PART I - PROJECT Concept
A - Summary
1. The Government of Uruguay expects that wind energy in Uruguay can play an important role for energy diversification, greenhouse gas reductions and to create opportunities to supply the Mercosur market with products, services and know-how. The National Energy Directorate (DNETN) and the national electricity company, UTE investigates possibilities to invest in wind energy under different project modalities. 20 MW wind power will be installed by 2008, of which one first 5 MW project is imminent and likely to be public-funded.
2. During the PDF A Phase of the Project, the following barriers have been identified for the development of wind energy in Uruguay: (i) the lack of regulation and clear procedures for installing, connecting and operating wind-based electricity generating capacity; in addition, there is no financial support for wind energy and the low long-term average generating cost (USD 30/MWh) as a reference price make investments in wind power selling to the public grid, financially unattractive; (ii) the lack of reliable information with respect to promising regions and sites for wind-energy, primarily related to accurate, long-term wind measurements and estimates of the wind potential, and secondly to spatial planning and environmental issues; and (iii) the lack of available human and institutional capacity for opening up a market for wind energy in Uruguay, specifically within the DNETN, the national electricity company UTE, and potential private developers.
3. The UNDP/GEF Uruguay Wind Energy Programme (UWEP) is targeted at removing these barriers to achieve its goal of contributing to global greenhouse gas mitigation. By enabling large-scale, grid-connected wind energy, it will directly avoid 0.18 Mton CO2 emissions over the lifetime (20 years) of a 5 MW wind farm and indirectly an additional 1.1 Mton CO2 over the period 2006-2015, with yearly savings after 2015 of minimally 0.26 Mton CO2. The UWEP initiative will assist Uruguay in exploiting its domestic wind resources to reduce the countries reliance on imported fossil fuels and contribute to economic and sustainable development in Uruguay by reducing import costs for fossil fuels and generating new employment opportunities.
4. The proposed UNDP/GEF UWEP project fits under GEF Operational Programme #6: removing the barriers to the commercial introduction of large-scale, grid-connected Renewable Energy Technologies in Uruguay and creates a basis for replication and sustainability. The initiative is fully consistent with national UNDP priorities and focal areas, which address the sustainable use of energy and the promotion of RETs (renewable energy technologies) and constitutes an important instrument for the Government to shape and implement its policies towards energy diversification, energy conservation and the use of clean, domestic resources.
The UWEP project will have four outcomes and be targeted primarily at strengthening the existing institutional and human capacity by enhancing manpower, facilitating training, streamlining intra- and inter-institutional processes. The project will further address the lack of specific information needed to initiate and develop wind energy in the country by implementing a sustainable wind measuring programme and executing supporting studies. The overall budget of the project is USD 7.01 million, with USD 5.075 million committed for investment in the planned first 5 MW wind farm, and a GEF contribution for barrier removal activities of USD 1 million. The cost-effectiveness of the proposed initiative is 0.78 USD/ton CO2 taken into consideration both the direct and indirect wind energy investments initiated through this initiative.B - Country ownership
1. Country Eligibility
5. Uruguay ratified the UNFCCC in 1994 and the Kyoto Protocol in November 2000.
2. Country Drivenness
6. The newly elected Government of Uruguay actively seeks to benefit from domestic energy resources, mainly wind and biomass, and to increase energy efficiency among end-users[1]. The use of domestic, renewable, energy sources will therefore directly translate into a reduction of the consumption of imported, fossil fuels and bring along important, long-term benefits to the global environment and the local economy. Moreover, the Government pursues a strong policy to foster economic growth, attract investors and create new employment opportunities[2]. The Ministry of Industry, Energy and Mining (MIEM) expects that a sustainable market for wind energy in Uruguay can play a role to meet these targets and creates opportunities to possibly supply the Mercosur market with products, services and know-how.
