Renewable energy-february-2012 uruguay-xxi

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Renewable energy-february-2012 uruguay-xxi

  1. 1. February 2012Renewable EnergyInvestment opportunities in Uruguay
  2. 2. 1. Attractive environment for businessUruguay has a natural environment that is free of natural disasters. It is politically stable with arepresentative democracy and a rotation of three main political parties.The country boasts a stable macroeconomic environment and a booming economy. GDP in 2010was US$ 40,265 million, with a per capita GDP of US$ 11,996. Uruguayan economy enjoys highgrowth rates, achieving in 2010 an 8.5% rate consolidating the seventh consecutive year ofgrowth.Uruguay offers the most open business environment in the region: There are no restrictions on the repatriation of capitals, profits, dividends or interests. Foreign investors do not need permits or prior authorizations. Local companies can be 100% foreign-owned. Foreign investment is treated equally as domestic investment under the law. Uruguay has agreements for investment promotion and protection with 27 countries, including Spain, United States, Finland, France and United Kingdom, among others. The currency exchange market is open and there are no limits on foreign currency trading. Investments can be made in any currency. There are no restrictions on hiring foreign staff (except for companies located in Free Zones where a 75% of employees must be local). Obtaining a residence permit is a speedy process. Anyone who has entered the country legally can apply and commence work, even while awaiting approval. Citizens from most Western countries do not require a visa to enter the country.Uruguay offers a risk free destination for business and investment in Latin America:Uruguay holds a privileged position as top business location according to several globalindicators. The following charts illustrate some of these indicators.1
  3. 3. Table No. 1: Uruguays global rank in terms of democracy and political and social stability Business costs of Crime Low Corruption Democracy Index Global Peace Index and Violence Ireland 19 Ireland 12 Ireland 11 Ireland 28 Chile 22 U.S.A. 17 Uruguay 21 Spain 52 U.S.A. 24 Spain 18 Spain 28 Uruguay 70 Uruguay 25 Uruguay 21 Costa Rica 31 Chile 78 Spain 31 Costa Rica 24 Chile 38 U.S.A. 84 Costa Rica 50 Chile 34 Argentina 55 Costa Rica 115 Brazil 73 Brazil 47 Brazil 74 Argentina 116 Colombia 80 Argentina 51 U.S.A. 82 Brazil 123 Argentina 100 Colombia 57 Colombia 139 Colombia 134 Source: Transparency Source: Economist Source: Economist Source: World Economic International; 2011 Intelligence Unit; 2010 Intelligence Unit; 2011 Forum; 2010/11 Uruguay offers insurance against political risk to investors through an agreement between the Uruguayan government and the U.S. Overseas Private Investment Corporation (OPIC). Such insurance covers all risks (except credit card risk) with claims subject to international arbitration. 2. Why invest in renewable energy in Uruguay? Strong expansion of the economy in recent years, together with a stagnation in generation capacity The rising energy demand, as a consequence of high GDP growth rates, the absence of native fossil fuel resources and the scarce margin to incorporate additional hydroelectric generation, led the Government to propose development policies for native non-traditional renewable energy sources. Abundance of renewable energy resources Uruguay has good sun radiation and vast wind and biomass resources, the latter related to the strength of its agricultural, livestock and forestry industry. There already are several successful cases of wind farms and forestry companies that recycle their waste for the generation of energy, instead of causing environmental problems. 2
  4. 4. Attractive tax incentive regime for the industry and investmentThere is a regulatory framework oriented towards renewable energy industry growth, increasein participation of private sector electricity generation and investment in the sector. In 2007, aninvestment promotion policy was approved, which allows the company to recover under certainconditions up to 100% of the invested amount through Income Tax exemption. Decree354/0091, which favors certain activities related to the renewable energy industry, wasapproved in 2009. Clear and transparent Industry regulatory frameworkThere is a legal and regulatory framework in place that promotes the incorporation ofrenewable energy into the Uruguayan energy matrix. Electricity generation is open to theprivate sector, enabling anybody to participate in the calls.3. Industry descriptionIn Uruguay the energy generation industry is divided in three main sectors: electricity, liquidfuels and gas. The National Board of Energy (DNE) is responsible for the proposition andcoordination of the national energy policy, body under the Ministry of Industry, Energy andMining (MIEM). Among its main duties is the coordination and guidance of the participant’sactions when operating within the energy industry and participation in the development of theregulatory framework that governs energy activity. The Regulatory Agency for Energy and WaterServices (URSEA) is the governing body of the sector; it was created as a decentralized body ofthe Executive Branch, with the capacity to control activities in the sector such as the electrical,gas and hydrocarbon market. Presented below is the industry institutional flow chart:1 Available at: http://archivo.presidencia.gub.uy/_web/decretos/2009/08/245%20.pdf3
