While the small South American nation maybe the world’s most expensive economy to own a car due to its dependency on foreign oil providers – principally Brazil, Ecuador Iran and Venezuela – self-sufficiency and even becoming an energy exporter themselves is on the horizon. Green energy use will soon reach 40% of the local energy matrix when the world average does not exceed 17%. How is this done? The answer: a push for sovereignty, survival and increased investment.
The development of renewable energies was until recently a recurrent, optimistic thread in regional press. Now, the Ministry of Industry, Energy and Mining (MIEM) reports that 84% of Uruguay’s electricity originates from its own resources, including solar, hydroelectric and burning of agricultural wastes. However, it is wind power which is breaking records and making change now tangible to common citizens and multi-nationals alike. For one, it is now the country with the highest percentage of wind energy in its energy mix in the world.
Uruguay’s 2005-2030 Energy Policy is much to take credit for this progress achievement. Beginning discussion in 2005, it was approved by populist President Tabaré Vasquez in 2008, and yet supported by the Multi Energy Commission formed by all main political parties represented in Parliament. “In Uruguay, we’re talking about a long-term policy and that is central,” said Ramón Méndez, National Energy Director since 2008, “very few countries in the world have done that – a policy agreed upon by all political parties.” The complementary Wind Energy Program in Uruguay (PEEU) is also a joint initiative between the local government, the United Nations Development Programme (UNDP) and the Global Fund for Environment Facility (GEF).
These initiatives aim to create favorable conditions and encourage the integration process of wind power in the republic via multidisciplinary approaches. This is to achieve the objective of contributing to the mitigation of emissions of greenhouse gases. It furthermore seeks to create technical capacities at both public institutions and private developers as potential suppliers of the wind industry.
As a result, there are so far over 20 projects of private parks in authorization stage or already in work, in addition to projects that UTE (the government-owned power company) both owns and leases to private operators. This ranges from local companies such as the ANCAP-Group to multi-national collaborations as Spanish-Uruguayan R South. The wind farm is located 200 km east of Montevideo and coexists with cattle feeding on the pastures around it, emphasizing a symbiotic harmony between traditional economy with an aim for technological and overall sovereign advancement.
“It converges old and long social struggles,” ex-President Jose Mujica said during the inauguration of another plant, a Brazilian-Uruguayan (UTE-Electrobras) collaboration in Artigas, “we can save on the production of sugar, defend and enjoy the patrimony of our lands and begin to introduce more renewable energies as a means of using less oil.”
Unique energy sovereignty
“The introduction of renewable energy increases our sovereignty,” Méndez asserts. The matrix of energy supply for the local economy has historically been characterized by a majority share of non-renewable energy through oil and its derivatives, which generally has a shareholding of between 50% and 60% of the total. Yet in recent years, increased generation through renewable energy and the role of wind has become increasingly important.
This coincides with a decade of uninterrupted economic growth reaching at times as high as 6%.”(Uruguay) is one of those with greater legal certainty, it is very stable, financially sound,” adds the National Energy Director, stressing further tax incentives and alleged bureaucratic facilities provided by the government for the installation of the parks, which are awarded by public tender. He went onto highlight that it is one of the “best countries in the world right now in terms of wind potential, the plant utilization factors are above 40% in most of the country and that guarantees a stable and constant production”. Such is also promising news to the common citizen who are only now witnessing tangible change: a drop in electric bills.
“It is a matter of survival of the economy. All this enabled guarantee supply, which historically Uruguay was not trivial. So much so that last summer we exported to Argentina”.
With just over 3.2 million inhabitants, until recently insufficient energy means condemned much of the population to get cold and consider dishwashers and clothes dryers as luxury amenities. Montevideo is Latin America’s southernmost capital and even winter lasts about four months; Antarctic sea winds and a moisture content that sometimes reach 98% can make it feel endless. Every year there are death reports during this season, victims typically being elderly and young rural families who simply cannot pay the much needed heat bill.
