VZCZCXYZ0013
RR RUEHWEB

DE RUEHMN #0401/01 1941245
ZNR UUUUU ZZH
R 131245Z JUL 09
FM AMEMBASSY MONTEVIDEO
TO RUEHC/SECSTATE WASHDC 9195
RUCNMER/MESUR COLLECTIVE
RHEBAAA/DOE WASHDC

UNCLAS MONTEVIDEO 000401 
 
DEPT FOR WHA/EPSC FCORNIELLE and FCOLON 
DOE FOR LEINSTEIN 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ENGY EAGR UY
SUBJECT: URUGUAY'S POTENTIAL AS A RENEWABLE ENERGY LEADER IN THE 
HEMISPHERE 
 
¶1. (U) This telegram is sensitive but unclassified, and not for 
Internet distribution. 
 
------- 
Summary 
------- 
 
¶2. (U) Uruguay has the potential to become an alternative 
energy-based economy if it continues its current effort and improves 
the policy environment and needed infrastructure.  In its quest for 
energy security, the GOU is pursuing a three-pronged strategy that 
parallels current U.S. energy policy:  breaking Uruguay's dependence 
on oil; producing more energy at home; and promoting energy 
efficiency.  Several projects -- both private and public sector 
driven -- in the areas of biofuels, bio-mass and wind generation are 
bringing the country closer to being able to capitalize on its 
potential.  By the end of 2009, Uruguay will generate six percent of 
its electrical power from non-traditional renewable energy (e.g. 
biomass and wind).  Embassy Montevideo is actively pursuing a series 
of biofuels and alternative energy-related initiatives with the GOU. 
End Summary. 
 
------------------------ 
Uruguay: Energy Overview 
------------------------ 
 
¶3. (U) From 2003 to 2005, the need for Uruguay to expand its 
national energy portfolio was brought into sharp focus by the 
country's worst-ever energy crisis.  Rising demand forced Uruguay to 
supplement its normal electricity supply with greater purchases from 
its neighbors Argentina and Brazil.  Under normal conditions, 70 per 
cent of the country's annual electrical energy requirement of 2500 
megawatts (MW) is generated by large scale domestic hydroelectric 
power plants, with the remaining 30 per cent being met mainly by oil 
imports (together with a small amount of gas and imported 
electricity).  As recent droughts have demonstrated, however, this 
optimum 70 to 30 ratio changes dramatically in times of low 
rainfall.  Uruguay's lack of domestic oil leaves it completely 
dependent on imported oil supplies and vulnerable to price increases 
(the country's petroleum imports exceeded USD 1 billion in 2007 and 
almost doubled in 2008).  Consequently, a driving force behind the 
diversification of Uruguay's energy sector is a desire for energy 
security and independence. 
 
¶4. (U) The GOU is convinced that renewable energy could play a 
central role in solving Uruguay's energy concerns.  Upon assuming 
office in 2005, President Tabare Vazquez announced that his 
government would aim to generate 500 megawatts, or 20 per cent of 
the country's electricity, from alternative sources by 2015.  In 
support of this target, the GOU launched a sustainable energy policy 
designed to support the growth of the renewable energy sector. 
Under this program, the government offered to grant tax exemptions 
and financial benefits of 10 to 20 years to private investors who 
produce renewable energy.  In 2007, the state utility company UTE 
issued tenders for 60 MW worth of wind, biomass, and small-scale 
hydroelectric power plants projects (originally intended to include 
20 MW from each source).    So far, however, only 36 megawatts have 
been awarded to bidders, none of which have been for hydroelectric 
power.  UTE officials told emboffs that economic conditions have not 
favored small-scale hydroelectric projects and they expect to award 
more wind and biomass contracts instead. 
 
¶5. (U) A central part of the GOU's efforts to increase the presence 
of renewable energy in the overall energy matrix is the use of 
biofuels in the transport sector.  Of Uruguay's 2007 total energy 
demand, transportation accounted for 33 percent.   Diesel 
consumption for vehicles in 2008 was about 880 million liters, while 
gasoline was 380 million liters.  The GOU aims to partially replace 
petroleum in cars and public transport with biofuels over the next 
five years. 
 
