Generation and Delivery of Renewable Energy Based Modern Energy Services in Cuba; the case of Isla de la Juventud

Agencys Project ID: tba (GEF ID 1361)
Country: Cuba 
Project Title: Generation and Delivery of Renewable Energy Based Modern Energy Services in Cuba; the Case of Isla de la Juventud
GEF Agency: UNEP
Other Executing Agencies: 
UNIDO, GEPROP
Duration: 6 years
GEF Focal Area: Climate Change
GEF Operational Program: 6 Promoting the adoption of RE by removing barriers and reducing implementation costs
GEF Strategic Priority: CC 3 Power Sector Policy Frameworks for RET & EE
Estimated Start Date: March 2005
IA Fee: $382,000
Contribution to Key Indicators of the Business Plan:
GHG emission reduction of 26,000 tCO2/yr (once business models become fully operational) or nearly 390,000 tonnes over the 15-year lifetime of the project. Replication is estimated to more than triple in 10 years following subject to oil price/cost and economic constraints. Replication on the Isla da Juventud in Cuba RET market is a major project activity while regional regional replication will be reinforced by dissemination activities. Comprehensive monitoring of the national market is a national government responsibility while independent indicators of regional activity are identified. Overall impact is cost-effective (<5$/tCO2e). 
Record of endorsement on behalf of the Government:
Jorge L. Fernndez Chamero 3 September 2003
Director de Colaboracin Internacional
MINISTERIO DE CIENCIA, TECHNOLOGIA Y MEDIO AMBIENTE
Approved on behalf of the UNEP. This proposal has been prepared in accordance with GEF policies and procedures and meets the standards of the GEF Project Review Criteria for work program inclusion.
 IA contact: Tom Hamlin 
 + 33 1 44 37 14 74 tom.hamlin@unep.org

PROJECT SUMMARY
Rationale: 
Financial, institutional, technical, information and human resource barriers hamper the increased use of renewable energy sources in isolated areas in Cuba. Currently in Isla de la Juventud, the second largest island outside the main island of Cuba as with many islands and developing countries, diesel based power and heat generation is common. The project aims at reducing energy-related CO2 emissions through barrier removal and promotion of environmentally sound renewable energy technologies for power generation and process heat. The project will address key barriers through technical assistance and softening of finance in order to achieve attractive initial conditions for wind power and biomass gasification technology markets. Replications of the RET IPP concept in Cuba will be directly supported through a shared risk project development fund and replication in other appropriate countries through dissemination activities. Without these barrier removal activities, diesel will certainly retain the largest market share and even with this project, a major threat to broad market expansion will be the absence of environmental costs (local and global) in fossil fuel pricing. 
The Isla de Juventud as a remote supply area presents a relatively high avoided cost of fossil fuel opportunity and one that already has used independent power producer arrangements for diesel power generation. The PDF-B phase identified, evaluated and designed activities to reduce/remove barriers and demonstrate business models encouraging investment and incentive based management within the local institutions and physical conditions. The island represents a more cost effective opportunity or niche market to introduce the RET IPP arrangement, wind farm and biomass technologies and would have a favourable influence on other projects in Cuba and the region. 
Objective: 
Energy-related CO2 emissions are reduced through barrier removal and promotion of environmentally sound renewable energy technologies for power generation and process heat. The project will introduce new and innovative financial and institutional structures to encourage private investments, support economically viable, environmentally sustainable markets, and enhance local manufacturing capacity for renewable energy technologies in Cuba. The project would establish commercial business models for renewable technologies providing modern energy services on the Island and their replication in the region under similar conditions. 
Outcomes: 
The policy environment for the promotion of renewable energy technologies for power generation and process heat for industrial applications will be strengthened in Cuba and the region. In particular, the RET IPP arrangment would apply through out Cuba, and may have relevance to other state owned utilities. The policy instrument would enhance private sector investment in renewable energy projects, and a new RET IPP sector could result in Cuba in combination with local and foreign investors.
Enhanced national capacities to utilize the commercial potential of renewable energy technologies are expected to result from the training and capacity building interventions. The national manufacturing and infrastructure management facilities would gain the capacity for local production and construction of a variety of components and services. Since the project would only provide training and build national capacity, any retooling or facilities construction would be subject to additional effort. There are components that could be produced without retooling (towers, vessels and electrical components). The institutional framework in Cuba will gain expertise to recognise the benefits of renewable energy technologies, and their positive impact on the environment and society.
Removal of barriers constraining the wide spread use of renewable energy technologies (Biomass and Wind) would be achieved through demonstration of business models on Isla de la Juventud. The wind farm demonstration would join a growing pool of (>1MW) experience in the region (Guadeloupe on line, Dominican Republic in development) with the issue of grid stability in small island networks being of interest. The Biomas gasifier technology is considered an emerging technology with the largest commercially operated plant in India at 750 kW. The potential for replication is partly constrained by the ability to sustainably produce suitable biomass at low cost. Integrated management of the biomass resource and ecosystem must be used and can result in carbon sequestration benefits. A Certified Forester was engaged to provide an external review of the biomass assessment and sustainability. The review confirmed the Cuban estimates and goes on to recommend the Forest Certification Council qualification to be pursued during project execution. The local employment benefits and the ability of biomass technologies to provide dispatchable power at kw to Mw scale is very interesting especially if the cost to produce electricity drops below 7 cents per kwh. 
The adoption of the risk sharing mechanism by Cuba and other bilateral donors would signal the effectiveness of the instrument in bringing forward investment opportunities and environmental technologies. The financial mechanism will encourage private sector investment in new renewable energy projects in Cuba. Broader outcomes in Cuba should be observable in the form of project proposals and ultimately investments longer term.
Replication of business models for generation of power and process heat from renewable energy sources (biomass and wind) in Cuba is most effectively addressed by the risk sharing mechanism but dissemination efforts within institutions and to private sector actors in the market will be important as well. The economics are more difficult on the main island generally. The sugar bagasse as fuel with sugar refinery for cogeneration uses and ethanol production processes are viable opportunities but experiencing difficulty in the current sugar market. The need for higher efficiency electricity production (gasification cycle) is not apparent for sugar/ Bagasse cogeneration since the heat is needed in the refining processes.
 
