Power policy

Uruguay has the highest rate of non-hydro clean energy penetration in Latin America and wind and solar met 36% of national power demand in 2021. 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 the addition of 300 megawatts of wind and 200 megawatts of biomass to the national grid by the same year. The goal was achieved a year early and in 2015 the country had 857 megawatts of wind and 425 megawatts 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 end-2021, Uruguay had 1,518 megawatts of wind and 324 megawatts of solar online. Launched in 2022, Uruguay’s Hydrogen Roadmap includes a renewable energy target of reaching 2 gigawatts to 4 gigawatts of renewables by 2030.

State-run utility National Administration of Power Plants and Electrical Transmissions (UTE) raised hopes that clean energy development could return to Uruguay when in 2019 it released rules related to a potential tender for 65 megawatts of new solar photovoltaic (PV) capacity. However, the auction was postponed, and as of October 2022 had still not been held.

Uruguay has a feed-in tariff for biomass projects 20 megawatts or smaller, with self-dispatch regime rates set at $92 per megawatt-hour. Since 2010, retail electricity consumers (those using up to 150 kilowatt-hours) 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 a priority in the national power system dispatch running order.

Power prices and costs

Commercial power prices in Uruguay grew in 2021 to around $178 per megawatt-hour, from $204 in 2020. Wholesale prices jumped 41% to $87 from $51 per megawatt-hour in 2020. In 2021, residential and industrial prices rose by less than 5%, reaching $174 and $127 per megawatt-hour, respectively.

Uruguay has a subsidy in place for up to 230 kilowatt-hours of monthly consumption. The Consumo Básico Residencial (CBR) tariff offers a 35% discount off the typical residential tariff. The subsidy was scrapped for new users in the beginning of 2022 as the government revised subsidies to specifically target the lower-socioeconomic status households.

Power market

The Ministry of Industry, Energy and Mines oversees Uruguay’s electricity market. 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 outlined in the Electric Power Transmission Regulation (Reglamento de Transmisión de Energía Eléctrica).

Consumers must buy power from UTE, the sole distribution company in the country. The Electricity Market Adminstrator (ADME) is responsible for the wholesale power market and is the independent system operator that dispatches the energy generated across the country.

The 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. In the last five years, peak demand has been around 2,000 megawatts, dropping slightly in 2021 to 1,824 megawatts. According to Decree 367/010, UTE must buy all energy delivered to its network at the respective node, according to the terms established in the contract.

Doing business and barriers

From 2010 to 2016, commercial and international development banks invested $5.6 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. Since reaching its peak, clean energy investment in Uruguay has fallen consistently. From 2016 to 2021, investment amounted to $0.6 billion. 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 between 2011 and 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.

At least 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 in rural areas.

The main barrier to 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. In 2017, when hydro and wind projects were forced to stop selling power due to overcapacity issues, UTE assumed a liability of $59 million. 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.

As the country expands its focus with hydrogen and storage, new clean energy opportunities arise. The $10 million Green Hydrogen Sector Fund launched in 2022 offers financial support to projects with electrolyzers of more than 1.5 megawatts that will operate before 2025. The push for green hydrogen signal that the country will steer away from promoting new capacity additions for solar and wind, mostly looking at adapting new energy solutions to its already saturated market.

EV market

Uruguay has no stated target for passenger electric vehicle (EV) adoption. However, under its NDC, it has promised by 2025 to have several EV 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. In the current phase the goal is to have a charging point every 50 kilometers along the route by the end of 2022. The next and final phase will involve super-fast chargers along the highway.

EV policy

As of 2021, Uruguay is reforming its fuel price subsidy scheme and plans to keep only an existing 15% support for liquefied petroleum gas (supergas) in place. EVs 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 value-added tax (VAT) as non-EVs. As part of the Subite program, two- and three-wheelers can enjoy a grant of 10% of the final vehicle price (including VAT) for up to $250 (2-wheeler) and $450 (3 -wheeler). For legal entities with a VAT waiver, the price is calculated without VAT.

Other incentives include a one-year insurance waiver for vehicles under the Subite program (for two- and three-wheelers), also, there is a onetime grant of 2,022 pesos ($49) in the electrical bill associated with the vehicle.

Buildings market

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

Buildings policy

Uruguay’s Energy Efficiency Plan for 2015-2024 aims to avoid the burning of 1.69 kilotons of oil equivalent. Its energy certificate scheme (CEE) is central to the plan. Under the CEE program, 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 returns of 10% by installing heat pumps. Starting in September 2021, the government has implemented a 45% reduction in taxes on heat pumps. The applied rate of these incentives depends on the score determined in the CEE.