Cuba - Cuba, battling a
chronic energy deficit, has all the sunshine, wind and sugar to
fuel what should be a booming renewables sector - if only it
could find the money.
The country's first utility-scale renewable energy project,
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
last resort.
Turning Cuba's renewables potential into reality has become
a state priority over the past year since crisis-stricken ally
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.
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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.