Enhanced Danish-Ethiopian Energy Partnership

Introduction: File No. F2: 2020-35587 In 2017 Ethiopia and Denmark commenced a partnership programme on Country Ethiopia energy aiming at creating attractive Responsible Unit Addis Ababa with the Ministry of Energy Utilities and Climate framework conditions for developing wind energy projects in Ethiopia. (MEUC), the Danish Energy Agency (DEA) and Energinet

As the energy mix in Ethiopia develops Sector Climate and energy with more variable renewable energy, an increased level of planning and modelling Partners Ministry of Water, Irrigation and Energy (MoWIE) – The Ethiopian on how the system will evolve is needed. Electric Power (EEP) Therefore, a strategic sector cooperation programme on this was launched in April Year 2021 2022 2023 2024 2025 2026 Total 2020 (2020-22). Commitment 50 10 60 This fruitful cooperation has motivated DKK mill. the government of Ethiopia to seek an enhancement of the partnership. Projected annual 7.00 12.00 12.00 12.00 12.0 5 60 disbursement Key results: Supporting the Ethiopian vision of Duration Mid-2021 to mid-2026 building a Climate Resilient Green Economy and achieving Ethiopia’s targets Previous grants DKK 35 mill. For the Accelerating Wind Power Generation in Ethiopia in the NDCs under the Paris Agreement Programme (AWPGE) and DKK 10 mill. for Strategic Sector Cooperation on Climate Change, as well as SDG7, on energy planning and modelling with key partners; Ministry of Water, Irrigation and Energy (MoWIE), Ethiopian Electric Power (EEP), Ethiopian SDG13 and SDG 17. Electric Utility (EEU) and Ethiopian Energy Agency (EEA). Development of a regulatory, institutional, and financial framework for Finance Act code 06.34.01.70 Climate Envelope wind projects. The energy policy and regulatory decision- Head of unit Karin Poulsen making process is based on “choice awareness” guided by state-of-the-art Desk officer Jens Skov-Spilling long-term energy planning and modelling. Financial officer Jesper Clausen Ethiopia has developed a stable and flexible electricity system actively using planning and forecasting. Relevant SDGs Justification for cooperation: Ethiopia and Denmark share common goals and have demonstrated high-level commitment to green energy transition and climate change mitigation efforts e.g. joint leadership of the energy track at the UN climate summit, autumn 2019. Only 44 % have access to energy. The Ethiopian target is 100 % by 2025 and an increase in energy demand by a factor 5. Variable renewable energy e.g. wind is likely to be the cheapest sources to reach this target. The challenge is to integrate these into the energy system. This is a key Danish competence and central for the partnership. Risks and challenges:  Political, social, and ethnic tensions remain high.  Limited institutional capacity in partner institutions.  Highly ambitious Ethiopian targets.  Many other development partners active in climate change mitigation and clean energy development in Ethiopia,  Covid-19 pandemic. October 14, 2020

Ministry of Foreign Affairs of Denmark

Concept Note for the Programme Committee Meeting on 5 November 2020 on Enhanced Danish-Ethiopian Energy Partnership 14. October 2020

File: 2020-35587

Table of Contents STRATEGIC QUESTIONS TO THE PROGRAMME COMMITTEE ...... 4 1. CONTEXT ...... 5 1.1 BACKGROUND ANALYSES AND RELEVANCE ...... 5 1.2 ETHIOPIAN PRIORITIES, POLICIES, SYSTEMS, AND STRUCTURES: ...... 6 1.3 POTENTIAL DANISH ENGAGEMENT, STRENGTHS, AND INTEREST ...... 8 1.4 OTHER DEVELOPMENT PARTNERS ...... 9 2. PRESENTATION OF THE PROGRAMME ...... 9 2.1 COMPOSITION OF THE PROGRAMME ...... 9 2.3 CHOICE OF PARTNERS AND DEVELOPMENT ENGAGEMENT (DE): ...... 12 2.4 MONITORING AND REPORTING: ...... 13 2.5 COMMUNICATION ON RESULTS: ...... 13 3. MANAGEMENT SET-UP ...... 14 4. BUDGET ...... 14 ANNEX 1: CONTEXT ANALYSIS ...... 15 ANNEX 2: PARTNERS ...... 24 ANNEX 3: PRELIMINARY RESULTS FRAMEWORK ...... 27 ANNEX 4: BUDGET DETAILS ...... 29 ANNEX 5: RISK MANAGEMENT MATRIX ...... 30 CONTEXTUAL RISKS ...... 30 PROGRAMMATIC RISKS ...... 30 INSTITUTIONAL RISKS ...... 31 ANNEX 6: LIST OF SUPPLEMENTARY MATERIALS ...... 33 ANNEX 7: PRELIMINARY COMMUNICATION PLAN ...... 35 ANNEX 8: PROCESS ACTION PLAN (PAP) ...... 36 ANNEX 9: INTERVENTION LOGIC/THEORY OF CHANGE ...... 39

2 List of abbreviations AWPGE Acceleration Wind Power Generation in Ethiopia CRGE Climate-Resilient Green Economy strategy COP Conference of the Parties DE Development Engagement DEA Danish Energy Agency DEEP Enhanced Danish-Ethiopian Energy Partnership DEPP Danish Energy Partnership Program DSIF Danida Sustainable Infrastructure Finance EDC Energy Development Commission EEP Ethiopian Electric Power EEU Ethiopian Electric Utility EEA Ethiopian Energy Authority GERD Grand Renaissance Dam GDP Gross Domestic Product GHG Green House Gas GoE Government of Ethiopia GTP Growth and Transformation Plan IPP Independent Power Producers KPII Climate Envelope II MoWIE Ministry of Water, Irrigation and Energy MoF Ministry of Finance NDC Nationally Determined Contributions NEP National Electrification Programme NLDC National Load Dispatch Centre NPC National Planning Commission P4G Partnering for Green Growth and the Global Goals 2030 SSC Strategic Sector Cooperation SDG Sustainable Development Goals TPES Total Primary Energy Supply USAID United States of America - International Development UNDP United Nations Development Program UNFCCC United Nations Framework Convention on Climate Change

Strategic questions to the Programme Committee

The Danish Embassy in Addis Ababa seeks guidance from the Programme Committee on the following issues for the formulation of support:

1. Ambition level – is the ambition level of the cooperation realistic, and is there enough flexibility (Doing Development Differently, DDD) built into the programme to allow the energy cooperation to be demand responsive? 2. The programme is in line with ‘Building Back Better and Greener’ and will have synergies to Danish priorities on the international Climate and Energy agenda. How can this strategic cooperation and partnership with Ethiopia best complement Danish priorities in other linked activities (bi- and multilateral)? 3. How can this continued partnership amplify the Danish leadership of SDG 7 building on the Danish-Ethiopian joint leadership of the energy track at the UN Secretary- General's climate summit held in September 2019?

1. Context The overall objective of the Programme is “to develop the Ethiopian government’s structures and systems in a sustainable and cost effective way that ensures access to affordable and clean energy (SDG 7) and hereby supporting the Ethiopian vision of building a Climate Resilient Green Economy while reaching lower middle-income1 status by 2025”.