In the region/Small Island States, a broad general information dissemination strategy will be used to ensure the information is available to those interested. A replication and information strategy to promote renewable energy technologies in the region will include caribbean islands where woody biomass harvest or agriculture residues are of interest and will include Central America as well. Afforestation may be possible in some cases but the technology would not be promoted to islands without a woody biomass resource potential. Cuba, Belise and Guyana are part of the CARICOM project, and the dissemination efforts are also expected to reach out to Central America where biomass technology and wind energy are of special interest.
Wind energy and small island electrical infrastructure is a commonality that can be pursued for replication. The UNEP/GEF SWERA project has received new additional UNEP/Netherlands Partnership funding to expand and enhance the effort. Dominican Republic and Belize have been identified already. UNIDO is initiating RET promotion effort in the Lesser Antilles with UN Foundation support. Guadeloupe has geothermal, wind and waste incineration power, and the French regional council has an interest in promoting cleaner technologies in the region.
Dissemination is the mechanism for reinforcement of replication and would seek or generate regional events to target the largest audience. Two conferences/meetings are proposed Cuba and Guatemala. Central America has been identified as a good replication potential and some activities will be directed there.
Outputs:
An enabling policy and regulatory environment for supporting renewable energy technologies (biomass and wind technologies) based power generation in Cuba. Power purchase agreements and biomass contracts will be key to this framework. 
Local and national capacity built to utilize the commercial potential of renewable energy technologies. The biomass management system for the harvested area will be a key output of the project.
A risk sharing financial mechanism and structure to encourage private sector investment in renewable energy projects. Upstream costs for proposal development and feasibility studies would be supported through a revolving risk sharing loan fund. 
Demonstrated commercial feasibility of biomass gasification and wind technologies for power generation and process heat on Isla de la Juventud.
Project management and coordination mechanism for effective implementation of the project activities. 
Activites: 
Establishment of a policy and regulatory framework to provide enabling environment to the development of renewable energy and biomass certification; 
Building local and national capacity to utilize the commercial potential of renewable energy technologies and sustainable forest management; 
Setting up a public/private financial risk sharing mechanism to encourage private sector investment in renewable energy projects;
Implementation of business models to demonstrate commercial feasibility of renewable technologies for power generation and productive use; The implementations of the technologies will include environmental impact assessment, tendering procedures, responsibilities and risk management during construction and operation, economic performance tracking and GHG reduction benefits monitoring. 
Establishment of project management structures for implementation, coordination and monitoring of the project activities, and dissemination to the main island and the region.