Location: Ciro Redondo, Cuba
Client: Havana Energy
Biopower is a joint venture between Havana Energy and Azbuba, owner of all Cuba’s sugar production assets. Biopower has been formed to finance, build own and operate five power plants burning bagasse during the sugar crushing season, and marabu (an endemic woody weed covering 2 million hectares of farmland) during the off season. The first plant has a net output of 57MW and is located adjacent to the Ciro Redondo sugar mill in Ciego de Avila province.
The underlying economics are compelling for Cuba. The vast majority of the electricity produced and consumed in Cuba is generated from old oil-fired power plants, in many cases simply burning crude oil. Replacing this with biomass generation, even at a tariff sufficiently attractive to bring in external capital, means clean power generation at half of the current cost of dirty oil-fired electricity. In fifteen years, moreover, once the capital of these new plants is paid for, the cost of electricity from these biomass plants will halve again. This not only keeps more wealth inside the Cuban economy, it reduces the allocation of precious foreign exchange – which could be spent on medicines, fertiliser and other essentials – to oil instead of goods and services that will benefit the people of Cuba. And when you think there are sixty more sugar mills like Ciro Redondo, each of which could generate 50+ MW, and when you see that current total active installed electricity generation capacity in Cuba is only 3,500MW, you start to see the potential to make Cuba completely independent of oil for electricity production.
The project is bigger in conception than simply greening electricity supply, however. Currently, some 2 million hectares (or more) of prime agricultural land is covered in marabou, a dense thorn-scrub from South Africa which took over vast swathes of former arable and sugar plantation land following the collapse of the Cuban economy in 1989/90. This marabou has proven impossible to remove, until the introduction of new technology by Havana Energy. Taking Ciro Redondo as an example, there is enough marabou already growing within 30km of the plant to sustain the power plant forever if it is harvested and simply allowed to regrow. The plan is more ambitious than this, however.
Marabu, while fast-growing is not concentrated as a biomass resource and it is difficult to harvest. Much better to replace it with dedicated energy crops, such as “energy cane” (a variety of sugar cane with more fibre and less sugar), eucalyuptus or elephant grass. The beauty of a dedicated energy crop like this is that it takes much less land – 20-30% – for the same energy value, compared with marabou. This releases land which is currently unusable, for agricultural purposes. Havana Energy intends to introduce a series of model farms to demonstrate what the latest sustainable agriculture and mixed production models can do – both in helping Cuba to start to feed itself and to generate export revenue.
Bainton Capital’s Role:
Bainton Capital was appointed in a dual role, together with its engineering partner, ARC Developments international.
ARC was appointed as Owner’s Engineer in November 2012. ARC carried out an engineering assessment of the project and developed a performance specification, including full commercial terms, which was issued to tenderers identified by ARC and the client. Initial interest was shown from tenderers in Asia, Europe and Latin America, and ARC met with each of the tenderers to discuss the project. ARC developed a team of Cuban engineers to carry out tender assessment, and Alstom was selected as the Preferred Tenderer following a technical, commercial and financial analysis. In parallel, ARC carried out further work on the integration of the power plant with the sugar mill, issued an updated specification and worked with Alstom to finalise the plant design.
Bainton Capital provided an integration role for the commercial development and financing of the project. This included developing and maintaining project financial models, for tender evaluation, engineering assessments, equity structuring and for lenders. Bainton Capital coordinated the establishment of investor and lender data rooms, helped coordinate export credit agency and lender due diligence and developed all the financing documentation, including the information memorandum and equity presentations. Lastly, Bainton Capital worked with the equity broker, Liberum Capital to coordinate equity investor due diligence and introduced some interested investors though its international networks.
At the time of writing, the Ciro Redondo project is in mid-financing phase.