  5. 5. Source: Uruguay XXI based on data from the Ministry of Industry, Energy and Mining (MIEM)Total annual energy consumption in Uruguay exceeds 4,000 Ktoe and is an increasing trend. In2010 it was 4,131 Ktoe. Non renewable energy has been the main source of the Uruguayanenergy matrix: crude oil accounts for 48.2% of the total primary matrix. However, renewableenergy is a growing trend. In 2010, 31.7% accounted for biomass and 17.6% for hydro /wind.4
  6. 6. Chart No. 1 – Uruguayan energy matrix (%, Year 2010) Source: Uruguay XXI based on DNE3.1. Government policy and legal framework in UruguayPassed by the Executive Branch in 2008 and ratified by the Multi-Party Energy Board of Congressin 2010, 2005-2030 Uruguayan Energy Policy sets out the main forward-looking national legalframework for energy.The Energy Policy intends to incorporate native resources in general and renewable energies inparticular. The search for source and supplier diversification is part of the objective in order tocut costs, promote national energy generation, reduce oil dependency and open to nativesource participation. Detailed below are the short-term goals (2015) and the main lines of actionregarding renewable energies:Native renewable energy sources comprise 50% of the total primary energy matrix. Electrical Energy: the integration of non-traditional renewable sources accounts for 25% of the power generation, particularly: - Wind Energy: 1,000 MW installed publicly and privately by 2015.5
  7. 7. - Biomass: 200 MW installed privately by 2015. Bioethanol: Mandatory minimum of 5% of total blend with gasoline, as of January 1 st, 2015. Biodiesel: Mandatory minimum of 5% of total blend with diesel, as of January 1st, 2012. Solar Thermal: Designed equipment that promotes inclusion by residential, industrial, commercial and service sectors. Small Hydro Plants (PCH): Boost for PCH introduction.3.2. Electrical system in Uruguay 23.2.1. Regulatory FrameworkLaw 16,832 of the Electricity Regulatory Framework was passed in September 1977 and ratifiedby citizens in a referendum in 1998. The main amendments that this law brought about were: Open energy generation was established, enabling the entry of private participants and a wholesale electricity market was created (MMEE). Trade liberalization with the region, contracts between generators and users from Uruguay and Argentina are allowed, for instance. State-owned electric utility UTE is allowed to partner with other companies. The regulatory and corporate functions of the State are split. Agencies with specific duties are created.2 Source: UTE6
  8. 8. Picture 1. Uruguayan interconnected power system3The Uruguayan system consists of 770 km of 500 kV which interconnects Salto Grande plantsthrough Rincon del Bonete dam and Palmar to the main consumer center, which is Montevideo.It also includes a branch to San Carlos city, located southeast of the country. Likewise, there is a3 Source: DNE7
  9. 9. 3549 km network of 150kV that connects the power generation plants with almost all the majorcities and main consumer centers (49 stations of 150kV).4. Why invest in renewable energies in Uruguay?4.1. Natural ResourcesUruguay has vast natural resources for the development of renewableenergies, such as hydraulic, wind, solar and biomass. BiomassUruguay has a developed forestry, agricultural and livestock industry in which power isgenerated from rice, sugar cane, cellulose, sorghum and wood.Livestock has been Uruguay’s traditional largest export sector with other exports such as rice,cereals and soy gaining more prominence. There already are several successful cases of windfarms and forestry companies that recycle their waste for the generation of energy, instead ofcausing environmental problems.Forest area comprises 4.2% of Uruguay’s total surface, with over 700,000 planted hectares. Theforestry sector has experienced an outstanding growth in recent years. Forestry waste in thecultivation stage is estimated to be around 10% to 30% of the standing tree. After undergoingindustrial process such as sawmilling, waste production is between 50% and 70% of the log.There are a total of 434 sawmill plants in Uruguay. 209 of these are working effectively. It isestimated that Uruguay is capable of generating a maximum output of up to 121MW ofelectrical power at a national level on the basis of the different types of waste (forestry,agricultural, urban and agro-industrial). Forestry waste account for the largest proportion at anational level (65%), followed by urban solid waste (21%) and agricultural waste (10%).8