------------------- 
Hydroelectric Power 
------------------- 
 
¶6. (U) Uruguay has four hydroelectric plants in operation; three on 
the Rio Negro and one, the Salto Grand Dam, that is shared with 
Argentina on the Rio Uruguay.  The stations on the Rio Negro date 
from World War II and are in need of upgrades.  Additionally, UTE 
has plans for a new 80 MW plant near Montevideo, with equipment and 
engineering support coming from Finland. 
 
¶7. (U) Most of Uruguay's rivers are already dammed and land costs in 
suitable areas are prohibitively high.   Sources at the Ministry of 
Energy speculate, however, that a number of local rice producing 
companies are already ideally situated, but are not yet aware that 
installing hydroelectric power could be a viable option. 
 
 
------- 
Biomass 
------- 
 
¶8. The burning and/or gasification of renewable biomass is presently 
the largest non-traditional (i.e. not including hydroelectric power) 
renewable source of electricity in Uruguay.   As such, energy 
produced from biomass largely accounts for the GOU claim that 
Uruguay has the highest proportion (6 percent) of electricity from 
non-traditional renewable sources in the western hemisphere.  At 
present, although many companies use biomass to produce heat energy 
for their own operations, all biomass-produced electricity moving to 
Uruguay's grid comes from one source: Finnish company Botnia's huge 
paper mill located in the west of the country on the border with 
Argentina.  The plant produces electricity from vapor produced by 
the burning of 'black liquor,' surplus residue from the production 
of pulp.  The plant produces 120MW annually; half is used to sustain 
its own operation, with the other half sent to the grid and sold to 
UTE. 
 
¶9. (U) The production of energy from biomass is set to grow.  U.S. 
forestry company Weyerhaeuser, which already uses biomass (waste 
from its forest product operations) to fulfill its heat and steam 
requirements, is finalizing construction on a 10MW turbine 
electricity plant and has recently signed a contract with UTE to 
provide 4 MW of electricity to the national grid.  ALUR, a 
subsidiary of the state oil company ANCAP, is constructing a biomass 
generation facility to power its sugarcane refinery and bioethanol 
plant.  The plant will burn sugarcane bagasse, rice husks and sweet 
sorghum residuals.  ALUR has also signed a contract to sell surplus 
MW to UTE.  Additionally, at least three other local forestry 
(Bioner and Fenirol) and rice producers (Galofer) have concrete 
plans to produce electricity for UTE.  Between them they could 
generate up 28 MW for the national grid. 
 
------------------------------- 
Biofuels: Ethanol and Biodiesel 
------------------------------- 
 
¶10. (U) Uruguay produces, or has plans to produce, both ethanol 
(generally produced from sugars and starches in plants), and 
biodiesel (generally produced from oily biomass such as seed and 
animal fats) and has made an important regulatory commitment to 
mandate the use of biofuels in the country.  In November 2007, the 
GOU passed a law regulating their production, commercialization, and 
utilization.  As a result, Uruguay has a legislatively mandated 
target of a) a five percent ethanol/gasoline blend by 2015 and b) a 
two percent biodiesel/ diesel blend by 2010 rising to five percent 
by 2015. 
 
¶11. (U) Ethanol:  The state-owned petroleum company ANCAP already 
produces some 1.5 million liters of industrial-use ethanol per year 
through its alcohol subsidiary ALUR, and is currently installing 
equipment to produce ethanol for use in vehicles.  In 2006 ALUR took 
over the Bella Union Sugar Company's sugar plantations and refinery 
and now aims to add value to its operations by producing bioethanol 
and generating electricity with biomass.  Using molasses as a 
feedstock, ALUR expects to meet and even surpass the five percent 
blending target by 2010.  Final production is well underway on the 
site's alcohol distillery, and production is set to begin by the end 
of 2009. 
 
