,
STOCKHOLM SWEDEN 2020
Transition Towards
Renewable Energy in
Developing Countries
A Case Study of Cuba
ANDREAS VALDMAA
Omställning mot förnybar energi i
utvecklingsländer
En fallstudie av Kuba
av
Andreas Valdmaa
Veronica Ehrström Eklöf
Examensarbete TRITA-ITM-EX 2020:358 KTH Industriell teknik och management
Transition towards renewable energy in
developing countries
A case study of Cuba
by
Andreas Valdmaa
Veronica Ehrström Eklöf
Master of Science Thesis TRITA-ITM-EX 2020:358 KTH Industrial Engineering and Management
Examensarbete TRITA-ITM-EX 2020:358
Omställning mot förnybar energi i utvecklingsländer
Andreas Valdmaa Veronica Ehrström Eklöf
Godkänt 2020-06-08 Examinator Anders Broström Handledare Hans Lööf Uppdragsgivare Kontaktperson Sammanfattning
Parisavtalet introducerades under 2015 med syfte för förändring mot en hållbar framtid samt minska mänsklighetens påverkan på klimatet. Sen dess har Parisavtalet lett till ytterligare
initiativ med långsiktiga effekter världen över. I utvecklingsländer är arbetet mot klimatpåverkan i samband med ländernas ekonomiska utveckling synnerligen utmanande. Denna studie syftar till att studera kraven och möjligheterna som följer säkerställandet av tillgången till hållbar energi i utvecklingsländer genom att utöka graden av förnybara energikällor som alternativ till fossila bränslen i landets energimix.
Studien ger ett uppdaterat perspektiv av den pågående övergången till förnybara energikällor i utvecklingsländer genom att sammankoppla upptäckter från ett flertal studier, nämligen en systematisk litteraturstudie och en fallstudie.
Uppsatsens huvudsakliga upptäckter är att politiska och ekonomiska egenskaper är vitala för tillväxten av förnyelsebar energi i utvecklingsländer där tekniska aspekter såsom infrastruktur och innovation står som grund i förändringen. Likaså, tros det finns signifikanta fördelar av att studera de tillhörande sociala egenskaperna ytterligare. Dessutom diskuterar uppsatsen huruvida Parisavtalet är effektivt i att minska klimatpåverkan.
Nyckelord
Transition towards renewable energy in developing countries
Andreas Valdmaa Veronica Ehrström Eklöf
Approved 2020-06-08 Examiner Anders Broström Supervisor Hans Lööf
Commissioner Contact person
Abstract
The Paris Agreement was introduced in 2015 with the purpose to actualize a more sustainable future and diminish the effects of climate change, caused by mankind. Since its establishment, the Paris Agreement has induced actions over the globe with consequences to last for centuries. In developing countries, the confrontation of climate change in reference to the development of the economies is especially challenging. This study aims to scrutinize the requirements and opportunities of ensuring sustainable energy in a developing country by increasing the degree of renewable energy as an alternative to fossil fuels in the energy mix.
The study provides an updated perspective on the ongoing transition of renewable energy resources in developing countries by synthesizing the findings of multiple studies, including a systematic literature review and a case study.
The main findings of this dissertation are that political and economic attributes are vital concerning the attainability of renewable energy resources in developing countries where technological aspects, such as infrastructure or degree of innovation, acts as foundation for the development. Additionally, it is the belief that there is significant gain in understanding social attributes further. Lastly, the thesis discusses the effectiveness of the Paris Agreement and its contribution to mitigating the effects of climate change.
Key-words
1 Introduction
1
1.1 Background . . . 1 1.2 Problem Formulation . . . 2 1.3 Purpose . . . 3 1.4 Research Question . . . 3 1.5 Delimitations . . . 3 1.6 Contribution to Science . . . 4 1.7 Disposition . . . 42 Methodology
6
2.1 Context of research . . . 6 2.2 Research approach . . . 7 2.2.1 Meta-synthesis . . . 7 2.3 Research process . . . 82.3.1 Minor Field Study in Santa Clara, Cuba . . . 8
3 Literature Review
19
3.1 Systematic Review . . . 19 3.1.1 Descriptive Findings . . . 19 3.1.2 Synopsis . . . 22 3.2 Narrative Review . . . 23 3.2.1 Political . . . 25 3.2.2 Economical . . . 27 3.2.3 Social . . . 31 3.2.4 Technological . . . 324 Case Study - Cuba
35
4.1 Introduction . . . 354.2 The Cuban energy sector . . . 37
4.2.1 Historical development . . . 37 4.2.2 Electricity tariffs . . . 39 4.3 Market conditions . . . 40 4.3.1 US embargo . . . 40 4.3.2 Dual currency . . . 41 4.3.3 Privatization . . . 41 4.3.4 Digitalization in Cuba . . . 42
5 Findings & Analysis
43
5.1 Political . . . 445.1.1 Foreign Investment Act . . . 44
5.1.2 Connection to literature . . . 46
5.2 Economic . . . 48
5.2.1 Foreign investments in the Cuban energy sector . . . 48
5.2.2 Connection to literature . . . 51
5.3 Social . . . 52
5.3.1 Cuban welfare . . . 52
5.3.2 Connection to literature . . . 53
5.4 Technological . . . 54
5.4.2 Projects in renewable energy . . . 58 5.4.3 Connection to literature . . . 59 5.5 Development Indicators . . . 60
6 Discussion
64
6.1 Research Question . . . 64 6.1.1 SQ1 . . . 64 6.1.2 SQ2 . . . 66 6.1.3 SQ3 . . . 68 6.2 Research Evaluation . . . 69 6.2.1 Generalisability . . . 696.2.2 Research quality - revisited . . . 69
6.2.3 Limitations . . . 70
6.2.4 Recommendations . . . 70
6.2.5 Sustainability . . . 70
7 Conclusion
71
7.1 Addressing the attainability of energy transitions in developing countries . . . 717.2 Contributions . . . 72
7.3 Future research . . . 73
7.4 Final words . . . 73
2.3.1 Methodological screening process . . . 15
3.1.1 Coding grid . . . 21
5.0.1 Energy mix transition . . . 44
5.2.1 Available projects in Cartera de Oportunidades de Inversión Extranjera, or Portfolio of Opportunities for Foreign Investment (COIE) . . . 50
5.2.2 Distribution of energy projects in COIE . . . 50
5.4.1 Development of Installed Capacity . . . 55
5.4.2 Levelized cost of electricity (LCOE) 2010-2018 . . . 57
5.4.3 Target energy mix of 2030 . . . 59
5.5.1 Yearly renewable energy investment flow . . . 61
5.5.2 Accumulated investments by source 2015-2017 . . . 61
2.3.1 Demonstration of the systematic search in Web of Science . . . 12
3.1.1 Overview of articles and authors of SLR . . . 20
4.2.1 Implied prices based on electricity consumption per household . . . 40
5.2.1 Strengths and Weaknesses of investing in Cuba . . . 51
5.4.1 Levelized Cost of Electricity (LCOE) 2018 . . . 57
5.4.2 Global weighted average total investment costs 2018 . . . 57
5.4.3 Projects to be implemented . . . 58
5.4.4 Energy capacity, electricity generated, and effects by target of 2030 59 5.5.1 Installed capacity: Baseline compared to target . . . 63
Firstly, we would like to express our gratitude to SIDA for providing us with the Minor Field Studies Scholarship to travel to Cuba, without which this study would not have been possible.
