Uruguay’s Wind Development Program Attracted Private Investment to Transform the Power Sector

Uruguay illustrates how targeted sectoral policy —  in this case, regulatory reforms and government-funded demonstrations of renewable technologies —  can catalyze private investment and lead to transformative change. While the country’s power mix has historically been dominated by hydropower, its lack of reserves left the system highly vulnerable. A series of severe droughts in the early 2000s forced the government to rely more heavily on oil imports and electricity imports, increasing costs and carbon dioxide emissions. During particularly severe drought years, oil comprised 30%-40% of the power mix.

In 2007, the government launched the Uruguay Wind Energy Program to reduce reliance on costly fossil fuel imports using a Global Environment Facility grant of $1 million coupled with $6 million from its own budget. This program kickstarted wind development through the following measures:

• Regulatory reforms, including a competitive reverse-auction system for large-scale development and a feed-in tariff for small-scale projects. Independent power producers could feed into grid at standardized prices and the state-owned utility was required to buy all wind power generated. Higher prices were guaranteed for projects generating electricity before 2015.
• Workforce training on wind integration, including development of a demonstration wind farm and a university curriculum, which created new job opportunities in Uruguay and regionally.
• Outreach to developers and investors led by utilities to address risk perception and share knowledge.
• Stakeholder dialogues for regional cooperation, which ultimately facilitated market linkages among Uruguay, Brazil and Argentina. Uruguay began exporting excess wind power to Argentina in 2016.

As a result, wind development exceeded the government’s initial expectations, with wind energy generation near 5,000 gigawatt hours and generating about 40% of the country’s electricity. Building on its history of meaningful dialogue with labor groups, the government worked closely with unions during the closure of power plants and used measures including early retirement together with workforce training in renewable industries to manage the transition.  

More recently, the government began implementing similar policies to ramp up solar power, which now comprises 3% of the power mix. The government is also exploring ramping up offshore wind largely to produce green hydrogen as a key component of plans to meet its 2050 carbon neutrality goal.