  10. 10. Chart No. 2 - Energy generation from forestry, urban, agricultural and agro-industrial waste at national level, in national potential (MW) and percentage. Source: DNEInvestments in equipment and services required for the development of these projects can bemainly of local supply. Uruguay can cater for all the necessary technology and human resourcesand is capable of meeting the manufacturing capacity needs required for the development ofthese thermal plants. National companies estimate that between 50 and 70% of the investmentcould be carried out with national capital goods and know-how.Large sawmills are another advantage in the production of ethanol from sawdust, provided thatproduction plants could set up beside these sawmills, thus notoriously reducing transportationcosts and stock needs for instance. SolarUruguay is located in a geographical latitude which ranges from 30º 04´ to 34º 53´, where dailyincidental solar radiation is approximately 1700 Wh/m2. On a summer’s day, solar radiation inUruguay can oscillate between 1000 Wh/m2 and 7500 Wh/m2 and in winter between 200Wh/m2 and 3000 m2, presenting similar values to those of Spain. There is great solar energyavailability, however seasons should be considered together with the resource’s inherentlyfluctuating nature.9
  11. 11. In the case of solar thermal energy, an extensively used global indicator can be used to assessthe expansion of this technology (installed area/ 1000 inhabitants ratio). By year 2010, a value of3.7 m2/1000 inhabitants for effectively working installed area is obtained4.The first photovoltaic pilot farm is setting up in the department of Salto with a capacity of 480Kwp and a solar panel area of 10,000 m2. According to the international cooperation programJICA, the aim of this project is "To promote the use of clean energy and reduce emissionsthrough the use of the photovoltaic system interconnected to the national network. Likewise,the Uruguayan Government will evaluate the integration and performance of this technology inthe National Interconnected System." It is estimated that this photovoltaic farm will reduce7,500 tons of CO2 during the project’s life span and an estimated production of 645 MWh/perannum, which is equivalent to the consumption of 215 households approximately. Picture 2. Uruguayan solar map – Average daily solar radiation (kWh/m2)54 DNE, Renewable energies in Uruguay 20115 Source: “Uruguayan Solar Map” DNE10
  12. 12. Source: DNE Wind energy6Uruguay has very good wind availability for power generation. Thewind map made available by the Engineering School of Universidadde la República can be used as reference, with different heightestimation for up to 90 meters7. There are currently four wind farmsin Uruguay: Nuevo Manantiales S.A. (with a capacity of 13 MW),Agroland S.A. (with a generating capacity of 450 kW), EmanueleCambilargiu wind farm, property of state-owned company UTE (with a capacity of 20 MW) andMadgalena Wind Farm (owned by Kentilux, with a generating capacity of 10 MW). Picture 3. Uruguay wind map8 (Height: 90 m)6 Source: www.dne.gub.uy and www.energiaeolica.gub.uy7 According to reported values for Caracoles and Kentilux wind farms, plant factors oscillate between 35% and 40%.8 Source: Wind energy program11
  13. 13. Source: DNE HydroelectricityHydro generation is one of the main energy sources in Uruguay. The hydro plant is composed ofthree cascaded stations in the Río Negro of a total of 593 MW (Gabriel Terra 152 MW, Baygorria108 MW and Constitución 333 MW) and of a bi-national station in the Río Uruguay of 1880 MWof which 940 MW correspond to Uruguay, the rest to Argentina. Currently, hydro exploitation inUruguay is reaching its maximum limit, with the existence of an additional capacity for smallhydro installations.4.2. Energy demandElectricity consumption in the last two years has grown at rates similar to those of Uruguay’sGross Domestic Product (GDP). This growth is due to various factors that act simultaneouslypushing up demand: strong expansion of the economy with an average growth rate of 6.3% inthe last five years, strong increase in investments in productive sector, improvements in realhousehold income and incorporation of several electrical appliances into the consumptionpattern of the Uruguayan population.It is expected that in 2011 and 2012 electricity consumption will drop in comparison to 2010,with rates that will vary between 6.9% and 5.1%; such values are similar to BCU’s rate forecastfor GDP growth.12
  14. 14. Chart No. 3. Uruguay’s GDP and electricity consumption (Annual variation %)9 Source: Uruguay XXI based on data from BCU and U.T.E.4.3. Favorable regulatory frameworkLaw 16,906 of 1998 which declares the promotion and protection of domestic and foreigninvestment is of national interest. For any investment project submitted and promoted by theExecutive Branch, up to a maximum of 100% of the invested amount may be computed as partof the Corporate Income Tax (IRAE), depending on the type of project. Uruguay has a flatnational IRAE rate of 25%.Personal property included in fixed assets and civil works are exempt from Wealth Tax. VATincluded in the purchase of materials and services for civil works can be recovered. Moreover,the import of personal property included in fixed assets which is not competitive in the nationalindustry is exempt from import taxes or duties, as declared by said law.There is a regulatory framework oriented towards renewable energy industry growth, increasein participation of private sector electricity generation and investment in the sector.9 Note (*): Energy consumption for 2011 and 2012 are estimates carried out by UTE and GDP growth are estimatescarried out by BCU.13
