I'm very grateful for being here to share with you that I live in a country, Uruguay, where about 98 percent of its electricity is obtained from a combination of different renewable sources. A country whose inhabitants emit 30 times less greenhouse gases than the world average for each kilowatt hour consumed. A country that produces its electricity at a fixed cost, regardless of wars or other geopolitical events since it is almost independent on energy commodities, dependent just on its wind, its sun, its water, its biomass waste. A country that exports renewable energy surpluses to its two giant neighbors, Argentina and Brazil.
When I tell people about Uruguay, they usually say two things. "I never heard about this. How did you do it?" And, "Can this be replicated elsewhere?" So today I want to tell you what happened in Uruguay, how we did it. And yes, even if every country would have to define its own transition journey, the Uruguayan solution can definitely be replicated elsewhere.
Fifteen years ago, the Uruguayan energy sector was going to a deep crisis. Economy was growing in unprecedented rates and poverty was decreasing, which was so great, of course, but at the same time, energy demand was growing rapidly, which was not so great. Uruguay has no proven reserve for fossil fuels. We have already used our large rivers to install hydropower plants and our two big neighbors were having their own difficulties to supply internal demand, so it was not easy for them to help us. In dry years, when you have to import much more fossil fuels, we were forced to import electricity from our neighbors at extraordinary prices. Cost overruns could be as high as one billion dollars. And for a small economy like Uruguay, this is two percent of its GDP. And worse still, we were beginning to have blackouts. We were living the perfect storm.
But crisis is also opportunity. 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 particular 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, to discuss with different experts, and I realized how complex the energy issue is, how many dimensions it has. Technological and economical dimensions, of course, but also environmental, social, geopolitical, cultural and even ethical dimensions. I started to write down my thoughts and almost without realizing, I ended up with a comprehensive, holistic proposal focused on a just transition to renewable energies with very ambitious goals.
And one day, when I was in my office at 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 inviting me to be the political head of our national energy agency, what in the United States would be a Secretary of Energy. I accepted, and we immediately began to implement that policy.
But before the result could be fully seen, there was an election. Fortunately, the new president, José Mujica, was supportive of what we had started to do and he asked me to remain in office. But he asked me one important point: to make this policy to be accepted by all political parties. Patiently, we negotiated with all parties represented in Parliament and we achieved our goal after they accepted some minor changes. Having a long-term policy backed by the entire Uruguayan political system was crucial to make rapid progress.
In just five years, we went from a traditional hydrothermal power mix with up to 50 percent fossil share to an almost completely decarbonized one that already in 2017 was 98 percent renewable. What makes the Uruguayan case unique is that almost half of that electricity is obtained from non-traditional renewable sources. Wind, solar and sustainable biomass.
Wind alone can produce up to 40 percent of the total electricity consumed in the country in a year, a percentage comparable to the other world wind champion, Denmark. But also 15 or even 20 percent of our electricity is obtained with sustainable biomass. Uruguay is an agro-industrial country with abundant organic waste that has a lot of energy content like rice husks, bagasse, black liquors from pulp mills. They have now ceased to be an environmental liability to become an energy asset.
Of course, none of this was easy. We have to innovate. We have to understand that such a power system requires the planning and operation quite different than the traditional one. Our academics worked for years to design a groundbreaking software to handle energy dispatch, specifically designed to manage intermittent sources such as wind and solar, but also how to use water. This model is based on the probability of occurrence of different weather scenarios based on both a century of historical data and weather forecast. This allows us, for example, to have a prediction of the amount of wind electricity and solar electricity that we're going to have in the grid with a week in advance. And this also 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 plus solar is of the order of the total country's peak demand. This means that when we have enough wind and solar, almost 100 percent of electricity is just from these two sources alone, in addition to biomass-fired power plant. And this may happen many times during the course of a week. And in those moments, we don't use water from the dams. Hydropower plant only comes into play when the sun goes down or when the wind falls.
Our insurance policy, when all else fails, are gas turbines, combined cycle and engine power plant. Yes, of course, flexible fossil-fired power plants remain there, but we rely on them very little over the course of a year, allowing non-renewable electricity to be no more than two percent of the electricity in the grid in a regular year, and sometimes six or seven percent in a very dry one.