Additionally, we would like to thank the professors; Taymi Gonzalez Morera and Idalberto Herrera Moya for welcoming us to their beautiful country, Cuba, and providing us with information for the thesis.
We would further like to thank our tutor at KTH, Hans Lööf, for supporting the development and direction of the thesis and for reminding us to enjoy our time in Cuba.
COIE Cartera de Oportunidades de Inversión Extranjera, or Portfolio of Opportunities for Foreign Investment
CUC Cuban Convertible Peso
CUP Cuban peso
FDI Foreign Direct Investment
FFOV Full Foreign-owned Ventures
FI Foreign Investment
FIT Feed-In-Tariffs
GDP Gross Domestic Profit
GHG Green House Gas
GWh Gigawatt hour
HCT Human Capital Theory
HDI Human Development Index
IMF International Monetary Fund
IRENA International Renewable Energy Agency JV Joint ventures
kWh kilowatt hour
LCOE Levelized Cost of Electricity
MFS Minor Fields Studies
MINCEX Ministerio de Comercio Exterior y la Inversión Extranjera, or the
Ministry of Higher Education and Ministry of Foreign Investments and Economic Cooperation
NAPP National Assembly of People’s Power
NDC National Determined Contributions
NGO Non-governmental Organisation
NLR Narrative Literature Review
PA Paris Agreement
PV photo voltaic
RE Renewable Energy
SDG Sustainable Development Goals
Introduction
1.1 Background
In 2015, at the time of the Paris Agreement (PA), the world changed its focus to realize a more sustainable future to diminish the catastrophic effects caused by humans untenable behavior. The challenges coming from the PA are many and a substantial redirection of how business is done must be made. These challenges differ around the world and some countries are more exposed to the effects of climate change than others. Simultaneously, innumerable developing countries are at the starting stages of emerging their economies (Dimitrov, 2016; Schleussner et al., 2016).
in line with the PA, defined in their National Determined Contributions (NDC) to excel the RE development.
1.2 Problem Formulation
Currently, the world faces tremendous challenges in the context of political relations, economic growth, social inequality, technology adaption, and environmental degradation. The consequences from the preceding patterns of emerging economies puts emphasis on a structural alternation on prevailing behaviors, to reach a sustainable development.
The most economically segregated region in the world, Latin America and the Caribbean has a severe necessity to incorporate this paradigm shift in its development. The rampant inequality in the region constitutes a particular hindrance in reaching fulfillment of its potential. The region is highly impacted by several constitutional obstacles, one which stands out is the effects of climate change heavily felt by the poorest areas in society (CEPAL, 2019). One of the most serious issues faced by the Caribbean is access to clean energy. Additionally, the Caribbean is one of the world’s most hazardous sub-regions for natural disasters, heavily affected by extreme weather such as hurricanes and broader impacts of climate change (McLean et al., 2020). Hence, the sub-region has clear incentives for joining the global movement against climate change, by improving energy efficiency and promoting the use of alternative energy resources. Moreover, even though the potential for renewable energy, such as solar, wind, hydro and biomass, is substantial in the Caribbean, the dependence of fossil fuels is still superior (CDCC, 2016).
with explicit attention on the Cuban aspirations.
1.3 Purpose
The purpose of this master thesis is to unravel and discuss the attributes that encompass the advancement of RE in developing countries, such as Cuba. Further, the ambition is to increase the transparency of the processes of reaching sustainable development and to assess the attainability of the climate targets of 2030.
1.4 Research Question
To ensure a comprehensible structure of the study, the scope of the thesis is defined in one general research question which is further broken down into three sub questions:
RQ: What impacts the attainability of the renewable energy targets in Cuba?
SQ1: What is the current state of the transition of renewable energy?
SQ2: What are the attributes that facilitates or detains the development
of renewable energy?
SQ3: What is the prospect of the development of renewable energy in
line with the targets of 2030?
To increase the generalizability and to strengthen the conclusions of this thesis, discussions regarding other developing countries were included.
1.5 Delimitations
flows in mitigation of Green House Gas (GHG) and climate resilient development. The PA has led to numerous domestic initiatives in countries all over the world in favor to reach the goals. This thesis will concentrate on the dilemma to increase the market shares of renewable energy resources (United Nations, 2015).
Further, the analysis encompass the political, economical, social, and technological aspects of the renewable energy development. However, the scope of the problem together with the extensiveness of the aspects is considerable. Thus, the content of the thesis is delimited to certain attributes and issues based on relevance from the literature review.
1.6 Contribution to Science
Previous literature related to the aspects of technological development in renewable energy resources focus on the potential of renewable energy. Several studies are apparent with direction to study technological advancement of RE in developing countries. However, insufficient research has been conducted in the technological advancement of renewable energy resources in Cuba. Further, following the conducted literature review, questioning arose concerning the transparency of such studies.
The result from the literature review showed a gap in resent research concerning the presented aspects of the attainability of the targets of RE, as defined in the research question and sub questions, hence this thesis aims to contribute to this field of research. This is done by synthesizing findings from individual studies together with recent research covered through a systematic literature review, by applying political, economical, social and technological perspectives on the issues.
1.7 Disposition
1. Introduction
In this chapter the fundamentals of the study are introduced. Firstly, the context of the thesis is set in the background section, followed by problem formulation and purpose. Thereafter, the research questions are articulated, leading further to the delimitation’s and the contribution to science.
2. Methodology
This chapter describes the methodology of the study with the aim to ensure transparency. It demonstrates an exhaustive view of the methodological process together with the steps taken in the literature review and case study. 3. Literature Review
This chapter presents the findings of the systematic and narrative literature review. The content of this chapter acts as a theoretical framework and is the backbone of the thesis.
4. Case Study - Cuba
This chapter presents the background of Cuba, which the case study is based upon. It provides an overview of the development of the Renewable Energy sector and the prevailing market circumstances.
5. Findings Analysis
This chapter summarize the findings generated from the empirical research of the case study in terms of political, economical, social, and technological attributes.
6. Discussion
This chapter discuss and interpret the results introduced in the Findings Analysis chapter on a meta level. The chapter also address the research evaluation.
7. Conclusion
Methodology
The purpose of this chapter is to describe the methodology utilized in this study. It starts with articulating the context of the thesis, as well as providing an overview of the research approach together with addressing the process. Thereafter, a detailed section presents the processes of the different elements of the collection of data for this study. These elements include a description of the field study in Santa Clara, Cuba, and the literature reviews. Conclusively, the chapter ends by scrutinizing the research quality and ethics of the thesis.