1.1 Background analyses and relevance Among the world’s developing countries, Ethiopia is widely recognized as an ambitious frontrunner in green energy transition and other climate initiatives. The NDC submitted by Ethiopia in 2017 to the UNFCCC includes the Climate-Resilient Green Growth Economy Strategy aiming at achieving lower middle-income status by 2025 while protecting the country from the adverse effects of climate change. Access to affordable, sustainable and modern energy is high on the Ethiopian agenda and a central element for reducing poverty, improving industrial productivity and creating jobs for a young and fast-growing population. Out of a population of 110 mill. citizens, only 44 % have access to energy. The Ethiopian target is 100 % access to energy by 2025 – meaning an increase in energy demand by a factor 5. Solar and wind are likely to be the cheapest energy sources for Ethiopia to reach this target. The challenge is to integrate variable renewable energy like solar and wind into the energy system. This is a key Danish competence and will be central for the enhanced Danish-Ethiopian Energy Partnership. With more than 40% of the population under the age of 15, it is crucial that industrial development and access to education is prioritised in order to achieve the country’s ambitious development goals. For this access to energy is vital. Building on the previous cooperation, this proposed new partnership programme will assist the GoE in reaching the aim of energy access for all. This is crucial for the Ethiopian development, where it is estimated that Ethiopia will be lacking more than 20 million jobs in 2030 – but with an ambition to create 14 million jobs by 2025. Stable and secure energy supply is vital for development. Therefore, this programme will be central in creating possibilities in education, jobs and hope for the youth of Ethiopia. The energy sector will continue to be of importance following the Covid-19 pandemic, and the development challenges this imposes in a post pandemic period. The Enhanced Danish-Ethiopia Energy Partnership Programme (DEEP) should be seen as part of Ethiopia’s recovery efforts. Learning from the Danish energy experiences with an integrated electricity market, the programme is fully in line with the ‘Building Back Better and Greener’. The energy sources of Ethiopia are similar to those of the Nordic countries with a mix of hydro, wind, biomass and geothermal energy. With these similarities, Denmark’s experiences will be an appropriate and valuable support to the energy sector in Ethiopia, facilitating the recovery and achievements of the Agenda 2030 and the Paris Agreement in accordance with democratic principles, inclusiveness, equality and the respect for human rights. With the current high dependency on hydropower, Ethiopia’s power sector is vulnerable to climate changes, and therefore introduction of complementary renewable energy sources into the Ethiopian energy system is essential for the country’s sustainable development. In order to sustain the security of power supply, a supplement to the hydropower by in parallel developing alternative renewable energy sources will be an important factor for Ethiopia’s development as well as supporting its ambition of becoming a regional power hub that can supply clean energy to neighbouring countries in the East African region and beyond. Through the “Acceleration Wind Power Generation in Ethiopia (AWPGE) programme” (2017-21) Denmark and Ethiopia have a well-established cooperation that has aimed at exploring how wind energy cost-effectively can contribute to realizing the strategic objectives of Ethiopia. To support these efforts a strategic sector cooperation programme on energy planning and modelling was launched in April 2020

1 According to World Bank definitions, lower middle-income economies are those with a GNI per capita between $1,036 and $4,045. Currently Ethiopia is classified as a low-income economy ($1,035 or less)

5 (2020-22). Integration of variable renewable energy – such as wind – into the existing power system, requires forecasting of demand and supply to ensure that the system is in balance. As the energy mix in Ethiopia develops, it requires an increased level of planning as well as modelling on how the system will evolve, when alternative sources of energy options are pursued. Therefore, as the Ethiopian-Danish activities on accelerating wind power are advancing, support on planning and modelling are considered a required next step in the cooperation. In addition, based on the need to increase national production of wind power within the medium term to support national development plans, the GoE has requested DSIF to finance the Assela 1 +2 wind farms. These projects will, in addition to an increase in power production, be a valuable input for the development of the Ethiopian wind sector and an excellent supportive supplement for the remaining Danish activities. Following from the current programmes Denmark and Ethiopia have developed a trustful government-to- government cooperation and a strong partnership in the field of energy consistent with SDG 7, best illustrated by the joint leadership of the energy track at the UN Climate Action Summit in NY in September 2019. The cooperation demonstrates Danish key priorities of climate diplomacy, green development policy in relation to SDG 7 and ‘Building Back Better and Greener.

1.2 Ethiopian priorities, policies, systems, and structures: The key institutions in Ethiopia involved in the development of the energy sector are Ministry of Water, Irrigation and Energy (MoWIE) and the state-owned transmission system operator and power company, Ethiopian Electric Power (EEP). Currently, these institutions are the key stakeholders in the development of power sector policies and regulatory frameworks. In addition, it is expected that – if established - the announced Energy Development Commission (EDC), within MoWIE, reporting directly to the Prime Ministers’ office, will gradually become the key institution with responsibility on planning and development of the Ethiopian energy sector.

The Ministry of Finance (MoF) has the overall responsibility of allocating public and private funding and necessary sovereign guarantees for international funding in planning activities. The MoF is supported by the National Planning Commission (NPC) which is responsible for developing the country’s development plans and could also develop to be a key counterpart for the modelling and planning activities. Figure 1 below provides an overview of the organizational structure in MoWIE and the energy sector.

Minister of Water, Irrigation and Energy

State State Ministers of Minister of Water and Energy Irrigation Sector

Ethiopian Ethiopian Electric Ethiopian Energy Electric Utility Power (EEP) Authority (EEA) (EEU)

Figure 1: MoWIE, organizational structure. The national Growth and Transformation Plan II (GTP II 2016-2020) presents and outlines national priorities in realising Ethiopia’s vision of becoming a lower middle-income country by 2025, where access to energy is a central element e.g. increasing the access to electricity from 44% to 100%. Ethiopia has developed and launched the Climate Resilient Green Economy (CRGE) Strategy in 2011 with a vison to be 6 reached by 2025, which is fully aligned and integrated into GTP II as well as sector plans, programmes and projects. This will continue in the next five-year Growth and Transformation Plan III, planned for 2021- 2026. The government has therefore established a range of ambitious policy goals related to economic and low-carbon development. As stated in its NDC, Ethiopia intends to reduce its CO2e emission by 64% compared to the business-as-usual scenario in 2030. Ethiopia also intends to undertake adaptation initiatives to reduce the vulnerability of its population, environment and economy to the adverse effects of climate change, based on its Climate Resilient Green Economy Strategy (CRGE). On the Ethiopian 2025-targets, it should be noted that these are ambitious and will, due to the consequences of the Covid-19 pandemic, most likely not be reached that early.

The energy sector in the country is responsible for only 3% of the current annual CO2 emissions, but with a rapidly increase in population (yearly growth rate is 2.5%) and the goal of becoming a lower middle-income economy through industrialisation, the demand for electricity is likely to increase by a factor 5. The Ethiopian power system will need to undertake extensive developments and expansion to meet the increased demand in a cost effective and a sustainable way. It must therefore be ensured that such needed expansion of the generation capacity is made through investments in clean energy technologies, otherwise the emission reduction targets will not be achieved. It is thus a high priority for the GoE to expand the electricity generation capacity in order to respond to the increasing domestic demand, as well as being able to export electricity to neighbouring countries. The planned capacity expansion will have to be more diversified and geographically distributed, with an expected and significant share of wind, solar and geothermal power generation. The National Electrification Programme (NEP 2.0) was launched in 2019 with the aim of realizing reliable access to electricity by 2025 and is the guiding programme for reaching these targets. The aim of NEP 2.0 is to bring together all sector stakeholders and development partners, led by the GoE. NEP 2.0 is thus the framework, within which the Danish engagements will be implemented and contribute to reaching the NEP 2.0 targets. The GoE has initiated a series of actions towards transforming the regulatory framework and to promote the involvement of the private sector in the development and expansion of the national power sector. This includes the process of unbundling the entities responsible for transmission and generation and a partial privatisation of utilities. The power sector reform process is primarily supported by the World Bank. The current Danish engagements focusing on facilitation and promotion of Independent Power Producers (IPP), strategic energy planning and modelling are in line with this reform and NEP 2. Furthermore, important and valuable experiences can be drawn from the Danida Sustainable Infrastructure Fund (DSIF) in the Assela 1 windfarm2. It is based on the above-described current context, that the Ethiopian Minister for Energy has requested the Danish Embassy to consider supporting the following areas of mutual interest for an expansion of the energy sector cooperation: 1) “Continuing government-to-government engagement to support development of improved framework conditions for competitive wind auctions for Independent Power Producers (IPP) and system integration of variable renewable energy sources like wind and solar, 2) Developing in-house capacity for energy planning and modelling in MoWIE, Ethiopian Electric Power (EEP) and other relevant institutions, 3) Engaging Danish universities to support Ethiopian universities and institutions to take ownership of the Wind Energy Atlas, including reconsiderations on re-locating the measuring masts needed for validation of data, 4) Exploring possibilities and provide pragmatic support in other areas such as water supply and sanitation; (Note: this request is pursued outside the scope of this programme). 5) Maintain an embedded long-term technical advisor in MoWIE to support project development and implementation as well as internal policy advise.”