And get this. We achieve this goal without any single battery storage, water pumping or any modern technology for electricity storage. Uruguay has shown that the power mix can work almost exclusively thanks to the complementarity of different renewable sources independently of their individual intermittency.
And this is perhaps the time for you to ask the question, “And what happened to the economy? How much did all this cost?” And the answer is even more radical. The cost was negative, if I may put it this way. In fact, we get an impressive positive impact to our economy.
To begin with, the total cost to produce electricity all over a year was reduced by almost half. No surprise, renewable energies are the cheapest option today. We went from about 1.1 billion dollar cost to only 600 million dollars today. And this impressive 500 million dollars every year for a country like Uruguay is huge. It's one percent of its GDP. Just for comparison, one percent of United States GDP, it's about 250 billion dollars annually.
Moreover, those tremendous cost overruns that we had in dry years, well, they virtually disappeared. We went from cost overruns of about one billion dollars, to only 100 to perhaps 200 million a year in very dry ones. Surprisingly enough now, though, to have much more natural sources in the grid, because of their complementarity, we are much less dependent on weather variability.
Of course, achieving this tremendous cost reduction was not easy either. We have to innovate also on that. We have to understand that renewable energies require a business model quite different from the traditional one of the power sectors all over the world. We have to create a new market model.
Our present business model is based on long-term contracts derived from auction processes in which the percentage of this source is predetermined using an optimization model that defines which is the best technical complementarity between sources in order to minimize the overall cost of the system. Thanks to this, nowadays, almost 100 percent of our electricity generation is under contract, leaving almost no space for the spot market and also no space for uncertainties. The comprehensive model we had defined and put in place not only allows us to strongly reduce the overall costs, but also to stabilize it over time.
The cost to produce electricity in Uruguay today is stabilized. Think it is almost independent of the fluctuation of the prices of energy commodities. Thanks to this, for example, the Uruguayan electric mix was barely affected by the tragic war in Europe. We had no supply nor affordability difficulties.
But the positive economic impact of this transformation went far beyond just the electric sector. We achieved a tremendous impact to our economy. We received six billion dollars in investment. This is 12 percent of our GDP. Imagine the impact to our economy. New knowledge, new industrial, entrepreneurial capabilities, 50,000 jobs were created. This seems small, perhaps for you, but for a country with only 3.4 million inhabitants, it represents three percent of its labor force. Once again, if we were made to make a comparison, three percent of the United States labor force is several million new jobs created.
So I told you a little about what happened in Uruguay and how we did it. But you may be thinking, “OK, but that’s Uruguay, fine, but that's Uruguay. It's a small country. They have a unique culture. They have hydro. Can this be reproduced elsewhere?” So I want to be very emphatic on this. Although each country will have to define its own transition process, the vast majority of countries can make a process similar to the Uruguayan one.
(Applause)
You don't necessarily need a lot of hydro backup capacity, but for sure, you need to put much more flexibility to your system with a new dispatch model, a new market model. But if you have people and companies doing research and developing AI and artificial intelligence and rockets, developing a new market model, a new energy management, shouldn't be that hard.
By doing this, we will probably not get the fossil share down to two percent, but for sure it will be below 15 or even 20 percent and in many countries, much less than that.
And you know what, for the last couple of years after leaving the government, I've been working in a number of countries from Dominican Republic to Chile and many other countries in Latin America, but also in Europe, and other regions. And the good news is that the Uruguayan solution can work in different national and energy context. But for that, there is one special ingredient. You need to have a strong leadership and a strong political will to move forward. And for that, it's mostly recommended to build a broad political agreement that transcends the administration in office in order to be sure that the transition will continue in time.
What is then the most important message for you today? It is very simple. That renewables are no longer just a solution for the climate crisis. Renewables allow us to build strong, reliable, robust power systems. They allow us to sharply reduce and stabilize the electricity costs, while at the same time having an important energy boost to our economies and job creation. Lessons learned from the Uruguayan case are that renewable energies are ripe to provide not just a climate solution on a global scale, but also substantial socio-economic benefits at a local level. And this can and should happen now. There's no reason to wait until 2040, not even 2030. Now.
Thank you.
(Applause and cheers)