2.1 Context of research
2.2 Research approach
The research approach for this thesis is based on a meta-analytical method were findings are found and condensed from several studies. A meta-analytical method can follow several different frameworks depending on the nature of the included studies (Siddaway et al., 2019). The chosen method, a meta-synthesis, is an approach where findings are collected from qualitative and quantitative studies, in this particular case a systematic literature review and a case study, including , a data analysis (Britten et al., 2002; Noblit & Hare, 1988; Siddaway et al., 2019).
2.2.1 Meta-synthesis
As this thesis aims to synthesize qualitative and quantitative data from multiple studies, the construction following a meta-synthesis is motivated as a framework of this thesis. A systematic literature review was executed to declare comprisal of current research on the subject (Britten et al., 2002; Noblit & Hare, 1988; Siddaway et al., 2019). Additionally, a Minor Field Study was executed in Santa Clara, Cuba, amalgamated by a narrative literature review. These two components were condensed in the analysis to encompass the essence of the subject. Following restricted access to official data and constrained possibilities in the constructed Minor Field Studies, the meta-synthesis was completed to fulfill the complements to elevate the rigorousness of this study. Even though the utilization of a meta-synthesis was not determined in the initial stages of this thesis, the research designed is deemed to be motivated.
The structure of the meta-synthesis follows the meta-analytical approach as defined by Noblit and Hare (1988). This approach identifies seven steps for the synthesis as follows:
1. Getting started; identifying and area of interest 2. Deciding what is relevant for the initial interest
• Searching and retrieving relevant studies 3. Reading the studies
• Extract relevant information • Quality appraisal
• Identifying primary and secondary themes and concepts 4. Determining how the studies are related
• Comparing the characteristics of the included studies, themes and concepts identified in step 3
• Using thematic analysis to develop new categories of themes or concepts arising from the included studies
5. Translating the studies to one another 6. Synthesising the translations
• Appose the translated themes with secondary themes
• Determine how the translations and the secondary themes are related 7. Express the synthesis
The strategy for Steps 1 through 6 are further explained in the Systematic Literature Review (Subsection 2.3.2) whereas the results are presented in the Literature Review (Section 3.1). The final step of the meta-synthesis, 7. Express the synthesis is presented in the Discussion (Chapter 6)
2.3 Research process
2.3.1 Minor Field Study in Santa Clara, Cuba
Villas in Santa Clara, Cuba. The agreement established that the authors were to travel to Santa Clara to conduct a field study for eight weeks in the spring of 2020. The field study was funded by the Minor Field Studies Scholarship distributed by the Swedish authority SIDA, Styrelsen för internationellt biståndsarbete.
The purpose of the field study was to get an understanding of the investment landscape in renewable energy resources in Cuba. At the time of stay in Santa Clara the scope of the thesis was changed at several occasions as a consequence of limited access to research and official data provided by the Cuban Government. However, several semi-structured and unstructured interviews were conducted with Cuban researchers in the economic and energy fields complemented by desk research.
Due to the spread of the pandemic virus, COVID-19, the field study was abruptly dispatched two weeks prior to the antecedent decided end date, consequently, impacting the data collection. This resulted in fewer interviews than decided beforehand, hence the remaining of the data was collected through desk research or through contact with the tutors in Santa Clara.
Interviews
All interviews were executed in a semi-structured fashion. As the research was of exploratory nature at this particular stage of constructing the thesis, the interviewer could be flexible in the search for new insights, hence each interview involved different topics and themes. In line with the exploratory nature of the inductive research method, the use of semi-structured and unstructured interviews was deemed motivated (Thornhill et al., 2015).
Desk research
Simultaneously as preparing and conducting interviews, the authors preformed a narrative literature review and desk research. As Cuba is still under great influence of the US embargo and access to internet is considerably restricted, this particular stage of the research was not without difficulty. The access to relevant research was confined, especially if the source stemmed from the United States. Hence, the desk research was decided by the authors to include available publications from Non-governmental Organisation (NGO) such as the International Renewable Energy Agency (IRENA), the International Energy Agency (IEA), the World Health Organisation (WHO) and the United Nations (UN). This was done for several reasons; firstly, to get an understanding on the field of research, secondly, as official data from the Cuban Government was somewhat inaccessible and lastly, to ensure to correctness of the information from the performed interviews with language barriers.
2.3.2 Literature review
This thesis include two literature reviews; a narrative literature review with purpose to provide context to the findings of the Cuban case study, and a systematic literature review with objective to provide context of the Cuban case study to resent research.
Narrative literature review
The Narrative Literature Review (NLR) was conducted to contribute to theory development and to identify research gaps and therefore, advance current research by inspecting previous findings to surge development and advancement (Webster & Watson, 2002). The NLR was conducted prior to, simultaneously as and after, the collection of data. This was done in an iterative approach as greater understanding of the subject was obtained.
information in Cuba and preparation for the interviews, the scope was broadened to the investment landscape and renewable energy development in the Caribbean area and its distinct difference to that in Cuba. Subsequently, the scope was narrowed done to relevant research on contributing factors which could facilitate the analysing aspects of the transition of the Cuban energy mix in this research.
The NLR was performed using a range of search engines, including, Google Scholar, Web Of Science, KTHB Primo and Google Search. The search included several distinct keywords to obtain an understanding of the subject, these differed for the different phases of the literature review. Studies were filtered based on relevance, publication date and number of citations.
Systematic literature review
Finding relevant studies
As it was decided that the thesis would be complemented with a Systematic Literature Review (SLR) the process began with identifying an area of interest for the SLR (Noblit & Hare, 1988). This area was defined solely from the previously defined research question and sub-questions as specified in Section 1.4.
From the research question an inclusion criteria was defined. The SLR was decided to include relevant research on the process of transition of energy from fossil fuels to renewable energy resources in developing countries. The focus of the study was directed towards the transition of the energy mix in relation to the aforementioned targets. Even though the transition of the energy mix is closely linked to enhancing the electrification rate in developing countries, this aspect was not the focus of the SLR following the defined research question, hence literature focused solely on electrification rate were excluded. The search was carried out using the advance search tool on the platform Web of Science including the phrase combinations as defined in Table 2.3.1.
Index Keywords Number of hits
1 ”developing countries”* OR ”transition countries”* OR ”developing
nations”* OR ”transition nations”*
37 799
2 ”renewable energy”* OR renewables* 45 282
3 transition* OR change* OR development* 2 700 858
4 target* OR goal* OR NDC* OR ”nationally determined
contributions* OR ”Paris Agreement”*
961 105
5 1 AND 2 AND 3 AND 4 149
Table 2.3.1: Demonstration of the systematic search in Web of Science As can be seen in the fifth row of the table, the final search included the intersection of the four previous inquires, resulting in 149 relevant articles.