  15. 15. Decree 354/00910, in force since 2009, grants tax incentives specific to the renewable energysector. The decree is established in Article No. 1111 of the Investment Promotion and ProtectionLaw (Law No. 16,906 of January 7th, 1998) and is created by Government stated priority topromote the renewable energy sector12 as a sustainable productive development strategy.Additionally, the Solar Thermal Energy Promotion Law (Law 18,585 of September 18 th, 2009)13that declares of national interest the research, development and training in solar thermal energyis also currently in force. It also intends to promote the insertion of this technology in thediverse activity sectors in Uruguay.On the other hand, Decree Nº 173/010 of June 1st, 2010 authorizes subscribers connected to thelow voltage distribution network to install renewable energy generation systems using sourcessuch as wind, solar, biomass or micro hydro. This decree is enshrined in the 2005-2030 NationalEnergy Policy of Uruguay, intended to foster the use of alternative renewable native energysources, being Uruguay a pioneer in South America in liberalizing the connection of electricitygeneration from renewable energy sources to the grid.5. Current panorama of renewable energy in Uruguay 14There are several projects of electricity generation from renewable sources, some of themalready in operation and others about to commence. Some of the main projects are listedbelow.5.1. In operation, contributing to the electric network10 Available at: http://archivo.presidencia.gub.uy/_web/decretos/2009/08/245%20.pdf11 th Investment Law (Law Nº 16,906 of January 7 , 1998), article 11. (Promoted activities and companies). In conformitywith the provisions of this law, companies with investment projects that have been declared promoted by theExecutive Branch will be able to access the benefit regime established in this chapter. Likewise, the promotionaldeclaration can fall on a specific sector activity, which is deemed to mean, the combination of undertakings conduciveto produce, commercialize or render certain goods or services. Source: UNASEP12 This promotion is adjusted to the goals set forth in Law No. 16,906 and Decree No. 455/007 dated November 26,2007, in particular with reference to qualified job generation, research increase, innovation development and cleanerproduction.13 Available at: http://archivo.presidencia.gub.uy/_web/leyes/2009/09/IE949.pdf14 Source: ADME and DNE14
  16. 16. 5.1.1. Biomass Authorized Name Investor’s Origin Investor Power (MW) UPM S.A. Finland UPM-Kymmene Oyj 161 Fenirol Uruguay/Greece Consortium of groups of investors 10 Consortium Aborgama – Ducelit, Las Rosas Uruguay Municipality of Maldonado, U.T.E. and 1.2 UNDPWeyerhaeuser U.S.A. Weyerhaeuser 12Productos S.A Uruguay (90%) - ALUR S.A. Venezuela ANCAP - PDVSA 5 (10%) Bioener S.A. Uruguay Otegui Group 12 Galofer S.A. Uruguay/Brazil Consortium of 5 rice mills 12.5 Liderdat S.A. Uruguay Azucarlito Group 4.85 Total 218.555.1.2. Wind energy Name Investor’s Origin Investor Authorized Power (MW) Nuevo Manantial 1 Argentina Bulgheroni 13 Group Agroland Argentina Bulgheroni 0.3 Group Kentilux S.A. Uruguay Private 10 Emanuele Cambilargiu Uruguay UTE 20 Total 43.35.2. Eligible renewable e nergy projects5.2.1. Wind energy Power capacity to Company Department Call be installed (MW)Kentilux (expansion) 10 San José 77/006 and complementary Ensol - luz de mar 40 Florida 77/006 and complementary Impsa 15 Lavalleja 77/006 and complementary Palmatir 50 Tacuarembó 403/009 Fingano 50 Maldonado 403/01015
  17. 17. Jistok 50 Lavalleja - Maldonado 403/011 Ensol - luz de mar 50 Florida 159/011 Gemsa 42 Lavalleja 159/012 Aguas leguas 100 Tacuarembó 159/013 5.2.2. Biomass 15 Offered National Name of Bidder power Components Department (MW) (%) Atlanwind S.A. 10.00 31.0% Treinta y tres Mercovientos S.A. 10.00 30.5% Treinta y tres Eolener S.A. 10.00 30.0% Lavalleja Newelec S.A. 10.00 30.0% Durazno Milsoun S.A. 10.00 30.5% Cerro largo Tingelsur S.A. 2.50 30.0% Rivera Amira S.A. 3.50 More than 50% Cerro largo Bioenergy S.A. 20.00 55.0% Tacuarembó Bioenergy S.A. 20.00 55.0% Tacuarembó Tingelsur S.A. 3.15 30.0% RiveraLejanias S.A. (Tacuarembó bioelectrical 1) 15.00 55.0% TacuarembóLejanias S.A. (Tacuarembó bioelectrical 2) 15.00 55.0% Tacuarembó Lanas trinidad S.A. 0.60 31.0% Flores Lejanías S.A. (Río negro - m´bopicua i) 15.00 55.0% Río Negro Lejanías S.A. (Rivera bioelectrical i) 15.00 55.0% Rivera Lejanías S.A. (Rivera bioelectrical ii) 15.00 55.0% Rivera Wirdely S.A. (generation unit n°1) 20.00 30.0% Treinta y tres Wirdely S.A. (generation unit n°2) 20.00 30.0% Durazno Wirdely S.A. (generation unit n°3) 20.00 30.0% Durazno Wirdely S.A. (generation unit n°4) 20.00 30.0% Florida Montelecnor S.A. 20.00 51.0% Rivera Lisger S.A. (lisger i) 20.00 30.5% Treinta y tres Lisger S.A. (lisger ii) 20.00 30.0% Treinta y tres Beltone S.A. (beltone i) 20.00 30.5% Lavalleja Beltone S.A. (beltone ii) 20.00 30.0% Lavalleja TOTAL 354.75 15 In the context of Decree 367/010, the following companies were proposed to generate energy from Biomass. Source: UTE 16
