Energy transition: “We can do it”.

The TED Countdown summit was held July 11-14 in Detroit, Michigan, an event that brought together global innovators, business executives, scientists, policy makers, next generation leaders, artists and activists determined to create a better future.

Ramón Mendéz, Executive Director of IVY, was one of those in charge of closing the event with his presentation “We can do it”.

In a room full of world leaders in climate issues, Mendez shared his experience and the Uruguayan case, encouraging people to join the processes of sustainable transition.

“When I talk to people in Uruguay, they usually ask me two questions: how did it happen and can it be repeated in other places?”
And to answer those questions the scientist, former National Energy Director of Uruguay recalled the years prior to the energy transition that would place his country as an example in the world, emphasizing that the process involved challenges similar to those faced by several countries in the region and the world.

“Fifteen years ago, the Uruguayan energy sector was going through a deep crisis. The country’s economy was growing at an unprecedented rate and poverty was decreasing, which was great, but energy consumption was growing rapidly, which was not so great. Uruguay has no proven reserves of fossil fuels, it had already used its large rivers to install hydroelectric plants, and our two neighbors, Argentina and Brazil, were having serious difficulties supplying their own demand, so it was not easy for them to help us. In the dry years, when we had to use much more imported fossil fuels or were forced to import electricity from our neighbors at extraordinary prices, the cost overruns could exceed US$1 billion, and for a small economy like Uruguay’s this amounts to 2% of its GDP. And, even worse, we had started to have power outages.”

In that unfavorable context, Méndez decided to intervene, discovering more limitations until the day unexpected doors opened. “For most of my life I was a scientist, a particle physicist, doing research on subjects far removed from the everyday world. But in that difficult national energy context I saw the need to reinvent myself to get involved in the search for solutions. I began to study the energy issue, to organize seminars and to debate with different experts. I understood that the energy problem was complex and had multiple dimensions, technological and economic of course, but also environmental, social, geopolitical, cultural and even ethical. I started to write down my thoughts, which became a holistic proposal focused on a just transition to renewable energies, with very ambitious goals. And one day, while I was in my office at the University, I received an unexpected call. My proposal had reached the President and he was inviting me to implement it. Imagine my surprise, he was proposing me to be the political head of my country’s national energy agency.”

A few months later came the elections and with the change of government came new challenges. During José Mujica’s presidency, the president “insisted that the policy had to be accepted and shared by all political parties. Patiently, we negotiated with all the parties represented in parliament and, after accepting some minor changes, we achieved our goal. Having a long-term policy backed by the entire Uruguayan political system was essential to move forward quickly.”

So far, two fundamental elements had been achieved, a powerful roadmap (the idea) and the consensual political will (the negotiation), but the technical change had yet to become a reality.

“In just 5 years, Uruguay went from a traditional hydrothermal energy mix with up to 50% fossil fuels, to an almost completely decarbonized mix, which already in 2017, was 98% renewable. But what makes the Uruguayan case unique is that almost half of that electricity is generated from non-traditional renewable sources, wind, solar and sustainable biomass. Wind power alone can produce up to 40% of the total electricity consumed in Uruguay in a year, a percentage comparable to that of the other wind champion, Denmark. But also 15% or even 20% of our electricity is produced using sustainable biomass. Uruguay is an agro-industrial country with abundant organic waste with high energy content, such as rice husks, bagasse, black liquor from pulp mills, which have now ceased to be an environmental liability to become an energy asset.”

And then the initial question arises again: how was this technological change possible?

“Of course, it wasn’t easy. We had to innovate. We had to understand how to plan and how to run a system very different from traditional ones. Our academics worked for years on the design of an innovative software to manage energy dispatch, specifically designed to manage intermittent sources, such as wind and sun, but also how to use water. This model uses the probability of different weather scenarios, based on both a century of historical data and resource forecasting.

This allows us, for example, to have a prediction of wind and solar generation up to a week in advance. And this allows us to know how and when we have to use water from the dams. Thanks to this disruptive methodology, today, in Uruguay, intermittent sources are king. The total installed capacity of wind and solar energy is of the order of the country’s peak demand. This means that when we have enough sun and wind, almost all of Uruguay’s electricity is generated from these two sources alone, in addition to biomass thermal power plants. And this can happen at many times throughout a week. At those times we do not use water from the dams. The hydroelectric plants only come into play when the sun goes down or when the wind blows.”

