May 3, 2017    5 minute read

The Challenges of Cuba’s Green Revolution

Cuban-Russian Relations    May 3, 2017    5 minute read

The Challenges of Cuba’s Green Revolution

Cuba still has a huge problem in overcoming the economic consequences of what Fidel Castro called the periodo especial, the period immediately following the fall of the East Block, during which the country’s GDP in the three years (1991-1993) shrank by more than 37%. Today’s GDP (data for 2015) is estimated by analysts at about $80bn. GDP per capita is therefore slightly more than $7000.

When it comes to GDP per capita in purchasing power parity (PPP) terms there are huge spans – some sources say $20,000, others less than half the amount. Venezuela, Cuba’s closest ally, has drastically reduced its oil supplies due to its political and economic crisis. Instead of 100,000 barrels per day, Caracas delivered only around 55,000 barrels to the Caribbean island in the second half of 2016.

Cuba used to sell some of the oil from Venezuela to the world market. Last year, the Cuban economy slipped into a recession for the first time in two decades, despite record visitor numbers in tourism. Its gross domestic product fell by one percent in 2016.

According to the Russian news agency Interfax, Cuba’s President Raúl Castro has asked his Russian colleague Vladimir Putin for help. Putin may examine the possibility of supplying Cuba with more oil. So far, Russian oil supplies to Cuba were not a significant factor: in the first half of 2016, Moscow delivered only 1,400 tonnes of crude oil worth $250,000. Facing challenges, the Cuban government has ambitious plans to increase the use of renewable energy sources.

Cuba’s Plan

Under its national social and economic development plan, it intends to increase the share of renewable energy by up to 24% by 2030 compared to the present level of only 5% of the total energy production. Concerns about Cuba’s dependence on subsidised oil imports from Venezuela (which may be at risk in the event of a downturn in Venezuela) mean in practice greater flexibility for investors as the authorities plan to mitigate the requirements for joint ventures with the state.

The most important factor in pursuing Cuba’s switch to renewable energy is the desire to reduce the country’s dependence on imported fossil fuels. At the end of 2016, President Raul Castro said that the cost of fuel imports “hangs over the island like the sword of Damocles,” and Castro knows well from the experience that this sword may eventually fall. Subsidised oil imports were suddenly broken in 1990 after the collapse of the Soviet Union, which was then Cuba’s main trading partner and the main source of oil. This led to a dramatic shortage of fuel on the island.

According to the government plan, the share of solar energy is expected to increase to 4 percent of the total energy production. Currently, solar energy is deployed mainly in rural areas and individual tourist facilities. Investments are also planned in wind power. Wind energy is expected to reach 5% of the total energy production by 2030.

Burning the Biomass

The most important part of the Cuba’s strategy for the development of renewable energy are the biomass power plants that burn off sugar cane and barley weed. In 2013, biomass energy accounted for 3.5% of the total energy produced on the island. The government predicts that by 2030 this figure will increase to 14 percent, which means that most of the renewable energy produced in Cuba will come from biomass.

The government hopes to include this way of producing energy in the already existing infrastructure of the sugar sector. There are 22 refineries that are also expected to operate as power plants, both during and after harvesting and processing of sugar cane.

Current interest in Cuba’s renewable energy sources is a continuation of the “Energy Revolution” of Fidel Castro, announced in 2006, when Cuba began taking serious steps to reduce energy consumption and improve its efficiency.The cost of generating electricity from the Soviet-era Cuban power plants is about $0.20/kWh. Thanks to technological advances that favor the climate and the existing infrastructure of the sugar industry, the cost of generating electricity from sources such as wind, sun and biomass is now about half that, ie about $ 0.10 / kWh.

The financial benefits of green energy development, along with the national security priority explain why Cuba is so determined to increase foreign investment in the energy sector. The state is expected to attract renewable energy investments worth a combined $ 3.5 billion over the next 13 years. There is widespread belief that this is the surest way to achieve national targets for energy from renewable and non-renewable sources by 2030.

The Biggest Surprise: Privatisation

Finally, while the government continues to claim that the means of production in Cuba are state-owned, the authorities have announced that under certain circumstances they will allow foreign companies to take ownership of projects without requiring them to form joint ventures with the state. The government’s haste in preparing for the upcoming economic catastrophe in Venezuela will likely be reflected in even greater flexibility for investors in certain sectors of the economy.

At present, Cuba is far from its goal of attracting $2.5bn a year in foreign capital. In the past two years, 83 projects from different industries have been approved in a total volume of $ 1.3bn. In view of an investment catalogue with 395 projects – from chicken cattle to the construction of wind parks – with a volume of $ 9.5bn, this appears small. In the Special Economic Zone Mariel, only 19 projects were accepted, including companies from France, Belgium, Spain, South Korea and Mexico.

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