2 As of January 2020, Danida Business Finance (DBF) became Danida Sustainable Infrastructure Finance (DSIF). The change of name reflects the nature of the projects that are financed in accordance with the Danish Government’s commitment to sustainable and climate resilient infrastructure in developing countries. 7

1.3 Potential Danish engagement, strengths, and interest As part of the identification process of the Strategic Sector Cooperation (SSC) programme and the preparation of the new climate and energy cooperation, the Danish Energy Agency (DEA) has conducted two inception missions in May and August 2019 seeking to identify the main challenges and opportunities in the Ethiopian energy sector. The missions have been supported by a number of additional missions by DEA identifying activities within the SSC programme and potential new elements in a new climate envelope programme (KPII). Furthermore, the Embassy has conducted a mid-term review of the AWPGE programme, also providing recommendations for a future cooperation and extensively discussed the matter with the Ethiopian counterparts. Based on this, three areas have been identified: (1) Advancing wind energy; (2) Energy planning and modelling; (3) Flexibility and system integration. The high relevance of the Danish Ethiopian energy cooperation is confirmed by the recent mid-term review of the AWPGE Programme by emphasising the programme’s high relevance to Denmark’s ambition under the Paris Agreement to assist partner countries “decouple carbon emissions from economic growth through cost-effective mitigation actions”. The review also found clear coherence between the strategic objectives of the AWPGE Programme and the overarching climate change and sustainability goals of the governments of Ethiopia and Denmark and recommended the formulation of a second phase. The review points to important lessons learnt that the design and subsequent implementation of a new programme would benefit from. Especially with relation to programme management, and monitoring and evaluation. Denmark has more than 40 years of experience in development and implementation of energy policies in a partnership between the public and private sector and civil society. This cooperation is based on trust, flexibility and mutual respect for the contribution by each party to the development of green solutions in the society. Denmark has demonstrated that it is possible to decouple economic growth and reduction of GHG emissions, resulting in green growth. The partnership with Ethiopia is built on this foundation and sharing of experience. Thus, partnering with Ethiopia on the access to energy agenda is in line with the 4- year strategic plan of the Minister for Development Cooperation, “The World: Denmark’s strategy for development cooperation and humanitarian action 2030”3, the Paris Agreement and the Danish SDG7 leadership. The applied setup of government-to-government cooperation is following the current cooperation structure in Ethiopia and is a replication of a successful Danish cooperation approach in other and similar countries. The partnership programme will be built on a clear recognition of the specific areas of Danish expertise and partnership modalities that best match the prioritised needs of the Ethiopian partners. The Enhanced Danish-Ethiopia Energy Partnership will build upon the lessons learnt from the current cooperation in Ethiopia but also from other Danish partnerships with, e.g. China, Vietnam, Indonesia, Mexico and South Africa. Ethiopia’s strong commitment to development through its Climate Resilient Green Economy (CRGE) strategy – not only in the energy sector but for all relevant sectors – is expected to open several opportunities for Danish companies especially in the context of the NEP 2.0. This has now been halted by the effects of Covid 19, which has also influenced the political situation as the election has been postponed. It remains certain that the Ethiopian CRGE and subsequent growth strategy will create opportunities for Danish companies. The Ethiopian market has some challenging framework conditions. Similarly, following the COVID-19 pandemic, it is expected that Danish companies will primarily focus on markets closer to the domestic market., However, an increasing mix of variable energy will provide more opportunities for Danish companies as the need for private investments increase. Along with the AWPGE Programme, DSIFs activities and the GoE’s policies will lay the foundation for increasing share of Danish businesses opportunities in Ethiopia. This is fully in line with the strategic objectives of the overarching climate change and sustainability goals of both governments. Denmark has a strong interest in sharing its experience with Ethiopia for mutual benefits, which will also contribute to Denmark’s interest in achieving global climate goals and meeting SDG targets and securing opportunities for Danish companies.

3 MFA/Danida. January 2017. The World 2030. 8

1.4 Other development partners There is a large community of donors within the energy sector in Ethiopia, and the general impression is that the various on-going engagements are well-coordinated through the Energy Development Partners Coordination Group. The group includes 18 Development Partners (DPs) that meet four times pr. year to share experiences and updates, coordinate efforts and provide a forum for regular dialogue with the GoE. The group is co-chaired by the World Bank and Denmark. Among the active development partners are USAID (PowerAfrica), EU and the World Bank with the largest programmes in terms of budget volume. The Danish identification missions had included meetings with these partners to ensure synergies and avoid potential duplication of efforts for the next phase of the cooperation. In addition, the International Energy Agency has commenced work on energy statistics, where synergies are planned to be explored.

2. Presentation of the Programme The Ethiopian power sector is growing at an unprecedented rate4. Additional generating capacity is needed in an effort to support strong, broad-based economic growth averaging approx. 10% per year. This has now been halted by the effects of COVID-19, which has also influenced both the economic and the political situation due to the postponement of the general elections. The energy demand will continue to rise and the energy sector continue to be of importance, especially in light of the Covid-19 pandemic, and the development challenges this imposes in a post pandemic period. To accommodate this transformation, substantial investments and reforms in the energy sector are needed. Not least to address the key challenges:  Security of energy supply,  Least-cost development of the energy sector,  Future power generation mix based on security including climate resilience, local resources and cost effectiveness.

2.1 Composition of the Programme Intended impact: Creation of “choice awareness” in the decision-making process in the energy sector development and increased security of supply through increased shares of variable renewable energy sources, strong system integration and solid energy planning and modelling tools, and capacity development. Enhanced performance of the energy sector through stronger Ethiopian government structures, institutions and systems, and private sector development – thereby enabling access to energy (SDG 7).

Overall goal to which the Programme contributes: Ethiopia achieves the vision of building a Climate Resilient Green Economy and reaching lower middle-income status by 2025, realises its NDC goals, and achieves SDG7 and SDG13 targets.

The development objective of the Programme is “to develop the Ethiopian government structures and systems that in a sustainable and cost optimal way improves access to energy (SDG 7) and hereby supporting the Ethiopian vision of building a Climate Resilient Green Economy while reaching lower middle-income status by 2025”.

Immediate objective: To strengthen and develop national capacity and skills among staff of partner organisations, and which enables these organisations to pursue the achievements of the country’s targets.

Outcome 1: Developed wind energy sector. Ethiopia has taken ownership of the ‘developed wind energy sector’ with a regulatory, institutional, financial framework in place. A wind energy sector that

4 Demand (GWh) growth rate between 2001-2017 was 12.7% according to a USAid study on System Integration.

9 promotes and creates an enabling environment for using best available practice in planning, risk mitigation and cost reducing measures to continue the implementation of ambitious expansion plans for wind power. Outcome 1 outputs: 1.1 A regulatory, institutional, and financial framework that streamlines pre-development of wind projects reducing risks for investors and lenders. 1.2 Development and implementation of a coordinated set of measures for reaching targets that minimise construction, operation, and integration obstacles to the development of the wind energy sector. 1.3 Technical standards and regulations that ensure security of supply.

