Human

Cuba’s bubbling energy free-for-all

 By Chris Dalby

Cuba is one of the most pristine environments in the world, both in terms of natural beauty and foreign investment. Over 50 years of an American embargo and a cautious government have left it both cut off from much of global trade and nervous about allowing international companies to invest in strategic sectors such as energy. Chris Dalby explores a fascinating case study, how one of the last closed-off countries is opening up and actively courting investment, learning from international energy standards, setting up energy projects while also reflecting the challenges it faces in terms of aging bureaucracy, a lack of professional expertise and the rapid need for modernization…

(Cover photo by www.pddnet.com)

(Imagine by www.vox.com)

There are many preconceptions about Cuba. It is a mixture of many things—one of the last Communist regimes in the world, closed-off to American trade and tourism, a treasure trove of culture and history. A few companies have pioneered international trade in the country despite the risk of being fined by the U.S. government for flouting the embargo. However, this was mainly a brisk trade in import-export, with Russia and China leading the way, stocking spare supermarket shelves or allowing creaking Moskvitch or VAZ vehicles to shudder along for a few more years.

European companies have also poked their heads above the Malecon of Havana, most notably with a French consortium being awarded the renovation and operation of Havana’s international airport. However, one sector that still has not shown much sign of fulfilling its potential is Cuba’s energy industry, both for hydrocarbons and renewables. Yet curiosity is growing.

Over 50 years of an American embargo and a cautious government have left Cuba cut off. It has largely relied on Venezuela for 50 percent of its oil demand. Yet, with Venezuela’s economic and political turmoil growing, exports were slashed in July.

SEE MORE: Venezuela, fighting for food by Michelle Leslie

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In return, Cuba was forced to take drastic measures. Rolling blackouts are something many Cubans grew up with, but it was hoped they were largely a thing of the past. But in response to the decision from Caracas, the government ordered a 20 percent reduction in oil and gas consumption and a 50 percent power reduction from public offices, while work days were reduced from eight hours to five.

While the country has strong wind, solar and hydro conditions, it has only drawn a miserly 4 percent of its energy coming from renewable sources. However, with ties thawing with the US, the government is seeing an opportunity arise. So what can Cuba offer energy companies?

Take your pick. The government has vowed to reach 24 percent of generation from renewables by 2030. To do so, an estimated $3.5 billion are needed from abroad. The province of Granma intends to become 100-percent renewable-powered as part of this goal. An abundance of rivers makes the country perfect for large-scale and mini-hydro. Existing agricultural engineering knowhow makes biofuels a distinct possibility.

“If the country wants to grow economically, one of the first things you have to do is guarantee that it has a reliable electric power system,” said Jorge Piñon, a native of Cuba and director of the Latin America and Caribbean Energy Program at the Jackson School of Geosciences at the University of Texas, Austin.

Cuba's unfinished nuclear power station (www.thebohemianblog.com)

This will be a challenge, at best. Investors will need one of several things to feel confident, including faith in the rule of law and a strong local partner. Progress has been made on the first. In 2014, a new investment law was seen as a key pillar in the country’s ongoing economic reforms. It opened up the country to private investment, barring key strategic areas, except health, education and defense. A clause that any damage to natural resources or the environment would also not be permitted will likely require clarification for interested energy companies but the new law was largely well received. A major declaration has also been that, under certain conditions, foreign companies would be allowed to own projects outright instead of being constrained within joint ventures, as originally planned.

This was followed by the revelation of a portfolio of 326 projects, needing over $8 billion, with renewable energy featuring prominently. Adding to this, a number of Cuban regions have announced a commitment to specific renewable sources.

The province of Pinar del Rio, a center of the cigar industry, is building a series of eleven solar parks to use its high solar irradiance. The first has been going for about a year and powers around 8,000 homes. This will serve as an example to attract investment for the other solar parks. An already running project will showcase the technology, engineering expertise and generation rate that investors can hope for.

In August, the country’s first wind farm was turned on in Ciego de Avila in central Cuba, seeking to help the region rely less heavily on hydropower after a severe drought. In September, Cuba took the next step forward. A major event in Havana, the Energy & Infrastructure Summit, was held to reveal to investors planned projects they could choose to participate in or give them the chance to articulate their own visions.

(Imagine by San Diego Union Tribune)

“It’s unprecedented for the government to be making an open presentation of this scale to international companies like this,” said Andrew MacDonald, director and vice president of Havana Energy, which is building biomass plants at sugar refineries. “This is a top priority for the Cuban government.”

McDonald’s optimism is understandable—few countries present as virgin a territory for investments as Cuba. However, even if renewable projects are being lined up, other obstacles remain. Securing financing, a challenge even in mature markets, is a major question mark.

Despite promises from President Barack Obama to change the situation, Cuba still remains blocked from the majority of global financial services. Foreign banks operating there in any capacity risk heavy fines. There are many questions that need urgent answers, among them issues over trade tariffs, and deals with local communities, who may foot the bill for a grid which goes from aging to non-existent.

However, Cuba has shown an ability to get what it wants in the past. The government has actively been leading a campaign for the last decade to reduce emissions and replace dangerous, old technology. The country has fazed out incandescent light bulbs, the first country to ever do so. Decentralized electrical systems have reduced transmission and distribution losses, formerly massive, by 15 percent. The utilization of kerosene, gasoline and LPG are down. The country is seen as a reference in Latin America for its stance on the environment and climate change. Only time will tell if it can see similar success in the renewable energy industry.

OBITUARY: My three days with Fidel Castro by The New York Times

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about the author
Chris Dalby
Journalist. Editor. China, Mexico, Latin America, Asia, place branding, Olympics, oil and gas, mining, renewable energy, international politics.