Screening
As the 149 articles had been chosen, the screening process commenced. The screening process followed an iterative approach based on the aforementioned inclusion criteria. The process can be categorized into three procedures (Britten et al., 2002; Noblit & Hare, 1988; Siddaway et al., 2019).
1. Screening of titles 2. Screening of abstracts
3. Screening after reading the articles
Firstly, the 149 studies were screened based on titles, where titles indicating irrelevance for the study were removed from the set of relevant studies, which resulted in 99 relevant studies. Further, the screening of titles underwent a second iteration where all articles that indicated applicability on one or several of the above-mentioned research questions, or studies which stated Paris Agreement, Nationally
Determined Contributions or transition in the title were included to the set. This
second screening iteration culminated in 80 relevant articles, thus completing the first screening procedure.
indicated that the article was not relevant for this study and 5 indicated that the article was highly relevant for the study. As all abstracts had been read and given a cumulative score between 2 and 10 the first part of the screening was finished. At this stage, the authors agreed that each abstract with a score of 8 or higher would be included in the set of relevant articles. At this stage, 31 articles were included in the set. In the second part of this screening session, the authors revisited the 49 removed abstracts of the first set of this screening stage. Here, each abstract with a high discrepancy between the authors’ scores was revisited and these abstracts were read collectively. After this concourse, two articles were added to the set of relevant articles, resulting in a total of 33 relevant articles. In the final stage of the second screening procedure, the abstracts of all 33 relevant article were reread and scrutinized conjointly. Considering the inclusion criteria once more, the set of relevant article was curtailed further, thus 21 articles were decided to be included in the set of relevant articles, thus finalizing the second screening procedure. The second screening is depicted in Appendix A.
Reading and synthesising the research
With 21 articles to be read comprehensively it was decided that three articles would be read collectively in order to synthesise what information would be compiled. In this process the authors created a grid to summarize the findings of each article. The findings were divided into five sections; explanatory characteristics, targets,
primary themes, secondary themes and indicators. The explanatory characteristic
Even though these subjects were outside of the scope of the inclusion criteria, the included studies were deemed to be relevant for the context of this research. An overview of the grid can be seen in Figure 3.1.1
The remaining 18 articles were divided evenly between the authors. As all articles had been read and summarized in the grid, the authors analyzed the findings from the grid collectively to minimize contrasting interpretations thus elevating the precision of the analysis. At this stage, concepts and themes were discussed further to be included in later sections of this thesis.
Figure 2.3.1: Methodological screening process
2.3.3 Quantitative analysis
costs.
2.4 Data analysis
Based on the integrative nature of this thesis, a summarized discussion on the method for data analysis is challenging to present. Considering the different nature of the studies of the meta-synthesis, analysing the data requires different techniques (Siddaway et al., 2019).
To conceptualise the data and find coherence of the diverging study techniques of the meta-synthesis, a theoretical framework was defined. This framework outlined four perspectives on the research; political, economical, social and technological. The framework was primarily developed in an explanatory manner as it combined previous theories and knowledge with the expectations of the authors (Thornhill et al., 2015).
2.5 Research Quality
The research quality of the study is assessed from the three validation perspectives; internal validity, external validity, construct validity and one reliability aspect derived from the study of Aberdeen (2013). The four perspectives are covered in the section below.
2.5.1 Internal Validity
2.5.2 External Validity
External validity may be controversial in the event of a case study. However, to sustain the external validity throughout the study, the theoretical framework and research question were established with an emphasized generalization. Thus, the transferability of the study can be considered as reasonable.
2.5.3 Construct Validity
To strengthen the construct validity of the study the gathering of data was extended to alternative sources other than data obtained solely from interviews. However, due to limited access to governmental information in Cuba and the language barrier it was challenging to find relevant data. Furthermore, even though the interview objects were few, they supplemented each other in terms of expertise, thus decreasing the risk of bias.
2.5.4 Reliability
To secure the reliability of the thesis to the greatest possible extent, the steps taken in the research process has been documented and presented thoroughly. Similarly, as the writing and planning process was performed in the cloud, hundreds of drafts are documented. The majority of the interviews were documented in text whereas one is saved as an audio record. However, since the interviews were of a semi-structure character the documentation is not impeccable.
2.6 Ethical Considerations
All participants of this study were informed of the intentions of the study and their comfort was stressed in conducting the interviews. Their participation was voluntary and the option of anonymous participation was given. Further, the authors clearly stated their gratitude for the participation and contributions of the study.
reference throughout the study follows the established reference system APA. For the elevation of the virtue of any study, the authors are obliged to keep an objective reasoning in the analyses. Therefore, to the best of the authors’ abilities, the ambition was to keep an objective perspective and high transparency throughout the research.
Literature Review
The purpose of this chapter is to present the findings of both the systematic literature review together with the narrative literature review. The structure of the systematic review is divided into a section of descriptive findings where the translation of the studies is presented from the perspective of the primary themes derived from the research questions, followed by a synopsis of the fundamental results. Thereafter, a comprehensive narrative review is presented in line with the patterns of the systematic review. These findings will then act as theoretical framework for the analysis and discussion of this thesis.
3.1 Systematic Review
3.1.1 Descriptive Findings
as a whole, compared to the six of the studies that exploit a case study practice. There are four studies that do not confer any of the targets of the PA nor the Agenda 2030, though nine studies mention the Paris Agreement six deliberate further connecting towards the NDC and only one study broach the NDC without the presence of the PA. Similarly, the SDG are highlighted in seven studies. Subsequently, concepts regarding political and economical attributes remain as a predominant focal within the articles of the literature review. Below follows a detailed representation of the articles connected to the defined research questions.
Authors Title Geography
1.Hasan et al. The synergy between climate change policies and national development goals: Implications for sustainability
Bangladesh 2.Shimbar & Ebrahimi Political risk and valuation of renewable energy investments in developing countries Iran 3.Adams &
Acheampong
Reducing carbon emissions: The role of renewable energy and democracy Sub-Saharan Africa 4.Samuwai et al. Thinking Outside the Box: Deepening Private Sector Investments in Fiji’s Nationally Determined
Contributions through Scenario Analysis
Fiji 5.Malik et al. Renewable energy utilization to promote sustainability in GCC countries: policies, drivers, and
barriers
GCC countries 6.Farkat et al. Barriers to onshore wind farm implementation in Brazil Brazil 7.Atteridge & Savvidou Development aid for energy in Small Island Developing States SIDS 8.Maulidia et al. Rethinking renewable energy targets and electricity sector reform in Indonesia: A private sector
perspective
Indonesia 9.Kim Sustainable energy transition in developing countries: the role of energy aid donors Developing countries 10.Sarkodie & Strezov Effect of foreign direct investments, economic development and energy consumption on greenhouse
gas emissions in developing countries
China, India, Indonesia, Iran & South Africa 11.Senshaw & KimWon Meeting conditional targets in nationally determined contributions of developing countries:
Renewable energy targets and required investment of GGGI member and partner countries
GGGI member and partner countries 12.Zafar et al. An overview of implemented renewable energy policy of Pakistan Pakistan 13.La Vina et al. Navigating a trilemma: Energy security, equity, and sustainability in the Philippines’ low-carbon
transition
Philipines 14.Handayani et al. Trade-offs between electrification and climate change mitigation: An analysis of the Java-Bali power
system in Indonesia
Indonesia 15.Batinge et al. Leapfrogging to renewable energy: The opportunity for unmet electricity markets Sub Saharan Africa 16.Kusumadewi et al. Long-term CO2 Emission Reduction from Renewable Energy in Power Sector: The case of Thailand
in 2050
Thailand 17.Hua et al. Development of renewable energy in Australia and China: A comparison of policies and status Australia & China
Figure 3.1.1: Coding grid
Situation & Trends
Derived from the essence of the research focus, the theme of situational and historical analysis of RE in developing countries is exhibited in the majority of the articles, namely eleven. Of those eleven, nine has a generic focus on political attributes, five on economic attributes, three on social attributes, and six on technological attributes. Furthermore, mapping and measuring Green House Gas (GHG) emissions entail six of the studies and two concentrate on development of the electrification rate. A recurrent aspect is the historical challenges and future possibilities regarding the diffusion of RE.
