Kenya Green and Resilient Expansion of Energy (GREEN) Program Phase 2 Project

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1. The Government of Kenya’s goal of universal access to clean, adequate, affordable, and reliable electricity is critically dependent on a robust transmission system to connect the main generation sources and bulk collection substation (geothermal, hydro and wind) in the central rift valley and eastern part of the country to the major load centers and to allow for greater connectivity to the regional hydropower resources. Particularly, the load centers in the western and coastal regions are far from the supply sources (over 400kms) and in the absence of adequate transmission connectivity, local generation based on high-cost fossil fuel is used to supplement grid supply in these areas. Replacement of the fossil fuel-based generation is a critical element to reducing the cost of supply in Kenya, as well as meeting the clean energy goal. With the commissioning of the Kenya-Ethiopia interconnector, supported under the World Bank-co-financed Eastern Electricity Highway Project (EEHP, P126579), Kenya is now connected to Ethiopia’s vast hydropower resources, giving impetus to regional energy trade through the Eastern Africa Power Pool (EAPP). While the interconnection has a transfer capacity of up to 2,000MW, transmission system constraints in Kenya currently limit offtake to only 200MW. Urgent investments are needed to address reactive power deficiencies and increase transfer capacity in the Kenya system to reap the full benefits from the interconnection. This include increasing electricity offtake to 400MW in the next three years as per the Power Purchase Agreement (PPA) between Ethiopia and Kenya (through their respective utilities).2.The first phase of the Kenya Green and Resilient Expansion of Energy (GREEN) Multiphase Programmatic Approach (MPA) program (P176698) was approved by the World Bank Board on June 15, 2023 for a total financing envelope of IDA US$1.05 billion. The proposed second phase of the MPA will support the investments needed in grid stability equipment (STATCOM and battery storage) and a substation to increase system resilience in Kenya, which will facilitate increasing imports of cleaner and cheaper energy from Ethiopia, absorption of a larger share of renewable energy in the Kenya system, and energy trade between Tanzania and Ethiopia through the Kenya system. The second phase of GREEN MPA will be implemented by Kenya Electricity Transmission Company Limited (KETRACO), Kenya Electricity Generation Company (KenGen) and Ministry of Energy and Petroleum (MOEP) as an Investment Project Financing (IPF), The financing envelope for the proposed second phase of the MPA is expected to include US$153.5 million of IDA and US$48.5 million from the Green Climate Fund (GCF) as per the original MPA framework. The World Bank serves as the GCF Accredited Entity. 3. The second phase of GREEN comprise the following four components: Component A : Installation of STATCOMS (IDA US$ 84 million): This component is proposed to finance installation of reactive power and voltage control equipment (STATCOM) at Suswa and Rabai substations to improve the fault levels, increase voltage stability, allow for greater import of renewable energy from Ethiopia and transfer of more geothermal energy from Olkaria to the coastal region of Kenya. The component will also finance project management and supervision consultants.Component B: Construction of a 400kV substation at Kimuka (IDA US$29 million): The proposed 400kV substation at Kimuka will enable integration of the Kenya- Tanzania interconnection and Ethiopia-Kenya interconnector enabling Tanzania to access hydropower resources of Ethiopia. The substation will also increase transmission capacity of more renewable energy (geothermal, wind and imports) from supply sources at Olkaria and Suswa to major load centers of Nairobi and the Coast regions of Kenya. The proposed substation site is on a land owned by KETRACO. The component will also finance project management and supervision consultants.Component C: Battery Energy Storage systems (IDA US$ 33.5 million and GCF US$45 million): The component will support the installation of the first battery energy storage system (BESS) with a capacity of a range of 50-100MW for load shifting renewable energy sources role (primarily geothermal) but also grid stability by providing system reserves (both fast and backup reserves). The component will be co-financed by the Bank and Green Climate Funding (GCF). Kenya is one of seven countries benefiting from GCF funding under the Sustainable Renewable Risk Mitigation Initiative (SRMI) to shift to low-emission sustainable development pathways and increase access. An ongoing BESS study has prioritized four sites that are owned by KenGen, KETRACO and KPLC for BESS installation [Embakasi (Nairobi), Kipevu (Coast), Muhoroni (Western) and Olkaria geothermal complex (KenGen)]. Detailed site-specific feasibility studies will be undertaken by KenGen (the implementing agency of BESS during project implementation building on the technical assessment and will confirm the best use case, sizing, design, and functionality of the BESS. Component D: Technical Assistance, Capacity Building and project management (IDA US$ 7 million and GCF US$ 3.5 million), with the following sub components: Subcomponent D1: Solar Auction Preparatory Studies (GCF US$ 2 million )and Capacity building (GCF US$ 1 million): The Subcomponent will finance preparatory activities for the solar auctions, sector diagnostic studies, assessments and prefeasibility studies .The determination of the project structure and actual auctions are expected to be supported with IDA funding (co-financed with GCF) under the third phase of the MPA. The subcomponent will also finance technical assistance activities to strengthen the energy sector institutions capacity in energy planning and system operation strengthening the framework for BESS. The Subcomponent will finance the management and coordination costs of the Project by MOEP. Subcomponent D2: Sector Technical Assistance and Capacity Building (US$4 million IDA): The Sub-component will support sector wide studies, enhancement in LCPDP, energy policy review, capacity building, and training activities for sector development and to help sustain and enhance the policy, institutional, regulatory arrangements and reforms as well as gender and citizen engagement. Subcomponent D3: Technical Assistance to KETRACO (US$1.5 million IDA): This Sub-component will finance technical assistance to KETRACO including recruitment of an experienced firm to provide operation and maintenance (O&M) services for STATCOMs for a defined period after commissioning, given that the STATCOMs are new technology in the country, strengthening O&M practices and training of KETRACO staff. The component will also support enhancements in Transmission Master Plans. Subcomponent D4: Technical Assistance to KenGen: (US$1.5 million IDA): This Sub-component will finance engagement by KenGen of an experienced firm to provide operation and maintenance (O&M) support for BESS for a defined period, as well as other technical assistance for KenGen.