Micro-Analysis Cuba Energy Sector

Micro-Analysis

First Solar, one of the world’s largest manufacturers of photovoltaic solar panels and developers of solar projects, based in Tempe Arizona with over 10 GW of solar projects installed worldwide, is currently expanding its portfolio of projects in Latin America. This includes opening offices in Brazil and Chile as well as recently completing the largest solar facility in South America, the 141 MW Luz Del Norte facility.

Investing in Cuba makes sense for First Solar given the country’s aggressive goal to achieve 24 % of its energy from renewable sources by 2030 with a specific solar goal of 700MW. The primary fuel for electricity generation is oil which is imported from Venezuela and other countries, leaving Cuba dependent on other countries for its energy needs. Renewable energy represents an important opportunity for Cuba to develop its own domestic energy resources and reduce dependence on foreign oil. To date, Cuba’s solar projects have been developed and owned by the state government. However, the government will need all of the help it can get if it is going to achieve this 700MW goal. In addition, financing these multi-million dollar projects is a challenge and the Cuba government has sought financing for its projects from international institutions including the Abu Dhabi Fund for Development in partnership with International Renewable Energy Agency (IRENA) which recently announced $15 million in funding for a 10MW project. As one of the world’s largest solar developer with a strong balance sheet, First Solar is able to offer low cost financing to assist the Cuban government with the development of these projects.

After a careful literature review, we hypothesized three-scenarios described as follows:

1. Best-Case Scenario:

Increasingly liberal Cuban society remains stable and move towards democratic governance, and pro-Western particularly pro-American posture, which promotes a positive business climate for American companies. Increasing trade with west, a steady and rapid year-on-year economic growth rate will result in an increased demand for electricity and thus the demand for Solar Energy. In the United States, a further move in public opinion to soften toward Cuba and fully realizes normalization of relations.

Strategy: First Solar will take on the full-ownership of projects and sell the electricity to the government. The company will also help the local governments and communities in achieving the goals regarding distributed electricity generation.

Advantages:

Labor Cost: Costs for labor will reduce as there will be no need to get labor directly from the government.

Alignment of Interest: The society & government will benefit from the jobs, availability of an efficient distributed energy system and an advanced proprietary thin-film solar panel technology developed by First Solar. The US government & society will also support the efforts of the company in Cuban energy initiatives.

Pricing Flexibility: In the long-run company will be in better negotiation position to price the electricity supplied and energy panels at an economically viable range.

Less Uncertainty: In a democratic set-up there will be much less policy uncertainty, and property rights will be respected by government. Embargo from other countries will end, and the economic pressures from the activist groups will reduce.

Rule of Law: Rule of Law will improve and the policies will ensure individual and institutional freedoms.

Economic Stability in Cuba: Increased GDP and high GDP growth rates will allow the government to eliminate capital controls and currency inconvertibility.

Risks:

• Easy availability of fossil fuel and increasing trade with other nations might lead the policymakers in Cuba to decide against most costly renewable sources of energy.

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