Cuba’s Economic Achilles Heal Is Energy
To recapitalize its power system, the government must decentralize its economic model and resolve its political differences with the USA.
By Jorge Piñon*
HAVANA TIMES – Cuba’s electric power grid, the Servicio Eléctrico Nacional (SEN) faces far-reaching structural challenges that threaten the economic and social development of the Island. The infrastructure of its high sulphur oil-fired base load thermoelectric and distributed generation is collapsing due to its over forty years of operation and the lack of scheduled and capital maintenance.
Today, according to Cuba’s Unión Eléctrica UNE, less than 50% of the sector’s total oil thermoelectric based load and distributed generation capacity is operational, which is resulting in blackouts of 8 to 10 hours throughout the country.
To make matters worse, 85% of Cuba’s thermoelectric baseload generation is fueled by high sulfur oil, which is highly corrosive with vanadium and sulfur-rich-compounds that produce ash deposits on components such as heat exchangers, boilers, or turbine blades. This situation causes more damage to the already weakened infrastructure.
It is a vicious maintenance cycle with no end in sight. Cuba cannot move forward toward a reliable, clean, and secure SEN with temporary band-aid solutions, such as the recently leased oil-fired floating power stations, to what are structural problems.
Access to efficient and clean energy is needed to ensure a positive impact on people and their environment. Electricity is essential for the well-being of households and commercial activities, as well as the quality of most public services, such as health and education, that depend on it.
There is no short-term solution to Cuba’s structural electric power generation challenges. The only solution is the total recapitalization of its base load, distributed generation, and renewable electric power matrix. Regrettably, it would take time and as much as $8 to 10 billion dollars of investments.
Cuba also needs to meet the challenges of global warming and reduce its carbon footprint by reaching its highly optimistic 2030 target of 37% share of renewables. The Island Nation should also consider Liquified Natural Gas LNG as a fuel urgently needed in lowering the greenhouse gases and pollutant emissions generated by the burning of highly contaminating high sulfur liquid petroleum fuels.
Cuba faces two significant obstacles in recapitalizing its power system: time and money. To overcome these obstacles, the government must decentralize its economic model and resolve its political differences with the United States.
Cuba has to abandon its failed Soviet-style centralized command economic model based on state ownership of all means of production and industrial transformation. It should welcome a market economic system in which the decisions regarding investments and production are guided by supply and demand market forces.
Recently, renewable projects such as the $186 million 65MW sugarcane biomass Ciro Redondo plant are idle due to the lack of sugarcane. Small and medium size enterprises –cuentapropistas– promoted by the government are having to close their doors due to the lack of electricity and transportation fuels.
Also, a political solution has to be found to The Cuban Liberty and Democratic Solidarity Act of 1992 and Helms–Burton Act of 1996, which codified into law several economic, financial, and commercial sanctions against U.S. and foreign companies trading with Cuba.
These are the real impediments for foreign investors to invest in energy generation in Cuba; and who is going to pay for it? The government is bankrupt and the Cuban consumer does not have the disposable income to pay for the real cost of clean and reliable electricity. Investors would only invest if they receive an acceptable rate of return for their capital, and the Rule of Law that allows them to cope with the economic and political risks associated with transitional and emerging markets. Regretably there is no short-term solution.
*Senior Research Fellow, The University of Texas at Austin Energy Institute
To consider that the Diaz-Canel government is willing to sit down at the table to negotiate with the US government, is optimism taken to the extreme. When considering the current Cuban political system, it is critical to note that the Communist Party of Cuba takes precedence over the State of Cuba. That is why Diaz-Canel is always introduced as First Secretary of the Communist Party of Cuba – AND – President of the Republic of Cuba.
Nothing will persuade the Communist Party of Cuba to act in co-operation with the Government of the US. It took two years of pre-negotiation to arrange the visit by then President Barack Obama to visit Cuba. In his speech at the Alicia Alonso Theatre on march 21st, 2016, he opened the door to negotiations regarding the US Embargo and Guantanamo. A mere 7 days later, Fidel Castro personally slammed that door shut in his four page letter published in Granma and read out aloud on all TV and radio stations at 7.00 p.m. that evening – it took 14 minutes! The following day, March 29, 2016, Bruno Rodriguez then and still now, Foreign Secretary, stated clearly: “There will be no reciprocation.”
The Diaz-Canel regime remains determined to continue its pursuit of total power and control. Only entry into an economic death-spiral could end that. They know nothing else, their views are ingrained from birth. Reality trumps pious hopes.