Drivers & Barriers
Prospects towards 2030
In consideration of assessing the future outcomes in line with the targets of the Paris Agreement, are five studies that emphasize this matter. One article embodies all the attributes included in the secondary theme, beyond that study three articles grasp the view of politics and two the technology features.
3.1.2 Synopsis
The PA has induced the motivation of RE development in numerous developing countries, as well as being the foundation for superior domestic targets in developing countries (Hasan et al., 2020; Samuwai et al., 2019; Malik et al., 2019; Atteridge and Savvidou, 2019; Maulidia et al., 2019; Senshaw and Kim, 2018; Handayani et al., 2017). However, the absence of clear consequences of the PA may cause a decrease in motivation and execution, which suggests for more distinctive governance (Hasan et al., 2020). Additionally, as the system of the PA is built upon a five year amendment plan where renewable targets may be amplified or reinforced, further requirements of investment may occur (Senshaw & Kim, 2018).
tree analysis that instead evaluate risk through monetary values in cash flows. The hybrid model include energy source risk, political risk, and Maintenance and Operation expenditures increase.
Electrification is also discussed in the sense of either facilitating or hampering the technology diffusion, inter alias low levels of electrification rate may spur RE whereas high level of electrification rate can detain the urgency of development (Batinge et al., 2017). In contradiction, Hasan et al. 2020 proclaims that electrification rate can be prioritized over a sustainable development of renewable energy. Even though there is a modest focus on social aspects of RE, benefits such as employment opportunities, health improvement, and sustainable development are present (Farkat Diogenes et al., 2019; Zafar et al., 2018). For example, Samuwai et al. (2019) argues that it is critical to stimulate domestic private investment which can accelerate development and improve climate conservation that in turn generates green jobs and improve well fare. In the same direction, Maulidia et al., 2019 (2019) resonates that the private sector is crucial due to limited public finance.
3.2 Narrative Review
An acknowledged way to distinguish a support for decision-making is to utilize a multi-criteria decision analysis (Neves et al., 2018; Shafiee et al., 2019; Zhou et al., 2006). As sustainable development is a multi-criteria concept, the use of a multidimensional analysing method is further motivated (Neves et al., 2018). Therefore, to fulfill the ambition of providing a holistic view of the factors which drive the potential of renewable energy resources in the energy mix in developing countries, the structure of analysis will be based on a multidimensional PEST method. This analysing method combine the investigation of political, economical, social and technical attributes.
The basis on how each pillar is scrutinized is presented as follows:
Political factor
the operational performance of technological development. These opportunities, uncertainties and threats are influenced by proxies such as government effectiveness and regulatory quality (Marzi et al., 2019). In the article “The worldwide governance indicators: methodology and analytical issues”, Kaufmann et al. (2011) provided definitions on government effectiveness and regulatory quality as of; “Government
Effectiveness (GE) – capturing perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.” and “Regulatory Quality (RQ) – capturing perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development”. These definitions will provide the basis to further investigate the
impact of the political factor.
Economic factor
Industrial development is influenced by micro- and macroeconomic factors. One of the most noticeable factors is funding, as it may be perceived as the biggest hurdle in the commencing of a project as well as it being key for future development (Kolios & Read, 2013). Another important attribute is the macroeconomic stability of a country. Macroeconomic stability is crucial for the success of businesses and the competitiveness of a country (Klaus, 2019), e.g a country in recession is less likely to be attractive from an investment perspective (Kolios & Read, 2013). Other attributes which accounts for the economical factors to drive technological development is market conditions such as economic capital and growth, budget balance, tax rate and inflation rate (Marzi et al., 2019).
Social factor
Technological factor
The technological factor as defined by Marzi et al. (2019) is the technological development trends and application conditions for various techniques. In their definition, the technological factor also refers to technological change and incentives. The technical and industrial competitiveness of a country can be studied in relation to the progress of technological development, which is dependent on several factors (Kolios & Read, 2013). This literature review aim to explain the basis for technological development in relation to technological advancement, innovation and diffusion in developing countries.
For each factor, further research will be presented connected to the technological development of renewable resources in developing countries.
3.2.1 Political
Policy instruments and regulatory framework are found to be vital drivers in the transition of renewable energy (Adams & Acheampong, 2019; Farkat Diogenes et al., 2019; Hasan et al., 2020; Hua et al., 2016; La Vina et al., 2018; Malik et al., 2019; Maulidia et al., 2019; Sarkodie & Strezov, 2019; Shimbar & Ebrahimi, 2020; Zafar et al., 2018). This is supported in the study by Jacobsson and Lauber (2006) where it is argued that politics and policy of energy systems have been essential in the spread of turbines and solar cells in Germany. Indeed, Germany’s political embarking towards a low-carbon and nuclear-free economy is conceptualized as the “Energiewende”, the Energy Transformation. This initiative has induced a number of legislations in the country facilitating the deployment of renewable energy technologies, such as the 1990 Electricity Feed Law an the 2000 Renewable Energy Law (Runci, 2005). Even though Germany is one of the leading countries in the transition to renewable energy, the Energiewende has delivered mixed results and faces numerous challenges. However, in terms of transitioning its energy mix, Germany had the ambition to achieve 35% of gross electricity consumption from renewable energy by 2020, but successfully achieved 44% (IEA, 2020).
political factors in the European Union, such as stricter policies or higher governance quality, are qualitative drivers of the deployment of renewable energy sources. They also point out that renewable energy deployment is significantly promoted by left-wing parties compared to right-left-wing parties. Additionally, negative effects can be caused by lobbying practiced by the manufacturing industry.
