The electricity sector of Uruguay has traditionally been based on domestic hydropower along with thermal power plants, and reliant on imports from Argentina and Brazil at times of peak demand.

The production from these hydropower sources is dependent on seasonal rainfall patterns, but under normal hydrological conditions, can supply off-peak domestic demand.

The shift to renewable energy sources in recent years has been achieved thanks to modernization efforts, based on legal and regulatory reforms in 1997, 2002, and 2006, which have led to large new investments in electrical production capacity including from the private sector.

Purchasing agreement offered by the government in the final reform in 2006 incentivized a rapid growth of sustainable energy capacity in the country.

The remaining capacity corresponds to the Salto Grande hydroelectric plant (945 MW), to co-generation or to small private investments in renewable sources.

[9] In the years leading up to 2009, the Uruguayan electricity system has faced difficulties to supply the increasing demand from its domestic market.

[11] Share of consumption by sector was as follows:[13] In the period 2002–2007, after the 2002-2003 economic and financial crisis, electricity demand increased 4.9% per year on average.

[18] The current 6% private contribution to the generation park is expected to increase as investments in new wind power plants materialize.

Renewables could play a role in future energy supply, in particular wind power, allowing Uruguay to reduce its dependence on imports.

[20] The National Environmental Directorate (DINAMA) received several requests for new wind projects by 2009 and UTE had a very positive response to the bidding process launched that year.

[21] In August 2009, the government of Uruguay approved a Decree that allows UTE to bid 150 MW of wind power.

[22] The first wind farm in Uruguay, the 10 MW Nuevo Manantial project in Rocha, started operations in October 2008.

A few months later, in January 2009, UTE's 10 MW wind farm in Sierra de los Caracoles also started operations.

Firewood has already been used as a substitute for fuel oil in the 1980s, and cellulose projects expect to generate up to 65 MW for sales to the network.

The reform contemplated the remuneration of generators in order of merit, the creation of a wholesale market with regulated prices in transmission and distribution, where competition is not possible.

After passing the modifications to the electricity law, secondary legislation was not forthcoming and the system continued to operate without any significant change.

According to the National Directorate for Energy and Nuclear Technology (DNETN), grid-connected wind power generation is one of the domestic resources with both medium and long term potential in Uruguay.

In March 2006, the executive power issued Decree No.77/2006 to foster private generation through wind, biomass and small hydropower plants.

This expansion would contribute to diversifying the supply sources and could be done in order to take advantage of the installation of large thermal (coal) plants in the South of Brazil.

Average tariffs for some sectors are presented below: OLADE (Organización Latinoamericana de Energía) estimated that CO2 emissions from electricity production in 2006 were 1.55 million tons of CO2.