Outcome 2: Choice awareness within long-term energy planning strategy; Ethiopia has introduced “choice awareness” in the decision-making process in its energy sector development and taken ownership of Ethiopia Energy Outlook guided by state-of-the-art long-term energy modelling tools based on a regularly adjusted Ethiopia specific technology catalogue. Outcome 2 outputs: 2.1 Enhanced energy modelling capacity in the relevant Ethiopian institutions. 2.2 Technology catalogue established, updated and utilised. Outcome 3: Stable & flexible electricity system. Ethiopia has developed a stable and flexible electricity system actively using system operational planning and forecasting to integrate more renewable energy. Outcome 3 outputs: 3.1 Variable Renewable Energy (VRE) integration including wind and other available Renewable Energy (RE) sources. 3.2 Enhanced flexibility of Ethiopian power system for integration of VRE, security of supply and cost (through dispatching based on marginal prices in daily operational planning and operational optimization in integrating (RE). 3.3 Improved forecasting and implementation of optimal dispatching tools and daily operational planning and dispatching procedures. For all outcomes 1-3 cross-sectorial efforts will be made to involve universities and research institutions to secure a sustainable and long-term transformational change. Lessons learned from previous engagements: The current AWPGE Programme has supported the GoE in wind power expansion and integration of variable renewable energy. Integration of variable renewable energy – such as wind – into the system, demands good planning to secure that the power system is in balance. As the energy mix in Ethiopia broadens, planning of the system is needed but also modelling to forecast how the system will evolve, if different wind opportunities are pursued. Therefore, as the activities under the Danish - Ethiopian cooperation on accelerating wind power are advanced, the subsequent steps on planning and modelling are appropriate as follow-up activities. The strong partnership has created a trust-based relation between the Ethiopian and Danish partners, which has spurred the request for expanding the scope of cooperation. The initial and current program period has been extended two times. A lessons learnt is hence that the working plans have been too ambitious. This is why the new programme is a five-year engagement to make it more robust and flexible, and why a strong focus in the structure of the Programme will be on embedded long-term advisors. The recommendations from the Mid-Term Review (MTR) of the AWPGE Programme will be included as part of the programming together with relevant lessons learned under DEA’s global cooperation programme with other countries, and the findings of the MTR for the bilateral cooperation with China, Mexico, South Africa, and Vietnam (Danish Energy Agency Partnership Programme, DEPP). The KPII will furthermore take over the activities of the SSC, when this programme ends in 2022. The primary output being the Ethiopian Energy Outlook an important element in the development of the Ethiopian energy system and the support for this activity is key. The development of the outlook will be 10 carried out repeatedly and the methodology and the analysis developed and refined. To make the long-term change an in-depth effort must be made to enable the Ethiopian partners to perform and develop this important output. There is further a strong request to broaden the scope of the Energy Outlook to a Climate and Energy Outlook, thereby including more sectors for a complete green transition. The Outcome 2 above will be built on the results and lessons learnt from the current SSC programme, and deepen the partnership. In addition, the outcome of the programme will benefit from the DSIF Assela 1 + 2 windfarms. These projects will, in addition to an increase in power production, be a valuable input for the development of the Ethiopian wind sector and an excellent supportive supplement for the remaining Danish activities.2.2 Theory of Change, assumptions, impact drivers, and risks: The programme is funded under the Danish Climate Envelope. Thus, the Theory of Change of this new programme are required to address the three overall objectives of the Climate Envelope: 1. Assist developing countries to adapt to climate change, 2. Assist developing countries with the transition to a low carbon economy, and 3. Prepare developing countries to enter into and implement the new global climate agreement, agreed at COP21 in Paris with a view to sustainable development. To address these overall objectives under the framework of the Climate Envelope, the following activities / outputs have been identified: 1 Supporting more effective policies and planning (in particular related to the energy and water sectors) 2 Promoting climate solutions through more effective markets and investments 3 Building more robust international architecture The new Partnership Programme aims to support the GoE in the country’s ambitious goal of becoming a lower middle-income country by 2025 – where access to reliable, affordable and clean energy is a central elements for meeting domestic, public and private sector demand and to generate employment opportunities for the fast-growing population. To contribute to this transformational change, the Ethiopian partner institutions will through the partnership with Denmark be enabled to: • Undertake medium- and long-term planning and scenario modelling of the country’s energy system; • Facilitate the creation of an enabling environment for investments in the renewable energy sector; • Effectively utilise a technology catalogue of renewable energy technologies; • Increased flexibility of grid-connected generation infrastructure; • Strengthen relevant regulation that mitigate implementation risks and transaction costs; and • Facilitate business models and financial instruments that can help mobilise financial resources and investments in green development. Thereby the path towards transforming the power system by using the beneficial hydro and wind natural resources leading to expanded power supply and by balancing the energy sources and through interaction with neighbouring countries. The partnership Programme will build on 40 years of Danish experience in developing an advanced energy model, long-term planning and scenario modelling, integration of variable renewable energy into the grid, power plant flexibility, and wind energy. Denmark can effectively respond to key Ethiopian challenges and opportunities by utilizing Danish expertise and experience and will engage in a demand-led government-to-government partnership with Ethiopia in these areas. A detailed graphic of the intervention logic/ Theory of Change.is presented in Annex 9. The Programme is depending on interest and commitment at high political decision-making levels. Denmark offers a government-to-government cooperation jointly with the Embassy’s cooperation, including a Sector Counsellor and technical assistance staff that will engage in the policy dialogue and assist with the implementation of the Programme. Through the current cooperation, there is – as mentioned earlier - a request from the Ethiopian partners to further develop and deepen the cooperation. The Minister for Water, Irrigation and Energy and the administration strongly supports the proposed areas of intervention which are intended to lead to a more effective administration of the energy sector and providing choice awareness for policy changes and the sector development needed to achieve the transformation of the Ethiopian energy sector and thereby contribute to reaching the development goals of Ethiopia.

In order to support the change process, it is necessary to engage in a true partnership where the Ethiopian partners are actively involved and willing to mobilise the required resources for capacity building and required amendments to facilitate the transformation. Efforts on ensuring ownership of the Ethiopian partners will be made. A good practice to ensure this is to integrate the programme targets from the result framework into the working plans of the partners. The aim of the Danish support is to contribute to the change through a true partnership, where the Ethiopian partners are actively involved and reserve the required resources for capacity building on: 1) renewable energy, 2) system integration, and 3) modelling and planning. The Theory of Change for the Programme will be based on the key assumptions that socio-economic and political reforms will continue in Ethiopia. The current Covid-19 pandemic may impact negatively if measures to reduce or mitigate this risk are not forthcoming in the short-term. The general election planned for August 2020 has been postponed due to the coronavirus and may delay the energy reform process somewhat. However, it is the main assumption that access to energy - regardless - will remain a main priority for the country and the government. In the programming phase the risk matrix in Annex 5 will be further developed.

2.3 Choice of Partners and Development Engagement (DE):

It is proposed that DEA and Energinet will be the implementing partners and that the above-cited outcomes 1, 2, and 3 will be delivered in close cooperation with MoWIE and the affiliated institutions. It is the same structure as for the current programmes and at the core of the government-to-government cooperation that MoWIE is the key Ethiopian partner. The Ethiopian partners will provide in-kind contributions to the Programme, thus no financial transfer from the Danish Programme to Ethiopian partners are planned to take place. It is a key priority for the programme that the focus is on-the-ground activities in Ethiopia. The Danish Embassy is having the formal role as programme owner. In this way the programme will enable a continuation and deepening of the current strong cooperation. How to engage and include universities in the programme will be decided during the programming phase. The number and scope of development engagements (DEs) will be finally decided during the programming phase, but currently structured as one DE with 3 outcomes: Outcome 1: Developed wind energy sector. (Implementing partner DEA) Ethiopian partners under this outcome will be MoWIE and the affiliated institutions EEP (wind and tendering) and MoF PPP directorate (IPP’s and tendering). The role of universities is to be defined.

Outcome 2: Choice awareness in the decision-making process in its energy sector development guided by state-of-the-art long-term energy modelling tools. (Implementing partner DEA) Ethiopian partners will include MoWIE and the affiliated institutions EEP, EDC (long-term planning, modelling, forecasting). The role of universities is to be defined. Outcome 3: Stable & flexible electricity system. (Implementing partner Energinet) Ethiopian partners will include MoWIE and the affiliated institutions EEP (forecasting, grid integration, flexibility), EEA and EEU (regulation, market development and enabling environment). The role of universities is to be defined.