  18. 18. 6. Sector investments6.1 Investment projectsFirstly, with the passing of Decree 455/00716 in 2007 and its current amendment (10/Jan/2012)17which regulates chapter III of Investment Promotion and Protection Law (16,906), a veryfavorable and attractive investment climate has been created.Investment projects concerning the renewable energy sector submitted to the Investment LawApplication Committee (COMAP) showed and irregular evolution between 2007 and 2011. In2007 investment projects approved by COMAP were for the amount of US$27.7 million, withonly two projects submitted. However, in 2008 there was a notorious growth, achieving the sumof US$ 87.9 million, with six investment projects submitted. The main projects in 2008 werepresented by companies URUFOR S.A. and BIOENER S.A. with a US$ 49.5 million investment andGALOFER S.A. with US$ 20.5 million, for the installation of a Biomass power generating plant(rice waste).In 2009, there is a decrease in the number of submitted projects, achieving the value of US$29.5 million, while 2010 recorded the highest figure for the period reaching an amount of US$98.7 million, with 10 projects being submitted. The main project was concerning windelectricity generation by the company GENERACION EOLICA MINAS S.A. with US$ 70 million. In2011, the amount of submitted projects amounted to US$ 38.4 million, which corresponded tothree investment projects.16 November 2007.17 Available at: http://archivo.presidencia.gub.uy/sci/decretos/2012/01/mef_705.pdf17
  19. 19. Chart No. 4: Projects submitted to COMAP18 US$ Million Source: Uruguay XXI based on data from UNASEP6.2. Foreign company investments Many multinational companies have invested in renewable energy in Uruguay, in electricity generation and in bio-fuel. Such foreign investments are carried out in an environment in which foreign direct investment in Uruguay has multiplied by 11 since year 2002, representing in 2010 5.8% of the GDP. Some of these companies are featured below: UPM – Kymenne (Ex – Botnia Uruguay) (www.upmuruguay.com.uy) With an investment of more than US$ 1.2 billion and processing capacity of a million tons of eucalyptus pulp per year, Botnia Uruguay is the largest production venture of Uruguay, starting operations in 2007. This venture is mainly owned by Finnish company UPM-Kymmene Oyj, one of the world’s largest paper producers, and includes 180,000 hectares of land in Uruguay. The plant uses the waste dissolved in cooking liquor, and in some cases also scraps wood, to generate electric power exceeding its own consumption, and surplus is then sold to the network. In 2010, Botnia’s generation delivered to the network was 201 GWh, which represented 0.4% of UTE’s total demand.18 Source: Drafted by Uruguay XXI based on data from COMAP18
  20. 20. Montes del Pl ata ( www.montesdelplata.com.uy) Montes del Plata is a forestry company founded in 2009 in Uruguay. The company’s objective is to produce cellulose pulp under a management philosophy based on efficiency and sustainability. The company came about from the association of two of the most notable forestry companies in the world: Arauco and Stora Enso. These companies, consisting of Chilean and Swedish-Finnish capital, respectively, are equal partners in Montes del Plata. Investment made by Montes del Plata is estimated in US$ 1.9 billion in the plant and US$ 700 million in land approximately. Montes del Plata manages 140,000 hectares of forested lands in the departments of Colonia, Durazno, Flores, Florida, Paysandú, Río Negro, Rivera, Soriano and Tacuarembó. 77% of Montes del Plata’s plantations are comprised of Eucalyptus globulus, Eucalyptus dunnii and Eucalyptus grandis while 23% are pine. Montes del Plata pulp mill, that will start operating in 2013, will also generate its own power, about 160 MW of clean and renewable energy, approximately 90 MW of which will be used for internal consumption. The surplus (between 55 and 75 MW) will be transferred to the national grid, which is equivalent to the average consumption of 200,000 households.  Fenir ol S.A. The project is an investment of approximately U$S 25 million and adheres to the Clean Development Mechanism of the Kyoto Protocol. Electric energy production is achieved based on forestry and rice waste. The company is owned by four business groups of different origins: Conatel (electrical products), Tsakos (shipyard), Branaa (tannery) and Secco (slaughterhouse). The company was awarded the tender for up to 8.8 MW and the contract is for 14 years. ALUR (www.alur.com.uy) The private-public partnership produces ethanol from sugar cane in order to supply the domestic market. By January 2012, gasoline should have a minimum 5% of ethanol (currently contains 2%). ALUR plans to reach and exceed that goal. Additionally, 12 MW/hour will be produced to cater for the plant needs. The surplus will be sold to UTE. The cogeneration of electric energy will enable ALUR to sell 4 MW/h of energy to UTE in the19
