Financing Renewable Energy in Cuba

Cuba’s 2014 commitment to generate 24% of the country’s electricity from renewable sources by 2030 presents a unique opportunity to explore how an island nation can decarbonize its power system. To successfully increase renewable energy production of electricity from approximately 4% of Cuba’s supply mix to 24%, the government plans to install 2,144 MW of new renewable generating capacity from four sources: biomass (755 MW), wind (633 MW), solar photovoltaic (700 MW), and small-scale hydroelectric (56 MW). This new capacity development is expected to require between $3.5 to $4.0 billion of capital investment. While more than half of this investment is expected to come directly from the Cuban government, the remaining capital will have to be obtained from external sources. This analysis estimates that roughly $1.1 billion (955 MW) of new capacity will be open to foreign investors. This project presents an assessment of the challenges and opportunities that Cuba faces in attracting the necessary foreign investment to achieve its renewable energy goals. The main objective is to present information that can be useful both to investors seeking to enter the Cuban market and to officials in Cuba and other jurisdictions who are seeking capital to fund a transition to a more sustainable and resilient electricity system. The paper first provides a review of the physical and institutional infrastructure of the country’s electricity sector, an overview of the renewable energy goals and development progress, and a summary of recent laws and regulations governing foreign investments. Second, it evaluates Cuba as a potential investment target through a lens of foreign direct investment (FDI) theory and project finance. Third, it summarizes the recent efforts by three other Caribbean island states to compare their success using the same project finance and FDI framework.