With a median household income of 41,000 pesos (about U$S1569.38) per month, the monthly electric bill for small, low-income homes can easily exceed 5,000 pesos (about U$S191.55) when adding heating. These modest homes comprise of about a third of the population (the minimum wage is about 9,000 pesos = U$S344.74). Schools, universities, gyms and government offices often go cold.
Now with renewable energy programs such as wind power, households pay 5.5% less electricity tariff, with small and medium enterprises paying 6% less. While miniature, it is a relief in a country where energy is expensive for the common man. Although in recent years the price of electricity has gone up below the inflation, what constitutes a saving for the consumer is now cheaper and direct. And other countries want to take notes, participate in this energy revolution or both.
At this rate, Uruguay has become country with the highest clean energy investment growth in Latin America. Due to global changes in renewable energy being carried out, investments in this sector have risen to 7 billion dollars in recent years, nearly five times above the average energy investment in the region overall.
Those as Méndez believe booms such as witnessed in Uruguayan wind power sector are mainly due to the incentives offered by the local government to investors.
“It’s almost a financial business, because there is no associated production cost, no fuel has to add, so the final cost of energy is simply repay of the initial investment made,” he explained. The State pays producers of wind energy around $ 60 per megawatt / hour – part of the 3% of annual GDP dedicated toward the energy structure.
The estimated total investment beyond GDP also exceeds U$S 2 billion, dedicated principally to installation costs. While this activity is not very intensive as a means of labor generation, except in the construction phase, an important aspect is that no less than 25% of that investment remains in the country, through logistics, transportation, assembly and construction, among other activities. This is a unique expression of sovereignty when many of these companies are multi-national collaborates.
Javier Tirado, project manager of the Spanish company R South believed that wind and international investment are, “quite stable in the long term, highly variable over short periods”. The company has built the largest wind farm in the country with 25 Spanish wind turbine technologies. The investment was $ 100 million.
“Spanish companies hold majority in Uruguay because we are pioneers in the field of renewables,” Tirado detailed, “The case of Uruguay is quite particular. It is small and so it is the place to address these challenges in a controllable manner by the state stage.”
But multinationals are not only looking so enthusiastically into wind.
Oil drilling in Uruguay is pending, estimating over U$S1.6 billion in 3 years for offshore ventures alone. Areas under exploration are varied. They range from Punta del Este – a world-famous tourist hub where the principle concern surrounds oil platforms disrupting the Rio de la Plata view; to the country’s interior departments of Tacuarembó and Durazno and the border department of Salto. Here, concerns surround agricultural land disruption and a push toward bettering infrastructure, particularly cross-country highways.
For several years the world’s major oil companies have invested over 2,000 million in the search for hydrocarbons in a similar geological Brazilian pre-salt reservoir area where Petrobras and Shell, among others have already rapidly staked claims. A change of exploratory work in the region has encouraged the Uruguayan government to offer a contract to operate 30 years to companies involved in the process of inaugurating the new fields. British Petroleum (BP), BG Group, Total S.A. and Tullow Oil are several companies who have already expressed interest.
However, the current government of the Frente Amplio party has stated that it seeks consensus for hypothetical oil revenues with no end in efforts to implement green energy. It also seeks to prevent the use of fuel being almost free, as is the case in Venezuela where the tides of oil prices have commonly contributed to the tides of socio-political economic uprisings, as witnessed in the early 1990s and present day. And while neither Uruguayan culture or history hosts the same crisis tendency as its northern counterpart, is President Vasquez’s assurance of green energy and oil exploitation’s coexistence feasible? In an oil hungry global economy, will foreign investments shift unbalanced to Uruguay’s drilling reserves and leave wind power in the dust?
Until a decade ago, Uruguay entered into the renewables race by striving for a silent, ecological energy revolution. Only five years has it been known that it could even become an exporting oil country. Yet will this test of investment interest and energy use be more dangerous than advantageous for the future of this country where sovereignty, survival and investment conflict in the 21st century can, like Venezuela ride on the tides of energy?