For decades, Cuba has faced a severe energy crisis. Because longstanding trade embargoes have limited the inflow of cash from the West, the country’s response has centered mainly on reductions in energy use. Cuba has made great strides in improving energy efficiency and raising awareness about energy conservation (as described in my previous post). But the country’s progress in renewable energy deployment hasn’t been up to the mark.
Cuba is a leading exporter of sugar and thus has great potential to produce electricity from bagasse, the fibrous matter that remains after sugarcane stalks are crushed to extract their juice. The country also has huge wind energy potential along its large coastline. As political relations with the United States begin to normalize following the recent re-opening of the countries’ respective embassies, Cuba can hope for greater energy investment from abroad.
Cuba has seen a surge in international investors visiting the country since last December, when U.S. President Barack Obama announced a thaw in U.S.-Cuban relations. Given that Cuba is just 90 miles from Florida and is home to 11.5 million people that have growing energy and consumer needs, it is seen as an attractive destination for investment. Business officials from Europe are thronging to the island nation as well. Ministers and business representatives from France, Germany, Italy, the Netherlands, Spain, and the United Kingdom have all visited Cuba in recent weeks.
Cuba has a goal of producing 24 percent of its electricity from renewable energy sources by 2030, with as much as 14 percent coming from biomass, primarily bagasse. The country also has identified 20 potential sites for setting up wind turbines, from which 6 percent of electricity needs can be met. Of the remaining targeted renewable power, 3 percent is from solar and 1 percent from hydropower.
To fulfill these ambitions, Cuba needs investments worth US$3.5 billion. The energy ministry recently announced that it would build seven wind farms financed by foreign investors. President Obama already has pledged $20 million worth of green energy investments to other Caribbean nations, and Cuba could be the next partner to attract larger investment.
In the midst of the euphoria surrounding Cuba’s “Energy Revolution,” the government must not lose sight of the challenges that lie ahead. The country’s electricity grid remains dilapidated and fragile due to the exclusive use of hydrocarbons and to a lack of investment in grid operation and maintenance. Having announced ambitious renewable energy goals, Cuba needs international investments now more than ever.
Yet skepticism over investment quality in Cuba remains. A country whose leaders have repeatedly used the slogan “Socialism or death” in the past must do a lot to boost investor confidence. The Cuban government passed a foreign investment law early last year to gain access to advanced technology and to help create jobs, but progress has been slow. The new law allows foreign investment in all economic sectors, slashes the tax on profits from 30 percent to 15 percent, and eliminates the 25 percent tax on labor costs. Yet details of the law are unclear, as foreign media were neither given a copy nor allowed into the parliament during the debate.
Cuba also has a history of meting out harsh punishment for corruption and espionage. Barely months after the new foreign investment law was passed, a Canadian businessman was sentenced to 15 years in jail on charges of bribery. Although he was released early this year, such actions worry international investors.
Meanwhile, the U.S. sanctions on Cuba are encapsulated in six separate laws, which have been in effect for the past five decades. Although President Obama can wield executive power to push for better relations with Cuba, the U.S. Congress must formally overturn these sanctions. The Republican-majority Congress is none-too-thrilled with Obama’s decision to normalize relations with Cuba and will likely oppose this move, regardless of whether the country remains a difficult destination for foreign investors or not. Cuba must understand these nuances of geopolitics and pass some drastic laws to signal that it, too, means business.
Cuba boasts the highest number of engineers and PhDs per capita among Latin American countries and has long exported its energy expertise to neighboring countries, such as Haiti and Venezuela. With the restoration of diplomatic relations with the United States, Cuba now has even better opportunities to access and transfer brainpower from its northern neighbor, especially for improving its inefficient electricity grid. Cuba’s proximity to Houston, Texas, which is perceived as North America’s offshore energy hub, could also prove to be helpful.
Cuba’s primary oil supplier, Venezuela’s Petrocaribe alliance, has been deeply wounded by falling international oil prices. The current regime under Raul Castro has realized the necessity for Cuba to open up to foreign trade. By reforming its political and judicial structure and by embracing international investment, Cuba can cut its red tape and speed the country’s transition to a clean energy economy.
Shashank Gouri is a summer research intern with the Climate and Energy Program at Worldwatch Institute. He is currently pursuing a master’s degree in Energy Policy from Stony Brook University, New York.
While the opinions expressed are of the author alone, Shashank Gouri would like to thank Laurie Guevara-Stone of Rocky Mountain Institute for her valuable inputs.