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 contracted, 640MW were commissioned by the end of 2016.

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 also aims to generate as much as 38% of its electricity needs from wind energy alone by 2017. As of the end of 2016, Uruguay’s wind installed capacity was 1.2GW, which represents 31% of the country’s total installed capacity.

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 2016, 56% of the 13.9TWh generated in the country came from large hydro plants, while 22% came from wind, 18% from biomass and less than 1% from PV plants. The remaining 3% was supplied by plants burning oil and diesel. In 2016, thermal generation was cut down to nearly half of what was generated in the previous year.

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 recent years. In 2015 alone, 1.1 billion was invested in the country’s wind sector. However, a big drop was observed in 2016, with investments in the wind sector reaching only a quarter of what was invested in 2015.

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 a value added tax 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.

Score summary

Uruguay dropped five places on Climatescope 2017 to rank ninth with a score of 1.83. The country, which is reliant on large hydro schemes for much of its power, was placed fourth among the 26 Latin American and Caribbean nations assessed, down from third the previous year. It was weaker on all but one of the four parameters, and was strongest on Enabling Framework Parameter I.

It took third place worldwide on Parameter I, relinquishing the top spot to Rwanda. The country’s high score reflects the presence of policies such as net metering and tax incentives, and its openness to independent power producers, among other things. It also reflects the 28% increase in installed capacity (predominantly wind) to 1.7GW in 2016.

On Clean Energy Investment and Climate Financing Parameter II, Uruguay slid three places to sixth. The volume of investment remained high at $1.12bn in 2016, but this represented a decline of 36% compared with the $1.75bn invested the previous year. The absence of loans and grants undermined the score, as did the relatively high average cost of debt.

The country took 31st place on Low-Carbon Business & Clean Energy Value Chains Parameter III, unchanged on the previous year. While there are engineers and project developers in most renewable energy sectors, there are few equipment manufacturing businesses. Similarly, the country is not well served by service providers.

On Greenhouse Gas Management Activities Parameter IV, Uruguay fell from eighth place in 2016 to 46th overall. The country does not have any domestic climate change policies, regulations or incentives in place. However, its Nationally Determined Contribution has set an unconditional target to cut emissions per unit of GDP by 25% by 2030, compared with 1990 levels.