  21. 21. first stage (followed by 8 MW/h) during sugar cane harvest time. ALUR planned an incentive program to increase the sunflower sown area intended for the biodiesel production project. This plan will be implemented together with different producer organizations at an individual and company level. Weyerhaeuser (www.weyerhaeuser.com) Weyerhaeuser, a U.S.-based company, is one of the largest forestry and wood companies in the world. It has operations in 13 countries and employs over 18,000 people worldwide. The company has 143,000 hectares of forested area distributed as follows: 78,500 in Rivera-Tacuarembó and 64,500 in Cerro Largo-Treinta y Tres. To date, it has invested in Uruguay more than US$ 450 million (US$ 200 million in lands and plantations, US$ 150 million in works and US$ 100 million in I+D). The company has an energy cogeneration plant fed by by- products of its own production process. The plant’s generation capacity is 12 megawatts and the company’s consumption needs are between five and six megawatts. The remainder can be sold to the state-owned electricity distribution company. Kentilux S.A. Kentilux S.A. is a wind energy generation company which built the “Magdalena” wind farm in the department of San José. The wind farm transfers energy to the grid since May 2011 and has a 10 MW capacity that contributes to the countrys total installed 43 MW by June 2011. Currently, the wind farm is in the process of increasing power generation capacity, aiming to install 20 MW by year 2013. Fingano S.A. Fingano will build a wind farm in Sierra de las Animas area, in the north region of Maldonado. UTE will purchase energy generated by this company in the farm for a period of 20 years. The total installed capacity of the project is of 50 MW, which means that the energy generation equals the consumption of approximately 51,000 Uruguayan20
  22. 22. households, which makes it the largest wind energy project to ever be carried out in Uruguay.Appendix 1National and foreign investment promotion regulationsForeign investors enjoy the same benefits as national investors and do not require priorauthorization to get installed in the country.Law 16,906 (dated January 7, 1998) declares the promotion and protection of domestic andforeign investment is of national interest. The current investment regulatory decree came intoeffect on 10/01/201219.By virtue of this Law and investment projects in any sector of activity submitted and promotedby the Executive Branch, up to 100% of the amount invested may be computed as partialpayment of Corporate Income Tax (IRAE), depending on the type of project. Corporate incometax rate is 25%. In addition, moveable fixed assets and civil works are exempt from wealth taxand VAT (Value Added Tax) can be recovered for purchases of materials and services for thelatter.Trade agreements and investment protectionGeneral trade agreementsUruguay has been part of the World Trade Organization (WTO) since its creation in 1995 and ispart of the Latin American Integration Association (ALADI, 1980) along with nine other SouthAmerican countries, Cuba and Mexico.In the framework of ALADI, the Southern Common Market (MERCOSUR) was formed in 1991with Argentina, Brazil and Paraguay. MERCOSUR became a customs union in 1995 with the freemovement of goods, the elimination of customs duties and non-tariff barriers betweencountries and a Common External Tariff for countries outside MERCOSUR. Venezuela is currentlyin the process of joining MERCOSUR.Moreover, in the framework of ALADI, MERCOSUR has signed trade agreements with otherSouth American countries: Chile (1996), Bolivia (1996), Colombia, Ecuador and Venezuela(2004), India (2004) and Peru (2005), Israel (2007), all of which form respective Free Trade Areaswith tariff reduction schedules that should be completed no later than 2014/2019, according tothe country.19 Available at: http://archivo.presidencia.gub.uy/sci/decretos/2012/01/mef_705.pdf21
  23. 23. Uruguay also signed a bilateral free trade agreement with Mexico (2003) which has enabled thefree movement of goods and services between both countries since June 2004, with certainexceptions that end in 2014.Investment protection agreementsUruguay has signed investment protection and promotion agreements with 27 countries,including Spain, the U.S., Finland, France and the U.K.Appendix 2Installed power and generated energy Chart No. 5. Wind Installed Power (MW) Chart No. 6. Generated Wind Energy (GWh) Chart No. 7. Biomass Installed Power (MW) Chart No. 8. Biomass Generated Energy (GWh)22
  24. 24. Chart No. 9. Solar Thermal Installed Power (MWth) Chart No. 10. Solar Thermal Source Generated Energy (GWh) Chart No. 11. Solar Photovoltaic Installed Power Chart No. 12. Solar Photovoltaic Source Generated (Kwp) Energy (MWh) Chart No. 13. Hydraulic Installed power (MW) Chart No. 14. Hydraulic Generated Energy (GWh)23
