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Lack of cash clouds Cuba's green energy

Cuban motorists line up for fuel at a state-run gas station in Havana

Cuban motorists line up for fuel at a state-run gas station in Havana

Published Apr 1, 2017

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Cuba - Cuba, battling a

chronic energy deficit, has all the sunshine, wind and sugar to

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fuel what should be a booming renewables sector - if only it

could find the money.

The country's first utility-scale renewable energy project,

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a biomass plant in Ciro Redondo, is finally under construction

thanks to an injection of funds from China, a socialist ally and

in recent years, the communist-led island's merchant bank of

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last resort.

Turning Cuba's renewables potential into reality has become

a state priority over the past year since crisis-stricken ally

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Venezuela slashed subsidized oil shipments to Cuba that were

supposed to help power its traditional plants.

Some foreign players in green energy, such as Spain's Gamesa

and Germany's Siemens, have shown early

interest in the country. But the overall paucity of foreign

financing means that this project, being carried out by

Cuban-British joint venture Biopower, is still the exception

rather than the rule.

The financing puzzle is a crucial one to solve if

cash-strapped Cuba is to hit its target of renewables filling 24

percent of its energy needs by 2030, up from 4 percent today, a

strategy that would require billions of dollars in investment.

The government announced last July it was rationing energy,

raising fears of a return to the crippling blackouts of the

"Special Period" after the collapse of the Soviet Union. The

energy shortage comes at a time when growing tourism and private

business creation are generating greater demand.

"The most challenging thing we have had to deal with in the

last six years of developing this project has been the

financing," said Biopower President Andrew Macdonald, while

touring the site of the Ciro Redondo plant.

The Scotsman, who has been doing business with Cuba for more

than a decade, said the U.S. blockade had "strangled" funding

from Europe "and other obvious sources", with banks afraid of

sanctions.

His start-up Havana Energy joined forces with a subsidiary

of domestic sugar monopoly Azcuba to create Biopower in 2012,

with a contract to build five plants attached to sugar mills.

The plants are projected to use sugar cane byproduct bagasse

and fast-growing woody weed marabu as biofuels, costing around

$800 million to add some 300 MW to the grid.

Biopower was finally able this year to start building the

first one, thanks to a decision by China's Shanghai Electric

Group Ltd to buy an equity stake in Havana Energy.

The JV is now looking for external financing for the next four

plants.

"We have to check whether the funders are open for the Cuban

market or not," said Zhengyue Chen, former investment manager at

Shanghai Electric and current Biopower chief financial officer.

Risky investment

Some international companies have shown an interest in

gaining a foothold in the slowly opening Cuban market,

encouraged by a three-year old investment law that allows full

foreign ownership of renewables projects.

Cuba last year signed a deal with Spain's Gamesa for the

construction of seven wind-powered plants and with Siemens for

the upgrade of the creaking power grid.

Read also:  The value of green power

These are just preliminary agreements, however, which may

not become concrete contracts, Western diplomats based in Havana

say, given difficulty agreeing on a financing framework and

actually securing the funds.

On top of the US trade embargo, which frightens banks from

offering Cuba loans, Cuba's payment capacity is questionable.

While it has improved its debt servicing record under President

Raul Castro, it is falling behind on paying foreign providers.

And it has little to offer as payment guarantees in hard

currency. Its state electricity utility generates revenue in

Cuban pesos, which are not traded internationally, only into

convertible Cuban pesos at a state-fixed rate. The government

has promised to unify those two currencies, but it is unclear

how.

"If no currency indexation is provided from the government,

significant devaluation poses a great threat to investors’

revenue," said World Bank renewable energy expert Yao Zhao.

Moreover Cuba does not belong to multilateral institutions

like the Inter-American Development Bank that could provide

external guarantees.

"In the current conditions, without guarantees or

convertibility, it is very difficult to imagine big investment

in the renewable energy sector," said one Western diplomat.

Chinese funding

That is likely to force further reliance on China, already

Cuba's top creditor in recent years, having offered loans as a

way to hike trade with the island. Shanghai Electric is

importing and building the Ciro Redondo plant, as well as

helping finance it.

Project Manager Li Hui, already directing excavators

shifting earth on site, said he will stay on after the factory

is built as the head of the company's first branch in Cuba.

"We will hand them over a fully-functioning power plant," he

said, adding that Shanghai Electric had to bring over new

building equipment because the Cuban ones were antiquated and

lacked spare parts.

Read also:  Change in green power dynamics

But even Chinese largesse may have its limits. Chen said

Biopower was now in discussions with overseas funders, mainly

from Europe, and hoped to secure commercial funds for the second

plant by the end of this year.

Macdonald said he hoped his project would be part of the

launch of many foreign participations in the energy sector.

"But today, we are still pioneers," he said. 

REUTERS

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