7. The MIEM, through the National Energy Directorate (DNETN), and the national electricity company, Administracion Nacional de Usinas y Transmisiones Electricas (UTE), are investigating the possibility to invest in wind energy and biomass projects under different project modalities, i.e. legal and financial structures. For wind energy, 20 MW wind power is considered to be installed by 2008, of which a first 5 MW project is imminent and probably be publicly-funded. The rationale behind these plans are the need for diversifying the national energy mix, learn about new energy technologies and start exploring the large potential of domestic (renewable) energy resources[3]. Furthermore, the country’s reliance on hydroelectric energy makes it highly vulnerable to climatic variability, with droughts causing severe energy shortages. Hence, there is a strong political commitment to create appropriate conditions for future public and private investments in wind (and biomass) capacity. The proposed UWEP medium-size project fits in these plans by removing the presently existing barriers identified during the PDFA implementation and provides support for these projects and creates a market for wind energy technology in the country.
7. The submission of the National Communications is one of Uruguay’s main commitments under the UNFCCC. The First National Communication to the UNFCCC was submitted in 1997 followed by the country’s Second National Communication in 2004, which contains the National Inventory of Greenhouse Gas for the year 2000. This inventory indicates that annual CO2 emissions were around 5.5 million tons of CO2, generated mainly in activities of the energy sector (93%), of which nearly 0.42 million tons of CO2 came from electricity generation of thermal power plants - supplied by fuel oil and gas oil - from the National Interconnected System (SIN). One of the main recommendations arising form this process is the encouragement of renewable energy technologies. This is reflected as a priority within the national environmental policy established by the Ministry of Housing, Territorial Regulation and Environment – MVOTMA- based on the principles recognized in the General Environmental Protection Act (No. 17.283).
8. In UNDP’s Multi-Year Funding Framework (MYFF), “Access to Sustainable Energy Services” is one of the six service lines under the strategic goal of “Energy and Environment for Sustainable Development”. Environmental conservation and the sustainable use of natural resources is one of the three main programme areas of the Second country cooperation framework for Uruguay, still in force. In the new UNDP Country Programme (under preparation) the themes of energy diversification, an increased share of renewable energy sources and the sustainable use of energy are prioritized.
C – Policy and Programme Conformity
1. Programme Designation and Conformity
9. The proposed UNDP/GEF UWEP initiative fits under Operational Programme #6. The project will contribute to the objectives of OP#6 by removing the barriers to the commercial introduction of large-scale, grid-connected Renewable Energy Technologies (specifically: wind energy) in Uruguay and create a basis for replication and sustainability. It also fits in squarely within GEF 4 Strategic Objective CC-4 (Promote On-grid Electricity from Renewable Sources).
2. Project Design
2.1 Background & Problem Analysis
10. With no reserves of fossil fuels, the supply of primary energy in Uruguay fully depends on hydro power and imported fossil fuels[4]. The potential for adding hydro power being very restricted, natural gas is expected to play an important role to meet the increasing energy demand in the near future and a pipeline is being built connecting Bolivia, Brazil, Uruguay, Argentina and Chile. To expand the installed electricity generating capacity, gas-fired power plants will be the preferred technology, while existing inefficient thermal power stations will be withdrawn or retrofitted for natural gas combustion. By consequence, (i) the dependence of Uruguay on imported energy will increase; (ii) the national economy will become more susceptible to price fluctuations on the international gas markets; and (iii) the larger share of fossil fuels will increase the emissions of greenhouse gases by the domestic economy.
11. Although Uruguay has as yet a rather energy-extensive economy, renewable energy sources, together with appropriate energy efficiency measures, will play a valuable role in the national energy sector, basically by (i) substituting future fossil-fuel based power plants to avoid the associated GHG emissions; (ii) improving the operating conditions of the interconnected electrical system; (iii) saving precious water resources in periods of scarcity; and (iv) contributing to a more balanced energy mix by reducing the dependence on imported energy sources. Electricity demand forecasts in Uruguay indicate a moderate, but sustained growth of 3% per year, which cannot be met by traditional, large-scale hydro power.
12. From the renewable energy technologies applicable in the Uruguayan context, wind energy and biomass have the largest technical potential. The country has significant wind resources that can be exploited commercially according to international practices and there is scope for exporting wind-generated electricity to neighboring countries. Wind turbines can also play an important role to extend the electricity service to dispersedly populated areas. Outside Montevideo, industrial customers nowadays actively look for opportunities to improve power supply and reduce costs: wind energy and co-generation are considered economically viable options, once the technical and legal conditions are in place to enable the effective interconnection and operation of decentralized generators.
