Held up as a case study for successfully transitioning away from fossil fuels, Uruguay now generates up to 98% of its electricity from renewable energy. The country offers lessons in energy sovereignty and the importance of community engagement in lowering greenhouse gas emissions.
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Generating 98% of its electricity from renewable sources, Uruguay’s rapid adoption and expansion of sustainable sources of energy has been lauded internationally as a model for transitioning national power systems away from fossil fuels.
Avoiding nuclear power entirely, Uruguay first embraced wind turbines as a source of cheap, reliable power; providing 40% of the country’s capacity in less than a decade. It then expanded its solar and biomass capacity to an almost fully decarbonized mix of energy sources, joining a very short list of high-income countries producing over 90% of their energy needs with low-carbon sources – including Iceland, Sweden, and France. Once a net importer of energy, Uruguay now exports its surplus energy to neighbouring Brazil and Argentina.
In less than two decades, Uruguay broke free of its dependence on oil imports and carbon emitting power generation, transitioning to renewable energy that is owned by the state but with infrastructure paid for by private investment. Can such a feat be replicated elsewhere?
Ramón Mendéz Galain believes so. Uruguay’s former national director of energy in the Ministry of Industry, Energy and Mining, who was the impetus for the country’s shift away from dirty fuels, has been promoting the country’s success as a repeatable framework of energy sovereignty for developing countries. He offers a model that can free them from the vicissitudes of global energy prices. He credits “a supportive regulatory environment and a strong partnership between the public and private sectors” as the necessary ingredients for providing populations “access to affordable, reliable, sustainable” energy that furthers economic and social development.
However, this oversimplifies a transition that – at this point – is uniquely Uruguayan.
Energy that Is Cheap and Renewable
Widespread, affordable energy is an essential ingredient to the economic and social development of all nations. The more expensive energy is, the less accessible it becomes.
For centuries, countries in Europe and North America powered their economic and social development with low-cost thermal fuels such as coal, oil and liquified natural gas, sowing the seeds of climate change while setting a fossil fuel standard globally adopted and exceedingly difficult to escape. In 2023, 80% of global energy use was still derived from fossil fuels despite the growing pressures to decarbonize energy systems with sustainable, renewable power sources, subjecting developing countries without domestic oil reserves to the extreme swings in fuel prices.
The United Nations Sustainable Development Goals (SDGs) insist sustainability is improbable without affordable and renewable sources of energy. It is also essential for meeting the 2015 Paris Agreement goal of reducing greenhouse gas emissions to limit global temperatures to 1.5C, as well as the recent COP28 agreement to “transition away” from fossil fuels.
All the more reason for energy sovereignty to be a national and political imperative for countries unable to control the price of energy while also suffering the effects of climate change.
However, dirty fuel systems are entrenched, still cheap, and a low-carbon future requires substantial capital investments difficult to attract for developing countries. If they do receive foreign investment, hard-hit local communities are often excluded from the planning process, dispossessed of their land and livelihoods, and deprived of compensation.
Recent renewable energy projects in lower-income countries have been accused of “land and water grabs, violation of the rights of Indigenous peoples and denial of worker’s rights”. For instance, Morocco used colonial era laws to forcibly purchase tribal pastoral lands to build a concentrated solar panels (CSP) plant without residents’ consent. The Nepalese government’s push for expanded hydroelectric capacity has created remote self-governing enclaves where private companies operate independent of the state’s authority. And in the Kutch district of India, the state regularly requisitions community grazing lands for wind farms, marginalizing locals and depriving them of their very way of life.
This suggests that a more rigorous, conscientious approach by governments of developing countries can better mitigate the pitfalls of an energy transition. They should adhere to the tenants of energy sovereignty by providing affected communities the chance to participate in the process and reap the benefits of low-carbon systems and should leverage renewable energy sources such as second and third generation technologies, which include hydroelectric, biomass, geothermic, wind, solar, oceanic, and integrated bioenergy systems, to break away from dependency on dirty fuels and reduce greenhouse gases.
The Uruguay Way
A relatively small nation spanning 175,000 square kilometres (76,568 square miles) with a population of 3.4 million – 96% of whom live in urban centres – Uruguay has no significant fossil fuel reserves. Fortuitously, its geography makes it ideal for utilizing powerful rivers and uninterrupted grasslands for wind energy. Indeed, prior to its expansion of wind farms, the nation was dependent on a hydro-thermal mix, relying heavily on four hydroelectric dams built between 1960 and 1979. When river levels dropped the country had to burn fossil fuels to make up the difference in electrical output to satisfy demand.
Throughout the 1990s and 2000s, Uruguay’s government failed to invest in new energy production, maintaining the same hydro-capacity it had since the 1980s. When severe droughts struck in 1999, 2004, 2006, and again in 2008, the country was forced to import ever larger quantities of oil. In 2005, oil made up 55% of Uruguay’s total energy supply, and residents still experienced blackouts and energy rationing.
“In dry years…cost overruns could be as high as $1 billion. And for a small economy like Uruguay, this is 2% of GDP”, Mendéz explained in an interview with NPR in November 2023.
With climate change undermining the country’s long-term energy security, Uruguay’s government wrote into its 2005 national energy policy a 25-year strategic vision for diversification. But it was an empty promise, as the government did not yet have a firm plan to secure a mix of sustainable energy sources. It wasn’t until three years later when Mendéz – at the time a university particle physicist who understood the potential for Uruguay’s wind industry – wrote a detailed proposal for a national transition to non-nuclear renewable energy which led to Uruguay’s president appointing him as the national director of energy.