There are several studies on the subject of political influence on renewable energy sources and a substantial part of the literature is covered in the study of Sheikh et al. (2016). The authors conducted a thorough literature review on the political impacts on renewable energy and then scrutinized the impacts with the assistance of experts in the field. Consequently, six criteria were identified such as Policies, Regulation/deregulation of power markets, Public government RD framework, Codes/standards - compliance, Perception/position of utilities, and Security, and with 27 associated sub criteria.
In 2012, IRENA provided a review that accounted for policies which had the objective to reduce the risks and major barriers for investments in renewable resources in order to increase its capacity. The policies which are at the stage of commercial disperse, called deployment policies, are typically divided into four subcategories; fiscal incentives (e.g. tax reduction or rebates), public finance (e.g. public procurement of renewable energy), regulations (e.g. obligation to meet minimum targets or feed-in tariffs) and access policies (e.g renewable energy have unlimited access to established energy networks) (IRENA, 2012)
growth, cost-reduction, increased deployment, market creation and expansion and investment security.
In 1995, economists Porter and Van der Linde presented the idea that well-designed environmental regulation could enhance competitiveness following induced effectivity and introduction of new innovations. This was contradictory to the previous believes that an environmental regulation to, for example, decrease pollution would restrict options and therefore reduce profits. Or, from the point of view of a traditional economist, if it would be beneficial for a profit-maximizing firm to reduce pollution, that firm would already have done so (Porter & Van der Linde, 1995). This idea is now known as the Porter Hypothesis (Ambec et al., 2013). Since its introduction, the Porter Hypothesis have been subject to much controversy specifically due to its somewhat vague definition. Hence, some points are necessarily specified. It is stated that environmental regulations induce innovations. An important point to make is that such regulations have to be well-designed in order for innovations to follow. Further, it is not specified if the resulting innovations offset the cost of the regulation, meaning that the regulation is not always beneficial for the profit-maximizing firm (Ambec et al., 2013).
3.2.2 Economical
between the direct investor and the direct investment enterprise and all subsequent monetary flows between them and among foreign affiliates, both incorporated and unincorporated (OECD, 2009).
According to the International Monetary Fund (IMF) (2009, p.3-4) the definition of a direct investor and a direct investment enterprise is the following:
Direct Investor
The term refers to an individual, an incorporated or unincorporated public or private enterprise, a government, a group of related individuals, or a group of related incorporated and/or unincorporated enterprises that has a direct investment enterprise (that is, a subsidiary, associate or branch) operating in an economy other than the economy or economies of residence of the foreign direct investor or investors.
Direct Investment Enterprise
The term refers to an incorporated enterprise in which a foreign investor owns 10 percent or more of the ordinary shares or voting power for an incorporated enterprise or an unincorporated enterprise in which a foreign investor has equivalent ownership. Ownership of 10 percent of the ordinary shares or voting stock is the criterion for determining the existence of a direct investment relationship.
atmosphere.
Existing literature points out numerous determinants connected to FDI whereas the quality of institutions appear more occurrent (Alfaro et al., 2005; Anyanwu, 2012; Bokpin et al., 2017; Kinoshita & Campos, 2003; Larrain et al., 2000; Malikane & Chitambara, 2017; Merlevede & Schoors, 2005). Other authors such as Busse and Hefeker (2005) state that the most influential indicators of FDI inflows involve the investment profile, the situation of conflicts, democratic accountability, ethnic, law and order, bureaucracy, and governmental stability. Similarly, Iamsiraroj and Ulubaşoğlu (2015) and Bokpin et al. (2017) suggest strong governance and rule of law as strong determinants for FDI. In the study of Reiter and Steensma (2010), the authors found that when corruption is low there is a strong positive relationship between FDI and improvement in human development, which is also supported by Alfaro et al. (2005) and Larrain et al. (2000). FDI in developing countries is also found to largely contribute to technology and knowledge transfer when the host country has a minimum threshold stock of human capital according to Borensztein et al. (1998). Zhang (2014) concludes that FDI affects industrial performance positively, especially when foreigners interact with local human capital. Consequently, by facilitating the drivers of FDI, which include both policies and entities, it may evidently lead to economic growth (Abdouli & Hammami, 2018; Edwards, 1990; Malikane & Chitambara, 2017) and sustainable development (Kardos, 2014; Ridzuan et al., 2017).
In contrast to research with predominant focus on overall FDI in developing countries, Keeley (2018) examines the determinants of FDI in the renewable energy sector. The author enforces the determinants presented in earlier literature but also argues that they may differ among different sectors. Hence, the importance of policy interventions is highlighted as determinants of FDI and arguments that exchange rate volatility, access to land, resource availability, feed-in tariff system, and guaranteed access to the grid are strong determinants for FDI are provided in renewable energy. Furthermore, Aust et al. (2020) found a positive correlation with FDI and SDG 1,7,9,14, and 16. Thus, arguing that FDI increases the probability of reaching the SDGs.
Additionally, debt financing is an alternative way to raise money for working capital or capital expenditures by issuing debt through financial instruments. In the view of debt financing for a country it is commonly known as government debt, sovereign debt, public debt, or national debt and where the financial instruments compromise government bonds, bills, and securities (IMF, 1988). Debt can either be classified as internal or external, where internal involve lenders within the country whereas external is debt issued in either domestic or foreign currency owed to foreign lenders. Seeing as the focus on this thesis threat foreign investments, the concept of debt financing will only consider external government debt.
The term external debt is defined , accordingly, by the IMF (1988, p.19):
Gross external debt is the amount, at any given time, of disbursed and outstanding contractual liabilities of residents of a country to non-residents to repay principal, with or without interest, or to pay interest, with or without principal.
with the borrower’s possibility to pay can become a barrier in attaining capital (Shrimali et al., 2013).
Further, the final method of funding to be presented in this thesis is that of funding through grants. A grant is a sum of money given to an entity from another for a particular purpose. For example, a grant may be given to an institution or person from a nonprofit organization or government. Distinguished from debt financing, a grant does not hold the receiver obligated to repay the granted amount (Grant., n.d).
3.2.3 Social
Human capital is an important factor for the diffusion of a new technology as well as facilitating the sustainable development. Human Capital Theory (HCT) stems from the view of human capital as being the value of a person’s experience and skills which is a product of education, intelligence, and health. These intangible assets then affect the level of productivity that can be generated. Thus, the foundation of HCT states that investing in education, social stability and health leads to higher productivity which in turn leads to economic growth (Becker, 1994; Schultz, 1961). It is also evident that education has a positive impact on a country’s technological change through R&D, which also aligns with the correlation between scientific performance and education (Andrews & Pelz, 1976; Lee et al., 2005).
The main welfare contributions from the social dimension is considered to be employment and spending on health and education. Employment is especially emphasized since the effects are manifold, IRENA (2017b) enunciate this as follows:
Employment is essential for generating wage and thus for the well-being of individuals and their families, the creation and retention of jobs is of critical importance in any measure of socioeconomic development. Wage and salary income, especially from well-paying jobs, permits people to make the purchases that translate into stable demand for goods and services, contributing to healthy local and national economies. The measure of employment thus goes far beyond direct jobs in the renewable energy sector and indirect jobs in the supply chain, also encompassing so-called induced jobs in the wider economy.