¶12. (U) In addition to soy, sunflower and other oily grains, 
biofuels proponents in Uruguay consider sweet sorghum an excellent 
feedstock.   Sweet sorghum contains an exceptionally high amount of 
sugar, and yields approximately the same amount of ethanol per 
bushel as corn, but is not vulnerable to the charge of displacing 
food supplies.  The plant seems to fare particularly well in 
Uruguay, and ANCAP, Weyerhaeuser and a French company AKOU are all 
independently engaged in testing with a view to developing sweet 
sorghum pilot projects.  Uruguay's National Agricultural Research 
Institute (INIA in Spanish) has conducted its own studies and 
continues to work with researchers and ANCAP to study the prospects 
for sweet sorghum as a fuel crop.  ANCAP and INIA have been engaged 
with researchers at Texas A&M, a leader in sweet sorghum, since 
visiting the University in 2007 on an Embassy-sponsored program. 
AKOU's endeavors with sweet sorghum seem particularly advanced. 
While production has not yet begun, the company has plans to expand 
its 550 hectare plantation to 8- 10,000 hectares over the next few 
years.  The company has secured permission to construct an ethanol 
plant and, if production is successful, hopes to develop an export 
market. 
 
¶13. (U) In addition to the apparent potential offered by sweet 
sorghum, Uruguay is well-positioned to pursue the longer term trend 
towards cellulosic ethanol.  This process utilizes the structural 
 
material that comprises much of the mass of plants and has the 
advantage of being supported by a relative abundance of source 
material when compared with sources such as corn, sugar cane or 
sorghum.  Of particular interest in Uruguay are the possibilities 
offered by the processing of wood chips and thinnings, sawdust and 
other such residuals from its rapidly growing forestry industry. 
Although cellulosic ethanol is generally more complicated (and 
therefore costly) to produce, it nevertheless seems to be edging 
ever closer to being viable. Both ANCAP and Weyerhaeuser have 
indicated their interest in exploring cellulosic technologies in 
Uruguay. 
 
¶14. (U) Biodiesel: Until last year, Uruguay had a modest but 
thriving biodiesel sector concentrated at the level of local farmers 
and small private operators who produced biodiesel as a by-product 
of animal feed production.  The biodiesel was then used to run local 
farm machinery and, in one case, a local bus company.  A recent rise 
in the price of the two main feedstocks (animal tallow and soybean), 
however, has meant that placing the by-products directly on the 
market offered greater economic gain than converting them into fuel. 
 Consequently, the majority of these plants have presently ceased 
biofuel production. 
 
¶15. (SBU) ANCAP is ramping up the largest biodiesel project in 
Uruguay, working with the edible vegetable oil producer COUSA. 
COUSA operates the country's largest pressing plant and edible oil 
refinery on the outskirts of Montevideo.  Cousa and ANCAP are 
finalizing the details to have Cousa source raw material and expand 
pressing operations to provide grain oil that ANCAP will use to meet 
upcoming mandatory blending requirements for bio-diesel.  ANCAP will 
install two biodiesel refineries at the location of its central 
refinery in Montevideo.  These plants will enable ANCAP to produce 
around 4-5 million liters by the end of 2009.  Although ANCAP is 
unlikely to meet the mandated 2 percent blend by the end of the 
year, production is expected to step up to around 16-17 million 
liters in 2010, enabling it to comply with the GOU target. 
According to Cousa, the project's ideal feedstock is around 75 
percent sunflower seed to 25 percent soy, which would be purchased 
on the open market.  ANCAP is working with local cooperatives to 
provide both technical support and guarantees that they will 
purchase the crops at market prices. 
 
---------- 
Wind Power 
---------- 
 
¶16. (U) The potential to harness wind energy in Uruguay is 
significant.  The National Directorate of Energy is currently 
creating a wind-map of the country to identify the most advantageous 
sites.  Currently, there are two functioning projects: a private 
wind farm in Rocha (owned by Argentine investors) and the UTE-owned 
"Sierra de los Caracoles" wind farm in Maldonado.  Both operations 
generate approximately 10 MW per year.  While economic constraints 
mean that the Rocha farm is unlikely to expand in the near future, 
UTE hopes to be generating 300MW of wind-power by 2015 (ten percent 
of Uruguay's annual requirements). 
 