The national plan that Mendéz subsequently submitted called for the decarbonization of the country’s electric grid by developing its own green energy sector. His argument for the plan was not explicitly to fight climate change but rather to support a national imperative to secure reliable, cheap, domestic energy. Considered ambitious, if not audacious, for a country that had little experience with building and operating wind or solar power, Mendéz’s “strong national narrative” had the ability to unite Uruguay’s disparate political parties into a consensus. It provided the political support critical to ensuring a successful transition. But on its own, it wasn’t enough.
Uruguay’s National Administration of Power Plants and Electrical Transmissions, better known as UTE, owns and operates the transmission, distribution, and sale of electricity. Founded in 1912, it was the legally sanctioned monopolist of production until 1977 with the passage of the Electricity Act. Despite this opening of the energy market to non-state entities, it still served as a de facto monopoly.
In the same way Uruguay’s abundance of wind and rivers proved fortuitous for energy sovereignty, so was the government’s oversight of the electric grid. Unhindered by the profit-motives of private sector providers who could have lobbied against the energy plan or coerced expensive concessions out of the state, UTE is aligned with the interest of the Uruguayan people, and by extension responsive to the state’s regulatory framework. This was counter to the prevailing view of the time, known as the Washington Consensus, that advocated for power distribution and national energy infrastructure to be privatized. By happenstance, it was also the UTE that had established a partnership in 1990 with the University of the Republic to oversee a pilot project for wind-generated energy production in the Sierra de los Caracoles region that bestowed the grid operator with existing base-level knowledge of wind generation. But how to pay for this expensive, capital-intensive transition?
As mentioned, developing countries can be restrained by access to financial resources. They often face the “finance divide” in sovereign borrowing as international markets perceive them to be too risky or unstable, with markets offering loans that on average charge three times the interest rates seen in higher-income countries. Such usurious lending increases the risk of debt distress, reduces government cash flows, and can force states to cut essential public services to afford interest payments. International Financial Organizations (IFOs) such as the IMF and World Bank coordinate financing through mechanisms that can place equally onerous conditions and constraints upon the country. Ironically, it was both the IMF and World bank that rejected Uruguay’s request to fund its energy transition, calling it unfeasible without the government offering heavy subsidies to private energy companies.
Instead, Uruguay turned to the UTE, empowering the entity to issue competitive bidding contracts to energy companies in the form of Purchase Power Agreements (PPAs) to attract direct investment – as well as international expertise in wind and solar technology. The first PPAs came in the form of 20 years long commitments to private energy companies that UTE would purchase all electricity they produced through renewable sources at an agreed rate, priced in US dollars. This ensured consistent revenue to investors, a stable business environment for the companies, and allowed the state to retain full control of distribution. Mendéz considered the PPAs a “good-news-bad-news” proposition for private energy producers: 100% of all energy production would be purchased by UTE, but what they produced will never be theirs to control. It belonged to Uruguay.
Unexpected allies in the transition were the labour groups that worked in generating plants run on fossil fuels that were set to be decommissioned. But Uruguay’s history of labour rights meant the government was ready to engage with unions early in the transition to reduce the negative effects of plant closures. As renewable capacity grew, workforce training for existing workers allowed them to develop skills and experience building and operating wind turbines and solar arrays. An estimated 50,000 jobs were created during the transition – 3% of Uruguay’s labour force. These partnerships between the government and labour organizations strengthened support for state control of the electric grid, with unions regularly opposing attempts by subsequent administrations to privatize parts of the UTE.
What Can We Learn From Uruguay’s Transition?
Energy sovereignty is the right and the ability for communities to control and develop their energy systems in the way they decide, unbeholden to private interests or external pressures that would undermine that right. At the turn of the century, Uruguay was dependent on private energy producers and was stuck in a cycle of furthering the effects of climate change through dirty energy systems, which exacerbated the very droughts that forced the country to buy expensive oil. This inevitably pressured the government to enact a clear, strategic vision for the country’s energy future with the help of a particle physicist who realized the country’s potential. Uruguay has significantly reduced its carbon footprint and nurtured domestic development that is credited with reducing poverty rates from 40% to 10% in less than two decades.
The Uruguay Way is a framework of laws, regulations, institutional support, and consensus building. Ramon Mendéz Galain has travelled the world promoting this framework as a pathway to energy self-sufficiency and reduction of greenhouse gases. However, what can not be dismissed within Uruguay’s success are the unique benefits the country possessed at the start of its transition: an effective state-controlled utility provider, ideal geography, and trust in institutions. This is a benefit-of-the-doubt that few governments, whether high-income or developing, enjoy from their constituents.
Uruguay is a small country with existing social capital, a functioning democracy, and a history of engaging labour groups. It is hard to say for certain if these are necessary conditions for a broad transition, but they have proven valuable in successfully engaging residents and ensuring they are the beneficiaries of cheap, reliable, and sustainable energy.
Uruguay has managed a technical transition conscientious of its people, the future of climate change, and the economic challenges of investing in large-scale, capital-intensive infrastructure. Perhaps what we can best take away from Uruguay’s impressive feat is the power of unified political support for energy sovereignty and the state’s appreciation for the rights of its people and their ownership over their country’s new energy system.
