Uruguay will offer contracts next month to buy power from 200 megawatts of solar farms at the world's cheapest rates as the South American nation seeks to add low-cost generation.

President Jose Mujica plans to sign a decree in two weeks that will require Uruguay’s national power utility Administracion Nacional de Usinas y Transmisiones Electricas to purchase electricity from the projects at a set rate of about $90 a megawatt hour, Ramon Mendez, director of energy at the Ministry of Industry, Energy and Mining, said today in a telephone interview.

Uruguay will produce some of the world’s cheapest wind energy and expects to do the same with solar power as the cost of photovoltaic panels fall, he said.

The price the government is offering is probably the lowest in the world and may not attract developers, according to Jenny Chase, an analyst with Bloomberg New Energy Finance in Zurich.

“That level of compensation is very optimistic,” Chase said in a telephone interview today. “Most countries where solar is being built offer higher rates than that, or extra tax incentives, as in the U.S.”

China, which has some sites that receive as much sun as Uruguay, offers $160 a megawatt hour and cloudy Germany offers 118 euros ($154.53) a megawatt hour, Chase said.

Developers will have four months after the decree is issued to submit proposals and will be granted contracts on a first- come first-serve basis, Mendez said. Projects may be as large as 50 megawatts.

Developers Optimistic

“We’ve spoken to at least three companies who say they can sell at that price,” Mendez said. If the offer isn’t successful, “we just wait another couple of years for equipment prices to come down and we try again.”

Solar radiation levels in Uruguay average about 5 kilowatt hours a square meter a day, about the same level as the south of Spain, Mendez said.

The decree also calls for a bid to develop a 1-megawatt and 5-megawatt plant, he said. Both projects will sell energy to state utility UTE for 25 years.

Power bought from hydroelectric plants, which produce about 80 percent of the nation’s electricity, costs on average $80 a megawatt hour, he said. Wind developers offered to sell power at $63 a megawatt hour in a 2011 auction for new capacity, slightly higher than levels reached in a Brazil auction the same year which were the lowest in the world at the time. The projects are still being developed.

Copyright 2013 Bloomberg

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