Further, the impact of renewable energy resources on employment has been investigated in such detail where the actual contribution can be quantified in generated person days. In the analysis “Leveraging Local Capacity for Solar PV” and “Leveraging Local Capacity for Onshore Wind” (IRENA, 2017d, 2017c), it is found that a typical 50 Megawatt (MW) project in either solar or wind power generate 229,055 or 144,420 person days, whereas 56% and 43% represents operation maintenance, for respectively energy source.
3.2.4 Technological
enabling technologies are presented which have essential roles in the distribution of renewable energy. These technologies encompass both the infrastructure needed in physical systems as well as the digital infrastructure to enhance automation, system integrations, and data collection, which increase the intelligence and responsiveness of electricity systems (United Nations, 2017).
Earlier studies has shown that technology advancement is significant in the implementation of renewable energy following accelerating energy efficiency (Fisher-Vanden et al., 2004; Hang & Tu, 2007; Jiahua et al., 2010; Zhou et al., 2006). Bamati and Raoofi (2020) argues that the production of renewable energy in developing countries has a significant dependence on high technology export but is unable to explain the use of renewable energy sources. Additionally, the authors found that GDP and CO2 emission are two influential drivers of renewable energy in developing countries. There is also literature that suggest that there is an interplay between technology diffusion and human capital in which human capital most vital role in sense of economic growth, is to facilitate the adoption of foreign technology instead of acting as an independent factor of production (Benhabib & Spiegel, 1994; Mayer, 2001).
Technological diffusion refers to the process by which innovations are spread within and across economies. In the article, “Technological diffusion: the viewpoint of economic theory”, Stoneman, 1985 states that the application of innovations lead to the advancement in technology, and as a consequence, economic growth and development.
• The innovation should be appropriate for the developed country, technologies cannot be directly copied by the corresponding technology in an industrialized country
• Even though the information on the innovation may be imperfect, the spreading of information is key for the diffusion to be effective
• More stringent regulations are likely to speed the dissemination of the climate friendly technology
• A strengthened financial intermediation may be a better alternative to overcome financial barriers
• The rate of diffusion will most likely be faster if investments are made, not only in the technology, but also in human capital and infrastructure
• Intellectual property restrictions may dilute the rate of diffusion
Case Study - Cuba
The following chapter introduce relevant background of Cuba for the case study of the thesis. It presents and overview of the country as a whole, together with the historical development and current state of the renewable energy sector. Additionally, a section of the prevailing market conditions is conferred.
4.1 Introduction
political freedom (Nordea, 2020) and the freedom of press is ranked at 169/180 in the world (Nordea, 2020).
From an economical perspective the Cuban economy is still facing several challenges. With a GDP growth of -0.5% in 2019 and a forecast of 0% growth in 2020, the economy is not heading forward. This stagnation is largely a product of the embargo, tighter sanctions and the Helms Burton Act enforced by the US. Further, these sanctions combined with fuel shortages in Venezuela, the Cuban provider of fossil fuels, has intensified energy savings. Additionally, during the last years the public debt has accelerated at an alarming rate in Cuba and is estimated at 52.1% of the country’s GDP. This figure is forecasted to increase due to both government’s eagerness to spur the economy and late historical trends (Nordea, 2020; Torres, 2019). Thus, this high fiscal deficit has led to late payments and debt renegotiations, where for example China has written of US $6 billion over the last ten years (Fieser, 2020; Rapoza, 2019).
Cuba has a high Human Development Index (HDI) of 0.778, or ranked at 72 in the world (UNDP, 2019). The HDI measures human conditions and people’s capabilities as an alternative to simply measuring economic growth as an indication of progression. The dimensions include; life expectancy, access to education and living standards (United Nations Development Program, 2019). Further, Cuba is considered to have an extensive state-operated healthcare program and educational program. The programs are run by the Ministry of Public Health and the Ministry of Education respectively. Healthcare is provided free or at nominal cost whereas education is 100% subsidized by the government (Levinson & Knight, 2020). Additionally, Cuba has a significantly low unemployment rate measured to 1.64% in 2019 (The Global Economy, 2020).
countries with the most limited oil, coal reserves and gas reserves in Latin America and the Caribbean. Therefore, together with the damaging effects from coal that impacts both the population and the environment, the government plan to phase out this energy source in the coming future (Pedraza, 2019).
4.2 The Cuban energy sector
4.2.1 Historical development
The Cuban energy sector has developed significantly during the last century. Before the Cuban revolution in 1959 about half of the Cuban households had access to electricity (Käkönen et al., 2014). After the Cuban revolution in the early 1960s, Cuba initiated a beneficial partnership with the former Soviet Union. At this time, the Soviet Union was the dominant force in the Cuban energy sector with a barter agreement where Cuba provided sugar and other commodity to the Soviet Union in exchange for oil (Panfil et al., 2017). From the beginning of the 1960s the Soviet Union was Cuba’s main trading partner, constituting to 85% of the foreign trade (Suárez et al., 2012).
Until the early 1990s, Cuba imported 90% of its fuel needs from the Soviet Union. With the help of the highly subsidized oil, Cuba was able to expand electricity access to its citizens. As a result of the subsidized oil Cuba could increase its citizens’ access to electricity from about 50% in 1959 to 95% by 1989. During the same time period, the annual electricity consumption in Cuba grew from 1 500 Gigawatt hour (GWh) to 9 700 GWh. Without the supply of imported oil from the Soviet Union, this expansion would have been impossible. Therefore, the Cuban energy sector and economy was highly dependent on the partnership with the Soviet Union (Panfil et al., 2017).
NAPP, responded to the oil and gas shortage with a national energy policy. This policy set three goals; invest in energy efficient and renewable energy, increase the production of domestic oil and invest in the sugar industry (Panfil et al., 2017). In 1993 Cuba allowed third-party entities to enter the oil and gas exploration in order to increase the production of domestic oil. Further, the sugarcane production decreased by 57,4% following the loss of support from the Soviet Union leading to a falling electricity generation from bagasse, a bio energy residue from sugar canes. Following the national energy policy, Cuba has focused greatly on efforts in renewable energy resources, specifically in rural areas, primarily with photo voltaic (PV) solar systems and micro-hydro plants. The efforts resulted in over 2 300 successfully installed PV solar systems in schools, hospitals and doctors’ offices by 2003 (Panfil et al., 2017).