  25. 25. Regulatory Framework - Decree 354/009: Tax incentive regime specific for the renewable energy sector Article No. 1 declares the following activities promoted: a) Electric energy generation that comes from non-traditional renewable sources. b) Electric energy generation through cogeneration. c) Energy resources production from renewable sources. d) Solar to thermal energy conversion e) Equipment conversion and/or process incorporation, intended for efficient use of energy. f) Mineral prospecting and exploration according to Law 5,242. g) Services rendered by Energy Service Companies (ESCOs) registered with DNE and qualified as category A. h) National machinery and equipment manufacturing intended for use in the aforementioned activities. Includes IRAE exemption when electric energy is sold in the forward contract market, based on the following schedule: - 90% of the income, between 1/07/2009 and 31/12/2017 - 60% of the income, between 1/01/2018 and 31/12/2020 - 40% of the income, between 1/01/2021 and 31/12/2023 - Law 18,585, 18/09/2009: solar thermal energy promotion This Law is in line with the strategic guidelines in the energy sector at national level mentioned in the previous chapter, particularly with the directive axis that refers to the diversification of the National Energy Matrix with the aim of reducing gasoline reliance and increasing its strength by promoting integration of native sources in general and that of non traditional renewable sources in particular. In article 1 the intention is to stimulate the development of this technology by declaring investigation, development and training in the use of this resource of national interest. The Law mentions different sectors in which the incorporation of this technology will become mandatory. Articles 3, 4, 5, 6, and 7 mention intended areas for inclusion: o New public buildings o Hotels (new buildings or under restoration) o Sports clubs (new buildings or under restoration) o Health care centers (new buildings or under restoration) o New industrial or agro-industrial enterprises o Heated swimming pools (new facilities or those to be converted to heated)24
  26. 26. It also declares tax benefits for the development of necessary investment in manufacturing, implementation and usage of this technology (articles 2 and 12). These benefits include tax exemptions – in the Investment Promotion Law No. 16,906 framework, exemption from import taxes and fees, return of VAT when equipment is for domestic use, sports clubs and social organizations and manufactured nationally. Another aspect included in the Law (article 11) is the coordination of a program to promote easier access to solar energy technology. Coordination is carried out by Ministry of Industry, Energy and Mining, Ministry of Social Development and Ministry of Housing, Planning and Environment. This article also establishes the possibility of participation for all industry related institutions, companies and organizations. Decree 451/011 December 19, 2011 establishes the implementation of Law 18,585 and intends to be a contribution to the new stage that the passing of the aforementioned Law has initiated in the development of Solar Thermal Technology in Uruguay. - Decree Nº 173/010 June 1, 2010: authorizes subscribers connected to the low voltage distribution grid to install renewable energy generation systems using sources such as wind, solar, biomass or micro hydro. Micro generation is carried out mainly in places with no access to the electrical grid, however micro generation solutions are also being implemented with grid connected set ups (UTE). There are two main aspects in micro generation, one is the possibility of generating electricity to meet the demand (in full or in part) of electrical energy, and the other is the possibility to send into the electricity grid the surplus of generated energy, sell the energy to UTE. Concerning the sale of surplus energy to UTE, approval is required to be able to carry out the energy exchange. A connection agreement with UTE will have to be executed in advance. Compliance with the general standards and conditions set by MIEM, and with the low voltage interior wiring regulations by UTE (amended to deal with these situations) is also a requirement. UTE will purchase all the energy fed to the grid at the current price in UTE pricing list, on a 10-year contract term. There are two types of taxpayers: the first one includes companies that generate Corporate Income Tax (IRAE). These companies should be registered as UTE suppliers and the energy fed into the grid will be charged VAT (IVA) at basic rate, UTE will act as withholding agent for 60% of such VAT, not withholding Personal Income Tax (IRPF), not for these cases. No invoice is required, nor is registering with the Internal Revenue Services (DGI). The earned income will only be taxed Personal Income Tax (IRPF) at a rate of 12% with UTE acting as withholding agent. In the case of a credit balance for the client, UTE will process payment on a regular basis.25
