national grid by the same year. The goal was achieved a year early and in 2015 the country had 857MW of wind and 425MW of biomass installed.

After reaching the 2015 goal, Uruguay clean energy activity slowed and the country has commissioned almost no new wind or solar capacity in recent years. As of year-end 2020, Uruguay had 1,518MW of wind and 294MW of solar online. The Administración Nacional de Usinas y Transmisiones Eléctricas (UTE) raised hopes that clean energy development could return to Uruguay when in 2019 it released rules related to a potential tender for 65MW of new PV capacity. The auction was later postponed, however and as of November 2021 had still not been held.

Uruguay has a feed-in tariff for biomass projects 20MW or smaller. Since 2010, retail electricity consumers (those using up to 150kWh) in Uruguay who have renewable energy facilities for their own needs can connect to the national grid, deliver surplus generation to the grid, and obtain a billing credit for any excess electricity exported to the utility.

Uruguay offers three types of renewable energy tax incentives: value added tax exemption for specific renewable energy equipment; income tax reduction for renewable energy generation, energy efficiency initiatives and equipment, and net metering generation; and import duty exemptions for wind equipment and a reduction in duty for solar equipment. The country’s Decree 403/009 established priority dispatch for wind energy and Decree 113/013 set solar PV power producers as priority in the national power system dispatch running order.

Power prices and costs

As Uruguay is heavily dependent on hydropower, auctions have been a key mechanism to diversifying its power matrix. From 2009-2016, the country contracted over 300MW of wind through auctions. Wind generation jumped from 144GWh in 2013 to 5,418GWh in 2020. Rising intermittent generation combined with flat overall demand has also, rather unfortunately, resulted in some curtailment issues in Uruguay.

Power prices in Uruguay plunged in 2019 to their lowest levels in a decade, mainly due to abnormally high production from the country’s hydropower plants, but then rebounded in 2020. From 2019 to 2020, the commercial electricity rate jumped 21% to $204/MWh, while industrial and residential prices dropped 5% and 22%, to $123/MWh and $168/MWh, respectively. The retail price increased a remarkable 677% to $51/MWh.

Uruguay has a subsidy in place for up to 230kWh of monthly consumption. The Consumo Básico Residencial (CBR) tariff offers a 35% discount off the typical residential tariff. A revision of the subsidy to specifically target the lower socioeconomic population is under discussion.

Power market

Uruguay’s electricity market is overseen by the Ministry of Industry, Energy and Mines. Vertically-integrated state-owned utility UTE controls parts of generation and all transmission and distribution. UTE allows the participation of independent power producers through auctions, usually through 20-year power purchase agreements (PPA).

The decree that established the rules for each technology project (auctions) states that the generator will be in charge of all connection costs as well as the necessary costs that the National Interconnection System (SIN) requires. Further interconnection rules are indicated at the Reglamento de Transmisión de Energía Eléctrica.

Consumers must buy power from the National Administration of Power Plants and Electrical Transmissions, the sole distribution company in the country. Only generation is open for private players. UTE has the legal monopoly on transmission and distribution. The Administración del Mercado Eléctrico (ADME) is responsible for the wholesale power market and is the independent system operator that dispatches the energy generated across the country.

A sharp rise in generation of clean power has not been matched by growth of demand in Uruguay. In fact, demand slipped 3.5% from 2016-2017, forcing UTE to restrict generation of and curtail some wind and hydro power from serving the grid. According to Decree 367/010, UTE must buy, exclusively, all energy delivered to its network at the respective node, according to the terms established in the contract.

Doing business and barriers

From 2011-2018, commercial and international development banks invested $4.5 billion to support Uruguay clean energy. In 2015, annual clean energy investment hit a high-water mark at $1.2 billion with over 90% directed to wind plants. Just three years later, in 2018, renewables investment fell to what was then a low of just $5 million. Since 2018, BloombergNEF recorded no substantial new clean energy asset financing in the country. The oversupply of electricity hinders the addition of new power generation assets, but new opportunities surge as UTE shifts focus to expand and upgrade the power grid.

Uruguay’s clean energy sector boomed 2011-2015. However, the spike in power generation from intermittent sources saturated the market. As a result, investment has declined and the country appears unlikely to hold major auctions again soon.

No less than 99.8% of Uruguayans have access to electricity and the country has set a goal of 100% electrification by 2030. To meet the goal, UTE is focused on expanding the grid, especially rural areas.

The main barrier to further Uruguay clean energy development is the country’s lack of growth in demand for electricity. It has already deployed significant new wind and solar capacity relative to the size of its market leaving little room for additions. This has had real financial consequences already. In 2017, when hydro and wind projects were forced to stop selling power due to over-capacity issues, UTE assumed to $59 million liability. Under Uruguay law, clean energy plant operators must get compensated for all of their output – regardless of whether it gets put to use on the grid.

EV market

Uruguay has no stated target for passenger EV adoption. However, under its NDC it has promised by 2025 to have several electric vehicle models in use in both private and public transport. The country is also aiming to up its biofuels consumption to 5% bioethanol blended with gasoline and 5% biodiesel with diesel by 2025.

Uruguay aims to install the first highway corridor in Latin America fully serviced by EV chargers, connecting Colonia to Montevideo to Chuy. So far, the country has succeeded in expanding charging availability along the route. It is currently on the second phase of the plan with the goal of doubling the number of charging stations by the end of 2021. At that point, the country will have a charging point every 50km along the route. The next and final phase will involve super-fast chargers along the road.

EV policy

As of 2021, Uruguay is reforming its fuel price subsidy scheme and plans to keep only an existing 15% support for LPG (supergas) in place. To incentivize EV adoption, consumers can charge vehicles at UTE stations and receive a 50% reduction in the tariff price. Further incentives are available for charging vehicles at privately owned stations or at home, such as a 50% price discount at off peak hours. Electric vehicles are exempt from import taxes for five years, while hybrids have a 23% tax. Electric and hybrid vehicles have the same 22% flat rate of VAT as non Evs.

Buildings market

Over 80% of heating in Uruguay comes from direct electricity (48%) or geothermal (34%). The rest comes the burning of oil (2%) or natural gas (16%).

Uruguay's Energy Efficiency Plan for 2015-2024 aims to avoid the burning of 1.690ktoe. Its energy certificate scheme (CEE) is central to the plan. Under it, certificates are determined by the weighted average of energy avoided during a project’s life, multiplied by a reference price established yearly.

Heat pumps accompanied by a government-issued energy efficiency certificate offer homeowners the opportunity to earn guaranteed 10% returns by installing heat pumps. Starting in September 2021, the government implemented a 45% reduction in taxes on heat pumps. The applied rate of these incentives depends on the score determined in the CEE

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.