¶17. (SBU) The response to UTE's call for wind power tenders has been 
enthusiastic and ongoing (UTE and the Ministry of Energy are 
currently interviewing interested parties, including U.S. firms), 
but UTE has not yet contracted additional projects.  A key 
consideration for potential investors will be to obtain an "iron 
clad" purchase contract from UTE, which has a monopoly on the 
purchase of energy as well as the right to set conditions, price and 
location.  One additional, primarily technical challenge arises from 
the fact that Uruguay's electricity grid is designed to be fed only 
from a few central sources.  Consequently, potential investors have 
to design and budget for the necessary bridging technology. 
 
¶18. (U) The GOU's 2005 plan also included incentives for buildings 
and homes to use mini-wind parks to create self-sustained energy. 
Another initiative is mini-turbines used in family homes.  Although 
these remain long-term aims, Ramon Mendez, the National Director of 
Energy, has stated that grid energy consumption could be reduced by 
almost 30 percent through this method.  Additionally, the 
mini-turbines could potentially feed the grid and the owners could 
receive a discount in their energy bills. 
 
----------- 
Solar Power 
----------- 
 
¶19. (U) The use of solar power is only at an incipient stage in 
Uruguay.  Uruguay's largest single installation is 150 m2 and the 
country currently has only 1.000 m2 of solar panels or less than 0.3 
m2 of coverage per thousand inhabitants.  This compares to Brazil 
with 17 m2 of solar paneling per thousand inhabitants, Germany with 
 
104m2 and Israel with 770 m2.   Uruguay's existing solar power 
technology is primarily thermal (i.e., based on solar collecting 
devices that generate energy directly heating water, as opposed to 
the costlier photovoltaic technology, which uses sunlight to produce 
electricity).  For the last two decades, most solar power has been 
employed by a limited cadre of small business and homeowners using 
thermal solar devices to meet their water heating needs. 
 
¶20. (U) The potential for solar power in Uruguay is encouraging. 
Uruguay receives an average of 1700 kw/m2 of sunlight a year, which 
puts it on par with Mediterranean countries and makes solar energy a 
viable option.  There may also soon be legislative support for solar 
power: the Senate recently passed a 'Promotion of Solar Technology' 
law that would require  every newly constructed health center, hotel 
and sports club with more than 20 percent of their energy 
expenditure devoted to heating water to install solar collectors. 
Additionally, many state institutions are working together to 
support solar initiatives.  "Mesa Solar" (Solar Table) is a group of 
engineering, architecture, local government and business 
institutions who communicate on topics connected to thermal solar 
energy.  Also, the public university teaches a module on solar 
energy as part of its "Technology and Renewable Energy" and 
Architecture courses. 
 
¶21. (U) The GOU is also interested in exploring photovoltaic power, 
and by 2015 aims to have established two pilot photovoltaic farms at 
a rural location isolated from the main grid.  UTE has already 
installed a few photovoltaic panels since 1992.  In 2004, they 
embarked on a plan to install 1000 50 watts/peak (wp) systems. 
Roughly 600 of these have been successfully installed in rural 
schools, police stations and ranches with the rest slated for 
installation by the end of 2009.  The vast majority of those already 
installed are operating well.  The public university currently 
teaches a module on Photovoltaic energy as part of its "Technology 
and Renewable Energy Course." 
 
-------------------------------- 
U.S.-Uruguay Energy Partnerships 
-------------------------------- 
 
¶22. (U) In September 2008 Uruguay signed an Alternative Energy and 
Energy Efficiency MOU with the U.S.  In the months leading up to the 
signing and since, Embassy Montevideo has pursued a series of 
biofuels and alternative energy-related initiatives with the GOU. 
 