Passion and conviction fill the room, not only in the way Méndez narrates the Uruguayan journey, but also in the absolute confidence he conveys that this same process can be transferred to other realities. But there are still some faces of disbelief, new questions hover in the air, what if the system fails?

“Our insurance policy, when all else fails, is gas turbines and combined cycle power plants, along with engine power plants. Yes, of course, the flexible fossil-fuel power plants are still there. But we rely very little on them over the course of a year, allowing non-renewable sources to account for no more than 2% of the electricity consumed in the country in a normal year and up to 6 or maybe 7% in a very dry one. And we achieve this without any type of battery storage, water pumping or any modern technological solution for electricity storage. Uruguay has demonstrated that an electricity system can work almost exclusively thanks to the complementarity of different renewable sources, regardless of their individual intermittencies.”

And this is perhaps the time to ask the question: And what has happened to the economy? How much has all this cost?

“And the answer is even more radical: the cost was negative, if I may say so. That is, this transformation had an impressive POSITIVE impact on our economy. For starters, the total cost of generating the electricity consumed by the country was cut almost in half: we went from about $1.1 billion per year to only $600 million today. This difference of $500 million per year for a country like Uruguay is enormous, since it is equivalent to 1% of its GDP. By way of comparison, 1% of the GDP of the United States is equivalent to about $250 billion per year. In addition, those tremendous cost overruns associated with dry years have virtually disappeared. We went from billion-dollar cost overruns to only $100 or $200 million today. Yes, surprisingly, we now have more natural sources in the mix, but because of their complementarity we are much less dependent on weather variability. Achieving this tremendous cost reduction was not easy either. We had to innovate on that too. We had to understand that renewable energies require a business model that is very different from the traditional one in the electricity sector. We had to design a new market model. Our current business model is based on long-term contracts derived from auction processes, in which the percentage of each source is predetermined based on an optimization model that defines the best technical complementarity between sources to minimize the overall cost. This allows electricity generation to be almost 100% under contract, which naturally leaves no room for the spot market and, therefore, for uncertainty.

The economic advantage of the new model is not only the decrease in the overall cost, but also its stability over time. Today, the cost of electricity generation in Uruguay is stabilized, as it is almost independent of fluctuations in the prices of energy raw materials. That is why the Uruguayan electricity matrix was hardly affected by the war in Europe. We had no supply or affordability problems.

But the economic benefits brought by the energy transition went far beyond the energy sector. We received 6 billion dollars of investment in a few years; and that is 12% of our GDP. New knowledge, new industrial and entrepreneurial capabilities and 50,000 new jobs were created. Okay, this may not seem like much to you, but in a country of only 3.4 million inhabitants, it represents about 3% of its working population. Again, if we were to make a comparison with the United States, it would equate to the creation of several million new jobs.”

In closing, the former Uruguayan Director of Energy was emphatic “although each country will have to build its own energy transition process, yes, the vast majority of countries can make a process similar to the Uruguayan one. There is not necessarily a need for a lot of backup hydroelectric capacity, but there is a need to bring more flexibility to the system, with new dispatch and market models. But if there are people and companies building artificial intelligence and rockets, a new energy management should not be so difficult!

This may not reduce the fossil share to 2%, as in Uruguay, but it will certainly be below 15 or 20%, and in many countries even less.”

Méndez explains how he is collaborating with several countries in Latin America, from the Dominican Republic to Chile and even in Europe and other regions “and the good news is that the Uruguayan strategy can work in different contexts. But there is a special ingredient that is absolutely crucial: there must be a strong political will to move forward, and for this to happen, a broad political agreement that transcends the administration in office must be built.

“Renewable energies are no longer just a solution to the climate crisis. Today, renewables allow us to build secure, reliable and robust energy systems; they allow us to drastically reduce and stabilize the cost of electricity, while having a huge positive impact on the economy and job creation.
The lesson learned from the Uruguayan example is that renewables are ripe to provide not only a climate solution on a global scale, but also important socio-economic benefits on a national scale. And this can and should happen now. There is no need to wait until 2040, or even 2030.”