From the turmoil of the Período Especial (Special Period) characterized by energy inefficiency and blackouts caused by extreme weather and a centralized grid from 1991 to 2000, Cuba required a response against the energy crisis. The government countered in 2005, by launching the Revolución Energética (Energy Revolution), with the objective of exploring more ways of generating electricity at the same time as decreasing the energy demand. The policy entailed six objectives (Runyon, 2019):
• Increasing energy efficiency and conservation
• Increasing the availability and reliability of the national electric grid • Generalization of distributed generation with smaller electric power plants • Incorporating more renewable energy technologies into the energy portfolio • Increasing the exploration and production of local oil and gas
• Increasing international co-operation in the energy sector
power plants and upgrading electrical posts, utility service entrances, and electrical meters (Suárez et al., 2012). As a result, the island succeeded to prevent blackouts from natural disasters and to reduce the impact on the environment since the decentralized model had lower consumption rates compared to the centralized power plants (Herrera et al., 2013). As a result of implementing 3.000 MW of decentralized power in 110 municipalities the country reduced the average consumption of oil by 3%, which was equivalent energy savings of 961.000 tons of imported oil between 2006-2007. Additionally, to secure the critical locations important for the Cuban economy, the government installed over 4.000 emergency backup systems in sites such as hospitals, food productions centers, and schools (Pedraza, 2019).
As part of the energy revolution, the government embarked upon facilitating the transition to an increased use of renewable energy resources. As an underdeveloped country, Cuba requires external support to develop. In the aim to reach electricity generated from 24% of renewable energy resources by 2030 (Ministerio de Energía y Minas, 2020), Cuba has stated the investments requirement of US $4.0 billion (UNFCCC, 2015), whereas US $3.67 billion are already specified to unique projects (Morera, 2020). With the implementation of a new legislation in 1995 Cuba opened for the possibility of foreign investors. As a result, there have been investments up to approximately US $2 billion in the oil and gas sector since 1991 (Panfil et al., 2017). It has been stated that of the prognosed requirements of US $4.0 billion invested in renewable energy resources, almost half will come from foreign investors (UNFCCC, 2015).
4.2.2 Electricity tariffs
CUP. When considering the average salary of 1100 CUP/month (equivalent to US $44/month) (NBC News, 2019), the tariffs range from being 0.8% to 132.6% of the monthly income per person respectively (MFP, 2002).
Consumption range Price per kWh Aggregated price
kWh CUP CUP 0-100 0.09 9.00 101-150 0.30 15.00 151-200 0.40 20.00 201-250 0.60 30.00 251-300 0.80 40.00 301-350 1.50 75.00 351-500 1.80 270.00 501-1000 2.00 1000.00 1001-5000 3.00 12000.00 More than 5000 5.00
Table 4.2.1: Implied prices based on electricity consumption per household (MFP, 2002)
4.3 Market conditions
4.3.1 US embargo
Since the Cuban revolution, the US have imposed a unilateral economic, commercial and financial embargo on Cuba. On account of its activation, the embargo have implied a ranging severity on sanctions, depending on the political situation in Cuba and the US. The first comprasial of the economic embargo meant that the US stopped the importation of sugar canes from Cuba, already in 1960 (Amnesty International, 2009). Since then, the embargo has developed and transform to its current admittance in the following regulations and statues (Amnesty International, 2009):
• Trading with the Enemy Act of 1917 • Foreign Assistance Act of 1961
• Cuba Assets Control Regulations of 1963
• Cuban Liberty and Democratic Solidarity Act of 1996 (the Helms-Burton Act) • The Trade Sanctions Reform and Export Enhancement Act of 2000
In the spring of 2019, President Donald Trump enforced Title III of the Helms-Burton act which had previously been waived every six months since its creation in 1996. By allowing the this law, Trump effectively put a strain on the possibilities of Foreign Investment (FI) as it allows US nationals to sue foreign companies who have gained from investments in Cuba (Reuters, 2019).
4.3.2 Dual currency
In Cuba, there are two official currencies, the currency Cuban Convertible Peso (CUC) which is available for tourists and the local currency Cuban peso (CUP) available to the Cuban people. In the subsidized market, available for Cubans, the payments are made in CUP with few product options, whereas in market available to tourists often offer a wider range of products. The official exchange rate between the currencies is 25:1 for the CUP, and the CUC is exchanged at 1:1 to the USD. However, from the official economic statistic, it is implied that the actual conversion rate is at 96%, overvaluing the CUC. Hence, if the CUC and USD would be combined, the CUC would be devalued and an abundance of state-run companies would default. Therefore, a gradual transition is desired. Even though a transition has been promised by the NAPP, a solution has not been presented and the dual currency system is still active (Nationalencyklopedin, 2020).
4.3.3 Privatization
4.3.4 Digitalization in Cuba
The access to internet is still restrained in Cuba, prices are expensive and the connection quality is typically low. Internet is solely available through WiFi hot-spots which require an access code at the fixed price of 1 CUC/hour (or 25 CUP) or through the 3G mobile network (ETECSA, 2020). Considering the average Cuban salary of 1100 CUP per month (NBC News, 2019), ten hours connected to WiFi represents 22.7% of the average income. The 3G mobile networked require a pre-paid Cuban sim card where data packages can be purchased at different rates depending on the usage. The implied prices of the 3G network are corresponding to that of the WiFi hot-spot. Both the WiFi access codes and pre-paid sim cards can only be bought at the official state-run telecommunications company Empresa de Telecomunicaciones de Cuba, or Telecommunications Company of Cuba(ETECSA, 2020).
Findings & Analysis
This chapter presents the findings of the conducted case study as well as analyzing the results in line with the scrutinized literature. The chapter is divided according to the secondary themes together with a final segment encompassing political, economical, and technological development indicators.
Figure 5.0.1: Energy mix transition (Ministerio de Energía y Minas, 2020)
5.1 Political
5.1.1 Foreign Investment Act
The first undertake to attract FI and to spur the economic development in Cuba after the collapse of the Soviet Union was approved on September 5, 1995. The Act No. 77, entitled “Foreign Investment Act” was introduced to offered guarantees of capital and compensation for expropriation and opportunities for investors to own housing, offices, and other buildings. It also endorsed industrial parks and duty-free zones governed by special legislation to facilitate international trade and exports (Vargas, 1996).
2019):
• FI are open to all sectors, excluding health care, education and military. • Foreign companies may seek partnership with state owned companies and
member-owned companies, but not with privately owned Cuban business. • FDI may adopt three separate modalities:
– Joint ventures (JV) companies in cooperation with state-owned
enterprises
– International Economic Partnership Agreements, for management or
production of facilities among others.
– Full Foreign-owned Ventures (FFOV)
• FDI holds full protection against expropriation, except for reasons of public utility or in public interest. In case of conflict, investors are entitled to appeal to a mutually agreed upon international investment dispute resolution entity. • Foreigners may invest indirectly in JV or FFOV through shares or bonds. • The Cuban government must notify foreign investors of their application has
been approved or denied within a period 60 days.
• Investors are free to transfer profits and dividends as well as revenue of a sale abroad without taxes or other dues.
• The corporate tax rate is 15% (down from 30%) for JV. In case of investments in non-renewable and renewable resources the tax can increase by a maximum of 50% which would result in a 22.5% tax rate. The corporate tax for FFOV are subject to the general tax of 35%, nevertheless exceptions may apply by the Council of Ministers.
