While the world is struggling with the energy transition, Uruguay is embarking on its second energy transition. Omar Paganini, Uruguay’s minister of industry, energy and mining, talks to fDi about the country’s ambitions in cleaning up its energy matrix. 

Q: What are the details of Uruguay’s second energy transition? 

A: Uruguay has historically relied on hydropower and fossil fuels for its energy. Following a multi-party agreement in 2010, we decided to shift to renewables — we invested strongly in wind power, solar power and biomass.

By 2017, we had already achieved 95% of electricity generation from renewable sources — around 45% hydropower, 30% wind power, 20% biomass and 1–2% solar. For the remainder, particularly when we have droughts, we rely on fossil fuels.

This was our first energy transition and was remarkably quick. What we are now facing is the fact that about 40% of our overall energy matrix still relies on fossil fuels, particularly when it comes to the needs of transportation and industry.

Our second energy transition is focused on these sectors. We want to introduce electric mobility for passenger cars, while hydrogen can be used for long-haul transportation and industry. With regards to e-mobility, we can achieve our targets by introducing tax exemptions; for hydrogen, it has to be exports-oriented for the kind of projects that we are considering to be viable. 

Q: Uruguay has the most expensive electricity in Latin America. Are local consumers buying into the energy transition? 

A: When we started with this transition in 2010, wind and solar power were much more expensive than they are today. Solar was just starting as a competitive alternative; while wind was already established, but it was much more expensive. So that’s why we now have a rather expensive electricity generation market, as we are locked into the prices in the purchase power agreements signed back then.

The new projects we are setting in motion with the green hydrogen roadmap won’t make electricity more costly though. If they generate an export, they generate an inflow of capital. And they will create jobs and investments in across the country. 

Q: Can you elaborate on the government’s hydrogen roadmap? 

A: We have received proposals from European companies in countries such as Germany and Scandinavia for three big hydrogen projects. They are private projects, either for the production of hydrogen derivatives like e-methanol or the production of ammonia, and we want to support them with aggressive tax exemptions. 

Although European investors approached us first, North American companies are now showing interest, too.

Q: How big are these investments and what capacity you are considering at the moment?

A: We are interested in medium-sized projects of about 200 megawatts (MW) to 400MW of new installed capacity for renewable energy, and 150MW to 300MW of installed capacity for electrolysers.

Q: Has hydrogen become a way for countries like Uruguay to replicate the oil and \gas industry's typical exports/imports model?

A: It has some similarities, but also a lot of differences from oil. The good aspect about renewables is that they are not so much geographically localised. On the other hand, there are countries that will not have enough renewables on their territory to fully replace fossil fuels.

This is where green hydrogen can come in, particularly in energy-intensive sectors like long-haul transportation and heavy industries. Uruguay has a large surplus of renewable energy to harness. We have an electric system of two gigawatts (GW) of installed capacity, and a tier-1 potential for wind and solar of 90GW. We also have abundant water resources.

This article first appeared in the June/July 2022 edition of fDi Intelligence.