Focus on transfer of knowledge is key provided through flexible short-term inputs through twinning of national and Danish agencies; expert-to-expert training; benefitting from the nature of government- government cooperation. Long-term advisers (LTAs) are critical for the success and have been effective to deliver the required inputs during the AWPGE Programme, and to build trust and develop a deep understanding of the energy sector’s and of the partner organisation’s needs. The LTA’s role in executing the workplan and bridging to the partners needs have been instrumental in building a trust-based cooperation. That have provided for a cooperation going beyond the purely technical to including the strategic political level e.g. with the joint leadership on the energy track at the UN climate summit in autumn 2019. It is the intension to mobilise two LTAs to the programme, one to be based in MoWIE and one in EEP.

Capacity development will be formulated with a clear strategic vision with each engagement partner within the three outcomes. The capacity development will take its point of departure in the current institutional context. This entails translating current context challenges into specific policy development with long-term impact in all essential aspects of the programme, e.g. renewable energy and energy efficiency. The capacity development will also include applying peer-to-peer learning approaches where partners’ immediate operational needs are addressed in a joint process that can be translated into results and long-term performance improvements. The Programme will be based on the Human Rights-based Approach (HRBA) principles of non- discrimination, participation and inclusion, transparency and accountability, as well as the distinction between rights holders and duty bearers as outlined in Denmark’s Strategy for Development “The World 2030”. Similarly, the particular benefits of the cooperation for both women, men and youth will be given careful attention in the formulation. The number of women in the energy sector is very low. It is a focus area in the current Danish-Ethiopian cooperation and will also be in the new programme. This will be investigated further in the programming phase. Access to affordable, reliable, sustainable and modern energy for all (SDG7) is closely linked to human rights. Given the role of clean and sustainable energy as a broader enabler of human and economic development, it is strongly interconnected with basic rights such as the right to life, food, health, shelter, education, etc. The contribution to be made by this Programme in terms of capacity development and tools for more well-informed and transparent decision-making in the energy transition, will support the HRBA principles. Similarly, the specific benefits of the cooperation for both women, men and youth will be given careful attention in the formulation. The Programme will contribute the following SDGs: • SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all; • SDG 13: Take urgent action to combat climate change and its impacts; • SDG 17: Strengthen the means of implementation and revitalise the global partnership for sustainable development.

2.4 Monitoring and reporting: Programme progress and achievements will be monitored and reported against impact and outcome level indicators aligned with the guiding principles and monitoring guidelines for the Danish Climate Envelope, and as far as possible also aligned with the monitoring and reporting systems of Ethiopian partner institutions (this will be addressed in more detail during the programme and Development Engagement Document (DED) formulation. Further, it is planned that the programme will begin with a three-month inception phase to further detail work plans and monitoring frameworks under each engagement and ensure alignment at a more specific level with the partner institutions’ strategies and work plans, as well as complementarities with initiatives supported by other development partners. Where relevant, indicators will be gender disaggregated. In accordance with Danida guidelines, the Programme will be subject to a mandatory Mid-term Review managed by the MFA. In addition, the Programme will be aligned with the embassies M&E scheme currently being developed. The monitoring and reporting structure will be developed together with the M&E and communication consortium engaged at the Embassy.

2.5 Communication on results: The Embassy’s overall communication aim for the Programme is to increase awareness of Denmark’s development cooperation with and in Ethiopia, specifically Denmark’s contribution to supporting Ethiopia’s vision of reaching 100 % access to energy by 2025. The Embassy will aim at making the development cooperation between Denmark and Ethiopia more understandable, accessible, and tangible by exemplifying its relevance and impact, so that a larger share of the Danish and Ethiopian populations have an informed opinion on the responsibility Denmark assumes for the world’s development. The communication activities will be developed further together with the M&E and communication consortium engaged at the Embassy.

3. Management set-up The project will be managed by a Steering Committee chaired by the Danish Ambassador to Ethiopia and the Minister for Water, Irrigation and Energy, also including State Minister of Energy, CEO of EEP, CEO of EDC (if established) and Deputy Director from DEA. The Steering Committee will be the forum for the overall strategic energy dialogue between Denmark and Ethiopia.

The management set-up will be kept as simple and lean as possible, to ensure an efficient accountability mechanism for progress and results as well as an effective mechanism for giving strategic directions to the Programme stakeholders. As far as possible, the model agreed for the Strategic Sector Cooperation and the AWPGE will be used, with overall guidance and decision-making by the Steering Committee having the overall strategic dialogue between Denmark and Ethiopia. The set-up will also include Project Management Teams with DEA and Energinet and participation of partner institutions, to manage the day-to-day implementation of the programme, including preparing material for the Steering Committee. The Royal Danish Embassy will be responsible for financial management of the Programme. The Ethiopian contribution will all be provided in-kind. The Embassy and partners, incl. DEA will be responsible for drafting annual work plans to be approved by the Steering Committee. Implementation will be the joint responsibility of the partners and DEA as specified in the work plans. As far as possible the work plans will be aligned to/based on partner work plans and specify, how DEA provides support to these plans. DEA will be responsible for the day-to-day implementation of their support activities with Energinet providing a facilitating role especially for high-level liaison and participation in steering committees.

4. Budget The total budget for the five-year programme is DKK 60 million, of which DKK 50 million is sourced from the Danish Climate Envelope 2021. An additional DKK 10 million is expected to be sourced from the Danish Climate Envelope 2022 subject to parliamentary approval of the finance act for 2022.

The preliminary budget is presented in Annex 4. The two embedded long-term advisors will be budgeted5 for the entire 5-year programme duration. The other major activities are the DEA and Energinet inputs. Inputs provided by Energinet and other related inputs by external international and Ethiopian consultants are procured through DEA. Funds will not be channelled through Ethiopian partner systems. A small unallocated reserve of 3,33 % or DKK 2 mill. is planned for unforeseen expenses and shortfalls on other budget lines. In the DE budget, a budget line for contingencies – also called budget margin – will be allocated to provide flexibility over the 5-year implementation period working in a highly dynamic context. Contingencies will be budgeted at 5% of the DE budget. The inception phase will not be budgeted separately. A budget for a MTR has also been set aside together with possibility of local activities, e.g. analysis, seminars, etc. It is important that the programme has a strong local focus. A draft annual budget for each DE/Output will be included in the DEs and Programme Document and updated during the Inception Period.

5 The standard MFA planning figures for long-term advisors will be used in the formulation. The long-term advisor will not be employed by partner ministries but possibly by the MFA as Danida advisor – this will be clarified during formulation. 14

Annex 1: Context Analysis

1. Overall development challenges, opportunities and risks Briefly summarise the key conclusions from the analyses consulted and their implications for the programme regarding each of the following points: General development challenges:

Ethiopia is a large and diverse country with an estimated population of approximately 110 million people and an annual population growth rate of 2.5 percent (2015). More than 75 percent of the population live in rural areas. Few African countries have developed as fast as Ethiopia has over the past few decades. The country has made significant progress across economic, social, and human development indicators, although challenges pertaining to democracy, civil society, and human rights remain. Ethiopia’s economic growth acceleration has been accompanied by a substantial decline in poverty. The Government of Ethiopia (GoE) has a strong commitment to pro-poor development, which has helped the country to make significant progress towards achieving most of the United Nations Millennium Development Goals. Despite significant socioeconomic progress in the last 20 years, Ethiopia remains one of the poorest countries in the world. Investment in the energy sector is one of the key drivers of Ethiopia's overall development and transformation strategy. Access to adequate, reliable, affordable and environmentally sustainable energy is fundamental for enabling the structural transformation of the Ethiopian economy and society, and for promoting poverty reduction and industrialisation. The Climate resilient Green economy strategy is together with the five-year Growth and Transformation Plan II the drivers for reaching the goal of lower-middle income status in 2025 together with 100 % access to energy (SDG 7). Development in key economic indicators:

The GDP per capita is 570 USD, placing Ethiopia as a lower income country. However, Ethiopia is experiencing a continuous economic growth with an increase in GDP of almost 10% p.a. in the last decade. The consequences of the Covid pandemic will halt this development. The economic growth is followed by an increase in annual average electricity demand of 12% from 2000-2017, while only having a 44% access to electricity. Furthermore, current demand side models predict a fivefold increase in peak electricity demand in 2030, which also includes a significant increase in export of electricity. Of Ethiopia’s 110 million population, 41% is under the age of 15 and 28% is aged 15-29. Youth unemployment is estimated at nearly 27% and the need for job creation is urgent for the next generation. The country’s ambition is to create 20 million jobs in 2030 with the industrial and service sectors being the main drivers. Ethiopia has taken significant steps towards liberalization of the economy and of private investments. Foreign direct investments are an important source of capital. However, performance of goods exports remains weak and foreign exchange shortages persists. The inflation rate is at almost 20% largely due to the high food prices. Status and progress in relation to SDGs: Ethiopia has very ambitious goals in becoming a lower-middle in-come country by 2025. The development plan consists of 9 pillars including “Building a climate resilient green economy”. The SDG’s are central elements in the strategic development of Ethiopia. This is also illustrated by the Danish and Ethiopian mutual commitment to the global agenda on climate change and economic growth, where the programme will focus on SDG 7 – ensuring access to affordable and clean energy in Ethiopia. The joint Danish Ethiopian leadership on SDG 7 and the energy transition track during the UN Climate Action Summit in New York in 2019 is evidence for a strong partnership. The programme will support the following SDGs:  SDG 7: Affordable and Clean Energy  SDG 13: Climate Action

 SDG 17: Partnerships for the goals The NDC tracker states that Ethiopia’s Paris Agreement target is one of the few that the Climate Action Tracker rates as “2°C compatible.” This rating indicates that Ethiopia’s climate plans are within the range of what is considered to be a “fair share of global effort”. Ethiopia’s target would lead to an emission reduction of 64% below the BaU scenario by 2030, where the renewable energy expansion is a key part of this target.

Political economy: Stable and secure energy supply is vital for the development of Ethiopia, and thus has a strong political focus illustrated by the ambitious target for access to energy. Energy policy is also social policy as illustrated by the access for all agenda, Basing power system supply on hydro resources makes it vulnerable to precipitation variations. With climate change, droughts and floods becoming more frequent. Lack of both short- and long-term planning has imposed this challenge. Capacity building within energy planning and modelling, integration of renewable energy etc. in MoWIE and EEP can enable integration of a larger share of variable renewable energy. A result of the cooperation is that the load shedding has diminished substantially. The critical situation experienced during 2019 has created a burning platform for energy sector administration capacity building with a high political attention. The Ministry of Water, Irrigation and Energy is a key institution for development of regulatory frameworks, strategies and policies for the energy system in Ethiopia. Together with the affiliated institutions and state- owned transmissions system operator and power company, Ethiopian Electric Power, they are central players. There is a strong Ethiopian support to the cooperation with Denmark, and Denmark is considered a strong strategic partner. In addition, Denmark together with the World Bank co-chair the DAG energy donor group. There are different geo and safety policy issues that can affect the political situation in Ethiopia. The Covid-19 pandemic effect on Ethiopia is uncertain and has postponed the planned general election. A new date for the election has not been announced. This indicates a somewhat uncertain future political direction. Even though with new political and economic reforms being introduced, it is still anticipated that the election will bring forward domestic disputes. It is therefore to some extent unpredictable, what will happen around the election. However, it is anticipated that the energy sector will continue to be central, and thus also the support to the programme.

List the key documentation and sources used for the analysis:  Climate Resilient Green Economy Strategy  Ethiopia Growth and Transformation Plan II (and III)  Executive brief on DK-ETH energy sector cooperation (in Danish)  AWPGE Thematic Programme Document Implementing Partnership Agreement and Development Engagement Documents  Supplementary Support Agreement for 1-year Cost-Extension MoU, including revised activity plan and budget  Progress Reports for 2017, 2018 and 2019 (restricted)  Minutes from meetings of Management Group and Steering Committee (restricted)  Wind Project Development Roadmap  Wind Curtailment Report (confidential)  Real-times Values Assessment (confidential)  Draft 2018 Operation Analysis (confidential)  Midterm review of the AWPGE programme  SSC programme agreement and workplans  Presentations by State Minister Dr. Frehiwot Woldehanna on 1) Energy Reform Overview and Reform Direction” and 2) Energy Resource Mix in Ethiopia – Current Status and Future Direction  National Electrification Programme 2.0

 USAID/Nexant Grid Management Program System Integration Study (confidential)  RES4Africa/CESI Integration of Variable Renewable Energy in the National Electricity System of Ethiopia  MoF/PPP DG PPP Guidelines (restricted)  Ethiopia NDC and NDC tracker  World Bank: Risk and Vulnerability Assessment Are additional studies / analytic work needed? How and when will it be done? As the programme is building on existing programmes and input from MTR, no particular further studies are planned.

2. Fragility, conflict, migration and resilience

Briefly summarise the key conclusions and implications for the programme of the analysis of the below points: The programme’s focus on climate change mitigation and the green energy transition will mean a positive but indirect effect on conflict, migration and resilience issues. The dependency on water resources spans beyond the borders of Ethiopia and can lead to geopolitical disputes over water resources e.g. geo-political disputes over the Nile due to the construction of GERD, why the integration of variable renewable energy into the Ethiopian energy system is central for the continued development. Are additional studies / analytic work needed? How and when will it be done?

No additional studies or analytical work required.

3. Assessment of human rights situation (HRBA) and gender6

Briefly summarise the key conclusions and implications for the programme of the analysis of the below points: While access to affordable, reliable, sustainable and modern energy for all is a SDG (#7), access to renewable energy is not a human right in itself. But given the role of clean and sustainable energy as a broader enabler of human and economic development, it is strongly interconnected with basic rights such as the right to life, food, health, shelter, education, etc. The contribution to be made by the programme in terms of capacity development and tools for more well-informed and transparent decision making in the energy transition, will enable the duty bearers (i.e. the political decision makers and public authorities) to be mindful of the needs and priorities of end-users and ultimate beneficiaries at the household and enterprise level (the rights holders). The human rights principles of participation, accountability, non-discrimination, and transparency will thus be supported. Similarly, the particular benefits of the cooperation for both women men and youth will be given careful attention in the formulation.

Gender

6 The purpose of the analysis is to facilitate and strengthen the application of the Human Rights Based Approach, and integrate gender in Danish development cooperation. The analysis should identify the main human rights issues in respect of s ocial and economic rights, cultural rights, and civil and political rights. Gender is an integral part of all three categories. 17

The number of women in the energy sector is very low. It is a focus area in the current Danish-Ethiopian cooperation and will also be in the new programme. This will be investigated further in the programming phase.

Youth With more than 40% of the population under the age of 15, it is crucial that industrial development and access to education is prioritised in order to achieve the country’s ambitious development goals. This is crucial for the Ethiopian development, where it is estimated that Ethiopia will be lacking more than 20 million jobs in 2030 – but with an ambition to create 14 million jobs by 2025. Stable and secure energy supply is vital for development. Therefore, this programme will be central in creating possibilities in education, jobs and hope for the youth of Ethiopia. Furthermore, there will be an indirect effect on youth through the cooperation with universities. The main focus is expected to be academically with an increased role for universities on wind data analysis. But also on energy planning and modelling the programme will explore the possibility of assisting universities in developing curriculum within the field of energy modelling – to secure the future experts of MoWIE/EEP and create a sustainable change. This will be investigated further in the programming phase.

