THE NEW FRONTIER FOR ENERGY GENERATION: RENEWABLES IN URUGUAY AND THE IMPACT ON RESOURCE PROJECTS
| Jurisdiction | Derecho Internacional |
THE NEW FRONTIER FOR ENERGY GENERATION: RENEWABLES IN URUGUAY AND THE IMPACT ON RESOURCE PROJECTS
Partner, Castellano Carlevaro Asociados
Montevideo
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NICOLÁS CASTELLANO GARD is a Partner with Castellano Carlevaro Asociados, in Montevideo. He has over 14 years of experience in corporate law. He specializes in advising local and international companies in different aspects related to their businesses in Uruguay, including setting up corporations, drafting and negotiating contracts with clients and suppliers, and relationships with the Uruguayan regulatory bodies. In recent years, as Uruguay profited from the renewable energy policies in place, he has been directly involved advising developers, EPC contractors, and land owners, in both photovoltaic and wind energy projects for over 200 MW. In this capacity, he has participated in all stages of the projects, from securing bidding processes with Uruguay's electric utility "UTE", negotiating PPAs, structuring financing, EPC contracting, through civil works execution and installation of wind turbines and solar panels. His area of expertise further involves advising court-appointed administrators in company bankruptcy processes, working together with CPAs. He led the team of lawyers advising private companies in the negotiation and drafting of the first biodiesel 15-year contracts with the state-owned Uruguayan oil utility "ANCAP", including project financing with public and private banks for over USD 60 million. Nicolas graduated from the University of Montevideo in Law (J.D.) in 2005. He was an associate at Guyer & Regules law firm from 2004 until 2008, working in the Corporate and Banking departments. In 2008 he travelled to China to complete the International Management Program from Boston University in Beijing and Shanghai. He later obtained a Master's degree in Business Administration (MBA) from Boston University in 2010. Since 2010 he has been a partner in Castellano, Carlevaro & Asociados, and acts as a member in the board of directors of cable TV, micro credit, edible oil, and flour mill industries in Uruguay. He is fluent in Spanish, English, and Italian.
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Content
1. INTRODUCTION
2. ENERGY POLICY AND MAINFRAME RULES
3. THE LAST TEN YEARS
4. RESULTS AND CURRENT SITUATION
4.1. Current situation in Solar
4.2. Current situation in Wind
4.3. Current situation in Biomass
5. LEGAL FRAMEWORK
5.1. Tax Benefits. General regime
5.2. Tax regime applicable specifically for renewables
5.3. Projects Development and Execution
6. MINING IN URUGUAY
7. CONFLICTS BETWEEN MINING AND RENEWABLE ENERGIES
8. BALANCE AND CHALLENGES AHEAD
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1. INTRODUCTION
In the last 10 years, Uruguay's economy has shown a constant economic growth of an average of 5.1% between 2004 and 2015, which translated into an increase in the demand of electric power.1 In 2014, 4787 ktoe were consumed, after a stable consumption of approximately 2000 ktoe between 1970 and 1990.2 Until only recently the main sources of electric power generation, were water through hydraulic energy dams, the main one jointly owned and operated with Argentina, and a backup oil based power station both operated by the public electric utility.
The current electric grid scheme in which renewable energy sources such as wind, solar and biomass have a great role, is the result of a state policy carried out by a series of laws and regulations, which created a suitable environment for the development of alternative energy solutions, as a means of obtaining a growing independence from imported traditional resources.
The focus of this paper is the development of renewable sources of energy as means of generating electric power. While Uruguay's energy policy also deals with liquid fuels, and particularly gas and oil resources, the same will not be analyzed. Up to date, no natural gas nor oil wells have been detected or declared commercially viable.
Hydraulic energy while considered a renewable source will not be dealt with, since there is no room for increase in these areas: the existing hydraulic facilities are working almost at maximum capacity, having produced historical maximums in 2014.3
2. ENERGY POLICY AND MAINFRAME RULES
Energy policy in Uruguay is a state policy with long-term strategic objectives set forth by the Executive Power.4 Uruguay's lack of natural resources such as gas, oil and derivatives made it import most of its energy, until the development of hydraulic plants that started using water as an energy source.5
Historically, all activities related to the electric generation and distribution industries were considered public services, as set forth in article 2nd of Law N° 14.694 dated September 1st , 1977 ("Ley Nacional de Electricidad"), which comprehended generation, transformation, transmission, distribution, export, import and commercialization of electric power.