-- October 2007 - the U.S. Department of Energy supported a visit by 
GOU officials and experts at ANCAP, Uruguay's state-owned petroleum 
company, to visit and establish connections with North Carolina 
State University (NCSU) on biofuels.  Following the visit, Uruguayan 
students have studied and done research at NCSU and the Embassy 
brought a renowned NSCU biofuels expert to visit Uruguay.  The 
Embassy continues to facilitate interaction between NCSU and ANCAP. 
 
-- September 2008 - Embassy Montevideo supported a seminar that 
brought a U.S. expert in next-generation cellulosic biofuels to 
Uruguay.  He met with Minister of Industry and Energy Daniel 
Martinez, ANCAP and Ministry of Energy engineers, as well as private 
companies involved in biofuels and academic researchers. 
 
-- October 2008 - Embassy Montevideo arranged for the University of 
Georgia, with the assistance of Weyerhaeuser, to develop academic 
exchanges and research opportunities with the University of 
Montevideo in areas such as forestry and biofuels, among others. 
 
-- May 2009 - Embassy Montevideo organized a round table discussion 
with Ms. Carey Bylin, Natural Gas STAR Program, Oil & Gas, EPA, and 
local government and private institutions.  The meeting focused on 
methane emissions from oil and gas, landfills, coal mining and 
agricultural waste.  In follow up to the meeting, the Embassy and 
Ms. Bylin discussed with the Director of Energy the possibility of 
Uruguay joining the EPA's Methane to Markets initiative. 
 
-- June 2009 - ANCAP formally thanked the Embassy for assistance 
provided within the MOU by the Commercial Section to identify 
equipment suppliers as well as information on standards for ethanol 
in support of the company's program to meet mandatory ethanol 
blending requirements of 2% by end of 2009 and 5% by 2014. 
 
-- July 2009 - Embassy Montevideo will bring a U.S. expert in land 
management and use of carbon credits to fund biofuels projects to 
Uruguay for a two-day visit.  The Stanford University professor will 
meet with Ministry of Energy officials, ANCAP representatives, NGOs 
and private companies involved in biofuels, and academic 
researchers. 
 
-- In February, emboffs and officials from the Uruguayan National 
Directorate of Energy and Nuclear Technology (DNENT) met to discuss 
 
the current state of Uruguay's energy sector and potential next 
steps within the framework of the MOU.  DNENT agreed to develop a 
draft plan of action to implement the MOU's provisions to (1) 
promote exchanges, research and development and (2) establish a 
bi-national working group on renewable energy and energy efficiency. 
 DNENT stressed GOU support of public-private cooperation and 
investment in the development of the biomass sector.  An 
OPIC-partnered project on biofuels may be a possibility.  Another 
area identified for future collaboration is technical assistance and 
policy development on integration of privately generated power into 
the national power grid. 
 
------- 
Comment 
------- 
 
¶23. (SBU) The GOU's commitment to renewable energy is strong, but 
limited by its overall technical capacity.  Uruguay offers a great 
deal of potential in the field and the GOU appears prepared to 
support long-term targets in order to realize some of this 
potential.  Steps thus far have been relatively small but steady. 
As energy security continues as an important issue and Uruguay's 
electricity needs grow by 50-60 MW a year, those steps will need to 
increase in size to keep pace with demand.  On biofuels in 
particular, Uruguay has the potential to produce much more than the 
five per cent of total motor vehicle fuels required by law.  With 
forward-leaning public policy it could adapt into a biofuels-based 
economy based on today's technology and likely advances in the 
future.  Potential export markets look tougher, as it will be 
difficult to compete with much larger Argentine operations.  Private 
investment will prove essential in these endeavors, and the GOU will 
need to consider carefully the roles of its state-owned monopolies, 
UTE and ANCAP.  Whereas the private production of electricity is 
economically viable, its purchase and distribution is controlled by 
the state-owned monopoly UTE, which can set its own price. 
Meanwhile, only ANCAP can import, refine and blend petroleum 
products, making it the 800 pound gorilla on decisions related to 
biofuels in Uruguay.  END COMMENT.