Are additional studies / analytic work needed? How and when will it be done? More work will be done during formulation to ensure a focus on gender and youth issues where relevant, including gender disaggregated indicators together with disintegration on age (2-4 categories).

4. Inclusive sustainable growth, climate change and environment

Briefly summarise the key conclusions and implications for the programme of the analysis of the below points:

The programme has a direct focus on climate change mitigation and sustainable growth. Environmental issues are considered part of addressing the enabling framework for e.g. onshore wind energy. The Ethiopian energy system is 96% based on hydropower generation with only limited variable renewable energy such as wind and solar in the system. The target is to increase the wind power capacity from 324 MW in 2018 to 2,500 MW in 2030. With high dependency on hydropower, the country is very vulnerable to climate changes, limited water resources and geo-political disputes over the Nile due to the construction of GERD, why the integration of variable renewable energy into the Ethiopian energy system is central for the continued development. However, the Ethiopian partners are lacking knowledge and overview of the sector. Hydrological conditions in Ethiopia vary with dry and wet seasons. Basing power system supply on hydro resources makes it vulnerable to precipitation variations. With climate change, droughts and floods becoming more frequent, over the last 20 years Ethiopia has experienced many local and national droughts. In 2019 several months of outages was experienced. The early-rainy season failed in the southern regions, which caused significantly less filling of the important -reservoir than usual, thereby limiting the production of electricity. However, the increasing level of outages cannot only be explained by climate change. Throughout the year a degree of wind power curtailment (reduction of power delivery usually from fluctuating sources like wind or solar caused by system inability to intake produced power) has been experienced due to inefficient operation and lack of flexibility in the hydro based energy system. Instead of prioritizing the usage of wind power – hydropower was prioritized, not accounting for changes in demand and forecasting. Lack of both short- and long-term planning has imposed this challenge. Capacity building within energy planning and modelling, integration of renewable energy etc. in MoWIE and EEP can enable integration of a larger share of variable renewable energy. A result of the ongoing cooperation is that the load shedding has diminished substantially. The critical situation experienced during 2019, has created a platform for energy sector administration capacity building with a high political attention.

List the key documentation and sources used for the analysis: Same as are listed above

If this initial assessment shows that further work will be needed during the formulation phase, please list how and when will it be done? The formulation phase will further detail relevant aspects and reflected these in the Programme Document and DEs.

5. Capacity of public sector, public financial management and corruption

Briefly summarise the key conclusions and implications for the programme of the analysis of the below points: Capacity of the public sector for policy making, enforcement and service delivery. Without established structures, allowing building knowledge capacities within energy planning and renewable energy integration there is a high risk of lack of know-how and human resources in relevant public and private institutions. The institutions in GoE are lacking human resources with know-how and technical capabilities within a broad range of areas related to sustainable economic growth as emphasized in the GTP II as a priority action. Currently, external institutions take on this role in many cases. In the energy sector, the World Bank, Power Africa and other institutions equipped with technical energy background prepare analytical studies for the GoE aiming at supporting establishment of relevant energy plans. However, in order to create a sustainable path moving forward, the Ethiopians have recognized the need for having the knowledge in house, to be able to navigate and plan long-term. Furthermore, the limited knowledge within energy planning and modelling is also visible at the university level, where there is not sufficient research and education available. The university sector is currently completely excluded from the industry and energy planning within the public entities. When well-established within MoWIE and affiliated institutions, the programme will explore the possibility of assisting universities in developing curriculum within the field of energy modelling – to secure the future experts and create a sustainable change. Moreover, very often data necessary for undertaking research and development activities is not available, scattered within different institutions, or difficult to access. Data and information are located in multiple sites and often each institution has their own dataset. This jeopardizes research activities for the academia and when developed, it hinders validity of obtained results as no unified and agreed upon data sets can be acquired. Corruption situation Ethiopia ranks #114 of 180 countries on Transparency International’s Corruption Perceptions Index 2018. List the key documentation and sources used for the analysis: Same as above and Transparency International and local corruption assessments (corruption diagnostics and barometer reports, etc.)

Are additional studies / analytic work needed? How and when will it be done? The formulation phase will further detail relevant aspects and reflect these in the Programme Document and DEs.

6. Matching with Danish strengths and interests, engaging Danish actors, seeking synergy

Briefly summarise the key conclusions and implications for the programme of the analysis of the below points: Identify: The Danish Energy Agency (and other Danish - where we have the most at stake – interests and energy institutions such as the transmission system values, operator Energinet) have strong competences in - where we can (have) influence through strategic use long-term model-based energy scenarios and energy of positions of strength, expertise and experience, planning for RE deployment, including grid and integration of high proportions of variable RE. - where we see that Denmark can play a role through active partnerships for a common aim/agenda or Denmark has demonstrated that it is possible to see the need for Denmark to take lead in pushing decouple economic growth, GHG emissions and an agenda forward. energy consumption, resulting in green growth. Wind energy contributed 47% of the electricity consumption in Denmark in 2019.

The Danish energy model has also demonstrated the importance of:  a holistic approach based upon an energy agreement as a roadmap for development of energy supply and demand  energy planning including models, scenarios and long-term planning  power generation system flexibility  integration of renewable energy  maintaining a very high security of electricity supply closely linked to significant cross border connections  close public and private cooperation, public engagement and acceptance, general public support for the energy sector transition  advancement of the Levelized Cost of Energy (LCOE) approach  wind  biomass utilization  regulation of and targeted investments in energy efficiency  and a broad and integrated one-stop-shop mandate of DEA to regulate and deliver on the above. Denmark has a strong interest in sharing this experience in a partnership with Ethiopia for mutual benefit, which will also contribute to Denmark’s interest in achieving global climate goals and meeting SDG targets.

Denmark is a global leader in many aspects of the green energy transition, including RE and EE. Denmark’s interests and values are strong in this space, as mentioned above. The strong and trustworthy partnership with Ethiopia that has been built through the last four years of cooperation has created an eminent access to the key decision-makers in Ethiopia and a high credibility as a government institution. This open- hearted partnership is key for a successful programme in the future. - Brief mapping of areas where there is potential for The Ethiopian market has some challenging increased commercial engagement, trade relations framework conditions but has a large potential for and investment as well as involvement of Danish Danish solutions. local and central authorities, civil society organisations and academia. - Assessment of the donor landscape and The energy donor field in Ethiopia is characterised by coordination, and opportunities for Denmark to a large number of players. However, the Energy deliver results through partners including through Development Partners Coordination Group ensures multilaterals and EU; a high coordination and cooperation between the different organisations. The group is co-chaired by the World Bank and Denmark. WB is very active in Ethiopia running a number of projects, e.g. the scaling solar project, transmission, rehabilitation of network, providing guarantees. EU is a new player in the energy sector, where they have previously focused more on transportation the main focus is now on off-grid solutions and micro- grids, but also support to the national biogas programmes. DFID has recently started a new programme focusing on bridging the gap to researchers in the energy planning field, working primarily with the universities and academia. There could be good possibility for synergies. USAID (PowerAfria) USAID is working through Power Africa within a number of areas in the Ethiopian energy sector. This includes the Grid Management Support Program Study (February 2019) that analyses both demand forecasting, power system expansion planning and operational analysis. Power Africa also provides advice to the GoE and EEP on transaction of ongoing solar tenders.

List the key documentation and sources used for the analysis: Same as above and DEA on the Danish Energy Model

Are additional studies / analytic work needed? How and when will it be done? The formulation phase will further detail relevant aspects and reflected these in the Programme Document and DEs.

7. Stakeholder analysis

Briefly summarise the key conclusions and implications for the programme of the analysis of the below points: The key partners and stakeholders in the programme are Ministry of Water, Irrigation and Energy (MoWIE) and Ethiopian Electric Power (EEP). They are presented in Annex 2 Partners.