  27. 27. It is also necessary to comply with town planning and environment regulations issued by the Municipalities and National Environment Bureau (DINAMA), such as: construction permits, height restrictions in residential areas, among others. Installation insurance will provide peace of mind regarding the investment. The aforementioned can be of two types: Equipment damage or liability insurance.26
  28. 28. Appendix 3Main sector-related institutions and a gencies Ministry of Industry, Energy and Mining (MIEM), www.miem.gub.uy National Board of Energy (DNE) www.dne.gub.uy Wind energy program in Uruguay (PEEU) www.energiaeolica.gub.uy Energy Efficiency Project www.eficienciaenergetica.gub.uy Regulatory Unit (URSEA) www.ursea.gub.uy Electricity Market Administration (ADME) www.adme.com.uy School of Engineering www.fing.edu.uy School of Chemistry www.fq.edu.uy School of Architecture www.farq.edu.uy UTE www.ute.com.uy ANCAP www.ancap.com.uy Alcohols of Uruguay (ALUR) www.alur.com.uy National Environment Bureau (DINAMA) www.dinama.gub.uy National Land Planning Bureau (DINOT) www.dinot.gub.uy Uruguayan wind power association (AUDEE) www.auee.com.uy Mesa Solar www.mesasolar.org Cámara Solar www.camarasolardeluruguay.com.uy Uruguayan Association of Private Electric Energy Generators (AUGPEE) www.augpee.org Private Sector Support Unit (UNASEP) www.unasep.gub.uy National Development Corporation (CND) www.cnd.gub.uy National Investigation and Innovation Agency (ANII) www.anii.gub.uy27
  29. 29. Facts about Uruguay Uruguay at a glance (2010) 20 Official name Oriental Republic of Uruguay (República Oriental del Uruguay) Location South America, bordering Argentina and Brazil. Capital city Montevideo 2 176,215 km . 95% of its territory is productive land fit for farming Surface area exploitation Población (2010) 3.3 million Population growth (2010) 0.35% (annual) Per capita GDP (2010) US$ 11,996. Currency Uruguayan peso ($) Literacy index 98% Life expectancy at birth 77 years Form of government Democratic republic with presidential system Political division 19 departments Time zone GMT - 03:00 Official language Spanish Main economic indicators 2005 -2010 Indicators 2005 2006 2007 2008 2009 2010GDP (Var % per year) 7.5% 4.3% 7.3% 8.6% 2.6% 8.5%GDP (in millions of USD) 17,398 19,823 23,902 31,177 31,322 40,265Population (in millions of people) 3.31 3.31 3.32 3.33 3.34 3.36GDP per capita (USD) 5,263 5,981 7,191 9,351 9,364 11,996Unemployment rate – Annual Average (% 12.20% 10.90% 9.20% 7.70% 7.30% 6.80%labor force)Exchange Rate (UYU/USD, Annual Average) 24.4 24.0 23.4 20.9 22.6 20.06Annual)Exchange Rate (Annual Average Variation) -1.56% -2.50% -10.65% 7.73% -11.12%Consumer Prices (Var % annually 4.90% 6.38% 8.50% 9.19% 5.90% 6.93%accumulated)Exports (in millions of USD), goods and 5,085 5,787 6,933 9,372 8,647 10,666services (1)Imports (in millions of USD), goods and 4,693 5,877 6,775 10,333 7,957 9,875servicesCommercial Surplus/Deficit (in millions of 393 -90 158 -961 690 791USD)20 Sources: Data referred to GDP were gathered from IMF; foreign trade, FDI, exchange rate, International Reservesand External Debt data were gathered from BCU; population growth rates, literacy, unemployment and inflation rateswere gathered from National Statistics Institute.28
  30. 30. Commercial Surplus/Deficit (% of GDP) 2.3% -0.5% 0.7% -3.1% 2.2% 2.0%Global Fiscal Result (% of GDP) -0.4% -0.5% 0.0% -1.5% -1.7% -1.1%Capital gross formation (% of GDP) 17.7% 19.4% 19.6% 22.3% 17.2% 17.9%Gross Debt (% of GDP) 80.2% 69.2% 68.3% 53.0% 69.9% 57.2%Direct Foreign Investment (in millions of USD) 847.4 1,494 1,330 2,106 1,593 2,358Direct Foreign Investment (% of GDP) 4.9% 7.5% 5.6% 6.8% 5.1% 5.9% Investor ServicesAbout usUruguay XXI is the country’s investment and export promotion agency. Among other functions,Uruguay XXI provides free support to foreign investors, both to those who are in the process ofassessing where to make their investments and those who are currently operating in Uruguay.Our Investor ServicesUruguay XXI is the first point of contact for foreign investors. Our services include: Macroeconomic and industry information. Uruguay XXI regularly prepares reports on Uruguay and the various sectors of the economy. Tailored information. We prepare customized information to answer specific questions, such as macroeconomic data, labor market information, tax and legal aspects, incentive programs for investment, localization and costs. Contact with key players. We provide contacts with government agencies, industry players, financial institutions, R&D centers and potential partners, among others. Promotion. We promote investment opportunities at strategic events, business missions and round tables. Facilitation of foreign investor visits, including organization of meetings with public authorities, suppliers, potential partners and business chambers. Publication of investment opportunities. On our website, we periodically publish information on investment projects by state entities and private companies.29

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