As the world struggles to combat with the deterrent effects of climate change and aims to switch to renewable energy, Uruguay, with a population of 3.3 million on the other side of the Atlantic Ocean, has accomplished installation of 581 megawatts (MW) wind capacity by 2015, receiving seventeen percent of its overall electricity generation from wind power. As discussed in the groundbreaking work published by the World Resources Institute in 2016, the article entitled “Transformational Climate Finance: An Exploration of Low-Carbon Energy”[1] Uruguay could be a pioneering example to show how climate finance may be used as a driver of transformation towards low-carbon economy.
Without any government subsidies and prior experience in the renewable energy sector other than hydropower till 2007, Uruguay has fundamentally transformed the way of electricity generation in less than a decade as a double world record holder. Uruguay managed to cut its carbon footprint and slashed the overall cost of electricity for its residents. Renewable energy -including wind, hydropower, biomass and solar power- accounted for fifty-five percent of Uruguay’s overall primary energy mix in 2015, which was way above twelve percent of the world average. This dramatic shift has a lot to offer to other nations in search of transforming their energy mixes.
The vast installation of wind turbines, which has been the biggest item in Uruguay’s balance sheet, was mainly driven by energy security concerns. Before turning into a big wind farm, electricity generation relied heavily on hydropower in the country. During the period of 1997 to 2007, severe drought resulted in a dramatic drop in power generation from ninety percent to fifty percent. This led to increasing reliance on fossil fuels for steady increase to meet energy needs. Since Uruguay has no domestic oil or gas reserves, fiscal burden on the budget surged substantially. Eventually, Uruguay pursued an energy policy that has well suited to its own home-grown energy sources.
In 2007, a large aid program was put into practice; Global Environment Facility granted one million US dollars through UN development program and another six million US dollars spared from the national budget. Until 2012, as part of the Wind Energy Program, policy reform as well as technical capacity building program initiated with an aim of creating an ambitious renewable energy transformation to bring about large-scale, long-term changes to wind energy field. Additionally, stuff to be working in the wind energy sector were trained on how to solve the problem of grid integration and the risk that the sector posed. A strong public and private partnership as well as regional dialogues among different stakeholders was also help boost development. A policy tool, feed-in-tariff program, was introduced with an aim of supporting renewable electricity technologies. This program allowed early producers to get standardized payments for the electricity they generated and delivered to the grid.
A protective and secure regulatory environment combined with a clear decision making process are some of the key components behind the transformation of the energy sector in Uruguay. The head of climate change policy in Uruguay, Ramon Méndez, attributed the success of wind energy in three major components; the first one is related to natural conditions such as having good wind etc., the second component is linked to strong public companies smoothing the operating environment for private firms and lastly, credibility in the eyes of long term investors.
On average wind turbines in Uruguay run at about 40 percent of capacity, thanks to its flat land and the steady flow of winds from Atlantic Ocean. The installation of wind farms enabled Uruguay to produce electricity between 65 to 70 cents for per kilowatt-hour, half the cost of gas-fired power plants.
Up until today, Uruguay has received 1.4 billion US dollars’ worth of investment on wind power generation and more projects are in the line. In 2016, the use of wind power is expected to be tripled, reaching a record of high-level investment in wind turbines worth of 2.6 billion US dollars. Undoubtedly, wind energy has helped Uruguay to diversify its energy sources and has become more resilient to the short-term volatility resulting from unexpected geopolitical risks both in the region and the world.
A paradigm shift, especially following the Paris Agreement, with a goal of keeping the world temperature increasing above the level of 2 degrees Celsius has mandated the promotion of low emission economic development and has pushed the signatory countries to take solid decisions in their energy investment decisions. As the leader of wind generation in Latin America, Uruguay’s unique example has provided a successful case of clean energy investment for countries willing to diversify their energy matrix with a relatively fast paced transition. Uruguay’s case has shown us the fact that smart policies with a strong decision-making have resulted in the flow of billions of dollars of private investment and made the rapid transition possible towards cleaner energy.
[1]Westphal, M.I., Thwaites, J., “Transformational Climate Finance: An Exploration of Low-Carbon Energy”, World Resources Institute, (February 2016)
http://www.wri.org/sites/default/files/Transformational_Climate_Finance_An_Exploration_of_Low-Carbon_Energy.pdf