Twenty years later, with the passing of law N° 16.832 dated June 17, 1997 ("Ley de Marco Regulatorio del Sector Eléctrico"), generation of electric power was excluded
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from the public service domain.6 Henceforth, any agent, private or public, could undertake generation of electric power. This included the commercialization of the energy power generated, be it total or partial, regularly and permanently to third parties, under the strict compliance of laws and regulations set forth by a governmental entity called "Despacho Nacional de Cargas" and the laws and regulations of the "Mercado Mayorista de Energía Eléctrica".
Section 23 of said Law 16.832 entrusts the provision of the electric power services to the "Administración Nacional de Usinas y Transmisiones Eléctricas" (hereinafter "UTE"), leaving all activities except generation, under the orbit of the public utility company, as long as said activities are destined totally or partially to third parties regularly and permanently.7 Even though generation was not an activity exclusively of UTE, in fact, the utility company has been Uruguay's major generator for decades, mainly through its hydroelectric power dams, and its fuel based thermal power plant.
3. THE LAST TEN YEARS
It was only in the last decade that the energy policy made a substantial change, towards development of renewable sources other than water, which were financed, constructed and operated by private parties, in which UTE would play a very important role nonetheless as the main counterparty.
The policy set forth by the Executive Power in this last 10 years tends to electric power independence from imported fuels, carried out through sustainable actions both from the economic and environmental points of view. The main strategy to obtain said independence has been the diversification of the energy matrix, giving special attention to renewable energy sources: wind, biomass, and solar power.
For the first time in decades, in 2008 this policy was made manifest in a written document that was submitted to Executive Power for approval, drafted by the Direction of Energy (hereinafter "DNE") a unit of the Ministry of Industry, Energy y Mining (hereinafter "MIEM") with the input of various public actors of the sector including UTE. In the year 2010, a commission with representatives from all political parties in parliament approved this document.8
The policy defines strategic guidelines and short, mid and long term goals until 2030, as well as the courses of action to be taken to achieve them and the analysis and follow up of the same.
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4. RESULTS AND CURRENT SITUATION
Because of the policy in place, which increased the installed capacity to produce electric power through the available renewable sources, Uruguay reverted its condition of an energy importing country to that of an exporter of electric power
Approximately 1.000 GW/h of electric power per year were exported in 2014 and 2015, mostly to Argentina. The next step of the government's plan is to expand exports to Brazil.9
The DNE, indicated that in 2015 renewable sources of energy had a catered for 56% of the energy grid (biomass, hydraulic, wind and solar), while the remaining 43.5% came from natural resources (oil and derivatives, natural gas, coal, ore, and imported electricity). This tendency is increasing and is expected to grow even more in the coming years as the plan set forth by the state unfolds.10
In 2015, UTE bought energy in the market with term contracts for a total of 2.559.649 MWh, being 24% generated by biomass (UPM and CEPP) and 76% from wind and solar. Regarding total capacity contracted by UTE in renewables, at the end 2015 it was of 926.3 Mw operational, of which 705.2 MW were from wind, 163.1 MW from biomass and 58 MW of solar.11
The investments made in Uruguay are also worth noting, in comparison to other countries of the world, especially considering their weighed average given Uruguay's scale. Between 2010 and 2015 both the private and public sector have investment more than USD 7.000.000.000 (seven billion United States dollars). This means that more than 3% of the national's GDP was invested in energy infrastructure, placing Uruguay in the 5th place in the world's ranking of investment in renewables as a percentage of GDP.12
As declared by the authorities of DNE, if the course set forth, continues to be carried out efficiently by both private and public actors, Uruguay will save at least 9.500 million dollars by 2030 originated in substitution of traditional natural resources for renewable energies, as well mechanisms of energy efficiency. The policy objectives also implies regional integration with national and bi national projects.
4.1. Current situation in Solar.
UTE signed power purchase agreements generated in solar photovoltaic source, under Decree Number 133/013 dated May 2, 2013 (amended by Decree 420/013 dated December 19...
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