Outside Havana, few people had heard of Cuba’s decade-old “energy revolution” until recently. The revolution, which seeks to radically overhaul the island’s energy matrix, has a price tag of approximately US$3.5bn, much of which will need to flow from international sources. The US embargo, however, deterred all but the most intrepid of investors. Now, though, the ice is melting and the energy revolution is the focal point of a horde of international players who are scrambling to establish a foothold in a market which few understand, but over which many lust.
The “energy revolution” isn’t just idle talk. The island is hugely dependent on imported fuels – and in particular on Venezuela and the troubled PetroCaribe program. Transmission and distribution networks are in urgent need of updating and improvement. Extensive renewable energy resources and, potentially, oil and gas reserves, remain largely untapped. The revolution enshrines a set of objectives that address the very real need to modernize and diversify Cuba’s energy matrix.
Currently at 4%, the target for renewable penetration is 24% by 2030 on a grid where installed capacity is currently over 6 GW. Biomass – slated to contribute 700 MW, or nearly 50% of the target penetration – is the government’s priority resource. And let’s be clear: with or without the U.S. embargo, the government has proved itself capable of attracting foreign investment. In 2012, for example, Cuba inked a US$250m deal with UK-based Havana Energy for the delivery of five biomass power plants. Foreign investors have also succeeded in securing mandates to build wind (target: 6% of total installed capacity) and solar (target: 3%) installations.
Yet even with the passage of a foreign investment law in 2014 – which eased considerably the barrier to entry – and despite the rapprochement with Cuba’s neighbor to the north – progress has been ponderous. Ultimately a lack of clarity over the rules of engagement for investors and, more pressingly, the impact of the US embargo on the ability to fund projects in Cuba has stymied the flow of investment to Cuba’s energy sector.
Are the conditions changing? The embargo is still in place but the US Department of Commerce regulations make clear that, for example, investments in renewable energy projects are likely to be approved. Observationally the flow of trade missions from the US in recent months – and of course President Obama’s much-touted state visit – suggest that the opportunity to transact in Cuba is, or is about to be, real.
Can international investors expect a warm response in Cuba? Recent interactions with senior officials suggest a level of sophistication around identifying and addressing energy sector needs. They also suggest that there is a broad acceptance that the international market has a substantial role to play in fulfilling Cuba’s energy revolution objectives. Unsurprisingly, however, those same officials are aware that the rest of the world is pounding at the door and that has engendered a healthy degree of well-placed caution. Investment, it is clear, will be on Cuban terms.
For those interested in exploring the lie of the land, New Energy Events, working alongside IJ Global and local partner, the Cuban Center for Renewable Technologies, will host an invite-only energy investment summit in Havana on September 1st and 2nd. The event features the participation of key stakeholders such as Rosell Guerra, Director of Renewables at the Ministry of Energy and Mines, and Barbara Hernandez, Director General of Power Generation for the sugar industry (AZCUBA). The summit, the first of its kind to be held in Havana, will explore the role of international capital in the modernization and diversification of Cuba’s grid. For more information visit the event website here.
If the timing and the terms of investment are at this stage unclear, the opportunity is undoubtedly very real. The next ten years will see sizable international investments in the grid, the development of renewables, and oil and gas infrastructure. Those investors who beat an early path to Havana and who have the patience and commitment to stay the course are likely to reap rich rewards.
