This is the second installment of a three blog series on business opportunities in Cuba.
Cuban dances are known for how well they communicate frustrated desire. Take the Cha-Cha, a classic Cuban dance – the basic move is a step forward, a step backward, and then three rapid steps in place (cha-cha-cha!). This is an apt analogy for energy developers looking at the opportunities and challenges associated with a new era of Cuban economic openness and improving US-Cuban relations. It is going to take great stamina, excellent timing, and a skilled partner to make it around the dance floor.
The opportunities for energy developers are clear. Here are just a few:
- Power demand is up and is expected to continue growing: Cuba’s economy is growing, with a goal of sustained 5%-7% growth over the next several years. That means demand for power is also growing.
- Cuba wants green power. The Cuban government wants to clean up Cuba’s current generation system, which is heavily reliant on antiquated, dirty oil burning power plants. Cuba is planning to derive 24% of its electricity from renewable sources by 2030. Cuba has ample renewable resources: biomass/biogas associated with the agricultural industry, solar, wind, and mini-hydroelectric plants are all feasible. Economic reforms in Cuba now allow for 100% foreign ownership of certain renewable power plants.
- It’s all about the grid. Most sources report that Cuba’s power transmission and distribution systems are in an advanced state of decay, requiring significant investment for modernization.
And the challenges remain formidable for energy developers.
- The Embargo/Blockade is still in place. It is unclear whether the U.S. Congress will ease the embargo in time to let U.S. energy firms take advantage of the opportunity. Further, the Helms Burton Act aims to prevent international businesses from operating in both countries.
- The financeability question. Discussions in the energy breakout session of the Caribbean Central American Action’s (CCAA) Annual Conference last month indicated that power purchase agreements with the Cuban utility are not currently financeable by commercial banks. Other sources for big energy projects in Cuba could be the major multilateral banks, such as the World Bank, International Monetary Fund or Inter-American Development Bank. However, Cuba isn't currently eligible for funding from these sources and while Cuba may attempt to regain eligibility, US Embargo laws require the United States oppose Cuba’s eligibility.
- Confusing currencies. Cuba has two currencies: the CUP (the local currency) and the CUC (the “Cuban Convertible Peso”). The system is confusing and a hindrance to foreign investment. The Cuban government is planning to unify the currency system, but until then, currency risk is especially high. More on this in next week’s blog.
- We are essentially in the dark. Hard data on the Cuban power generation and distribution system is thin and experts often disagree on important details.
When looking for a good dance quote to close out this blog, I found quite a few funny
ideas (like “Almost nobody dances sober, unless they are insane.” H.P. Lovecraft and “We're fools whether we dance or not, so we might as well dance.” Japanese Proverb). But the best quote for the Electric Cha-Cha might be a bit of fitness advice: “You can dance and feel sore tomorrow or you can sit and feel sorry tomorrow. You decide.”