13. The newly elected Government gives a high priority to the use of domestic energy resources, including wind energy and biomass. However, no specific action has been taken as yet to move forward towards the effective and sustained introduction of renewables in Uruguay. There is no appropriate regulatory and legal framework for the integration of renewables into the national electricity system; there are no incentives to stimulate investments in these technologies and there is hardly any experience with private power generators and Power Purchase Agreements PPA´s. In spite of the generally high level of technical skills and know-how, there is a need for up-to-date information about the technical and economic characteristics of modern wind technology integrated into the national grid. In view of the economic difficulties the country faces, the Government has very little resources available to explore wind power and achieve a technological transition.
14. While the MIEM, through its DNETN is the central entity in charge of preparing and executing energy policy and directives, most of the sector's competence – in terms of operational skills, project preparation and execution, applicable standards and codes – are concentrated in the centralized national electricity company UTE. The Universidad de la Republica (UDELAR), (and more specifically, its Working Group on Renewable Energies (GTER) at the Faculty of Engineering) is a very important source of knowledge in the country and traditionally, the public sector often refers to it for expert knowledge. GTER has accumulated important expertise with wind energy and carried out substantial field work. GTER installed the first (and only) wind turbine in the country under an agreement with UTE and the Inter-American Development Bank (IDB). The 150-kW Nordex wind turbine is located on a hill ridge east of Montevideo (Sierra de los Caracoles)[5]. This plant is in operation since 2000 and has successfully delivered energy to the grid since then; it has also generated valuable information, experience and hands-on skills.
15. Based on previous studies[6], GTER estimates the technical potential for wind energy to be between 400 MW and 600 MW in the three hill areas in the east of the country alone (Sierra de las Animas, Sierra de los Caracoles, Sierras de las Cañas). Good wind potential has also been identified at the Rocha lagoon, in Tacuarembo in the middle of the country, in Las Rosas and at Punta Brava o de las Carretas (Montevideo). The positive assessment of these areas included evaluation criteria related to distance to the grid, and terrain accessibility.
16. In 2003, UTE published a Call of Interest[7] to probe the response of foreign companies to enter the Uruguayan wind market. Previously, UTE has carried out an economic analysis of wind projects integrated into the national grid. This demonstrates the will of the country to look for new options to meet its energy needs. The sub secretary of the MIEM expressed the country’s need for new technologies at a workshop organized by UTE on October 18, 2005. However, significant barriers exist, which have impeded progress on renewable energies until now.
17. Independent Power Producers (IPPs) are still a new concept in Uruguay and there is not much experience with the various modalities of PPAs in Uruguay, since almost all generating plants are owned and operated by UTE. In fact, the above-mentioned biogas plant at Las Rosas is currently the only exception. This scenario will change with the introduction of more gas-fired plants in Uruguay since UTE has made a call for 50 MW decentralized, privately run, capacity. It is also recognized that third parties can play a role to improve the energy service in the inland, using biomass, wind energy and small hydropower. This will make the existence of a private delivery model for electric energy in Uruguay, alongside the traditional public system, more likely in the future.
2.2 Barriers
18. During the PDFA Phase of the Project, the barriers for the implementation of wind energy in Uruguay have been identified and analyzed. In the following, these barriers will be described in more detail, according to the GEF Five-pillar Analytical Framework[8].
Policy barriers
19. Policy barriers for the market-driven implementation of large-scale wind energy systems in Uruguay are related to the following areas: (i) legal and regulatory voids or impediments; (ii) the adoption of appropriate technical standards and procedures; (iii) the recognition of the economic value of wind energy; (iv) integration of wind energy in building procedures and spatial and environmental planning.
20. A conductive policy framework must initially enable the installation, connection and commercial operation of wind energy systems in the national authority. Further, it must include appropriate guidelines, procedures, standards and codes for importing, installing and operating wind turbines. Such standards and procedures do not exist yet in Uruguay and therefore need to be introduced. One must note that specific standards and regulations are already in place in many other countries and that Uruguay can benefit from these. Areas to be covered are: type certificate and safety of wind turbines; electric installations; civil works; environmental impact during construction and operation; land use and spatial planning.