Key stakeholders (beyond partners): The Ministry of Finance (MoF) is responsible for managing the country’s financial and economic policy. The ministry handles planning and implementation of development programmes including those that address climate change. MoF’s mandate is to develop and implement Ethiopia’s Climate-Resilient Green Economy strategy (CRGE) and mobilize funding for relevant projects compliant with national targets. The MoF is responsible for aligning engagement and contribution points, where development partners, government and the society can agree on decisions regarding climate financing. They are responsible for setting up relevant actions and evaluate status of programmes related with GHG emissions reduction as set out in CRGE. In collaboration with the Commission of Environment, Forest and Climate Change (EFCC) – reporting to the Prime Minister’s office – MoF has established and operationalized the CRGE Facility responsible for attracting and managing funds supporting CRGE targets. PPP-DG within the Ministry of Finance is responsible for the overall approval of IPP sites. National Planning Commission, under the MoF, is an important institution being responsible for developing the country’s development plans, thus a key partner as recipient of scenarios for decision-making. The National Planning Commission (NPC) is mandated to lead and coordinate the planning, monitoring and evaluation system of the country. Strong emphasis will be given to strengthening the national M&E (Monitoring and Evaluation) system in order to produce and analyse timely, complete and credible data from surveys and administrative sources as well as prepare and disseminate M&E reports to users. The NPC is expected to play a prominent role in framing the country’s socio-economic development discourse in the medium and long term. It is also expected to work in collaboration with think tanks specializing in policy analysis, conducting research and preparing development plans and monitoring and evaluation that help in realizing the national vision. Ethiopian Electric Utility (EEU): EEU was established in 2013 after unbundling of the Ethiopian Electric Power Corporation (EEPCo) and is responsible for power distribution. The state-owned distribution company is subject to maintaining distribution lines up to 66 kV as well as off-grid electricity generation. Its mandate is to undertake feasibility studies for both on-grid and off-grid expansions and contract relevant consultants. Its overall objective is to coordinate responsibilities with EEP but on the distribution level with an objective of increasing electricity access to rural communities currently not connected to the national grid. EEU is responsible for collecting electricity tariff payments from end-users. The distribution activity in Ethiopia has recently started the process of the horizontal unbundling of EEU, identifying four regional EEU units. However, this process is not completed yet, mostly because there are a number of aspects affecting it that are not clear or not properly covered by the corresponding regulations. This is expected to be an element of the power sector reform roadmap. Ethiopian Energy Authority (EEA): The Ethiopian Energy Authority (EEA) was established in 2013 by the new Proclamation 810/2013 and Counsel of Ministers Regulation 308/2014. EEA is authorized to fully undertake all regulatory activities related with energy sector mainly in terms of efficiency, conservation and safety. Its main responsibilities are to promote reliable electricity service, issue operational licenses, set up performance standards and determine tariffs. The capacity of the regulator, EEA needs to be strengthened so that it can make independent power sector regulatory decisions. The country’s legal framework provides and enables delegating more powers and responsibilities to the EEA, which will be needed to implement power sector reform. EEA should carry out a more proactive role to become a credible reference institution for the private sector, state institutions, local companies, as well as for consumers.

World Bank (WB): The World Bank is working in many different areas in Ethiopia within a broad spectrum of sectors with an extensive budget. Within the energy sector can be mentioned transmission expansion, rehabilitation of the network, network guarantees, and funding IPP’s. The World Bank is especially involved in grid development, both on grid, off grid and micro grids, supporting the access to electricity for all target and the development of the National Energy Sector Reform Roadmap, where World Bank is the lead partner to MoWIE. The Roadmap includes NEP, strengthening of the regulator, use of modern ICT, sector restructuring (unbundling and privatization of utility), tariff adjustments and loss reduction, wider option resource mix as well as capacity building and technical support.

Are additional studies / analytic work needed? How and when will it be done? The formulation phase will further detail relevant aspects and reflect these in the Programme Document and DEs.

Annex 2: Partners 1. Summary of stakeholder analysis The main partner in the cooperation is the Ministry of Water, Irrigation and Energy (MoWIE) and the affiliated institutions, where for this programme Ethiopian Electric Power (EEP) is the most relevant entity. MoWIE plans, leads, coordinates and monitors overall energy/power sector development. The GoE has announced the establishment of a new Energy Development Commission (EDC) that will be placed under the Ministry. The EDC and its mandate/role remain to be established, but it is expected – if established - to play a central part of the future cooperation. 2. Criteria for selecting programme partners As the programme builds on the current SSC programme and previous KPI programme the same partners are maintained in order to support the request from GoE and continue the strong relationship with the partners The partners directly work with and influence: - Mitigation of climate change - Energy related activities - Energy and climate policy making - Provide inputs to and influence the Growth and Transformation Plan, mid and long-term strategies and plans, including development of update on NDC - Producing or using energy scenario planning and modelling through decision making

3. Brief presentation of partners Ministry of Water, Irrigation and Energy (MOWIE): MoWIE is responsible for water resources and water supply, irrigation and energy and is involved in the planning, development and management of guidelines and strategies related to the specific areas, including the execution of the National Electrification Plan 2017 (NEP 2017). In case of transboundary water resources and regional development related with cross-African water resources, MoWIE engages in the negotiations regarding national agreements, such as the GERD. The Ministry consists of three departments supervised by three state Ministers: Water Supply and Sanitation Sector, Irrigation and Drainage Sector and Energy Sector. The department with greatest relevance for the programme is department of Energy Sector where there are three main energy directorates with responsibility of the energy sector study, development and associated activities:  Energy Policy, Strategy and Information Directorate  Alternative Energy Technology Development & Promotion Directorate  Hydro Power Development, Study and Design Directorate Through the Danish Energy Partnership Program (DEPP) with Ethiopia from 2017-2020 a Danish LTA has been embedded in MoWIE in the Energy Policy, Strategy and Information Directorate, reporting directly to the State Minister of Energy. The advisor’s primary responsibilities dealt with executive advisory, project management and liaising with the implementing entities to ensure linkages and synergies; in particular focusing on MoWIE, EEP, the Royal Danish Embassy in Addis Ababa, the Danish Energy Agency, Energinet and the World Bank Group. Directly supervised by the State Minister of Energy Sector is three affiliated sectoral institutions;  Ethiopian Electric Power (EEP) – power generation, transmission and bulk sales  Ethiopian Electric Utility (EEU) – power distribution, sales  Ethiopian Energy Authority (EEA) – regulatory body for electricity and energy efficiency The Ethiopian power services were traditionally organized in a vertically integrated utility in the Ethiopian Electric Power Corporation (EEPCo). In 2013, EEPCo was split up into two companies, unbundling distribution in the Ethiopian Electric Utility (EEU) from transmission and generation in the Ethiopian Electric Power (EEP). Both companies are supervised through a joint board and refer to MoWIE. In addition, the GoE has in earlier reforms established an independent regulator, EEA. A part of the power sector reform process is to examine effects of the tariff reform and a reform of the financial structure and

24 deficit of EEP in particular. The main obstacle is that with the current tariff, even with the process of phased increments currently under way, is not high enough to run a financially sound system. The Ethiopian Electric Power (EEP): EEP is the state-owned electricity company and is the country’s dominant power generation company. It was established in 2013 with a responsibility for generation, transmission and overall system operation. EEP administers 18 power plants out of which 3,214 MW is based on hydro energy, 324 MW comes from wind, 7.3 MW from geothermal sources and remaining 104 MW is supplied by diesel generators (total of 4,244 MW power capacity). Besides generation, EEP is responsible for maintaining high voltage transmission lines, substations and wholesale of electricity. In relation to the programme, the following divisions in EEP have been identified to be the most important partners to engage with:  Engineering Division  Corporate Planning Division  Transmission and Substation Operation Division  Load Dispatch Center There are increasing reports on the unbundling of EEP to separate the TSO responsibilities from the generation side. The Prime Minister has expressed his discontent with the disruption of electricity supply and has, as a response, established commissions to deal with specific issues, investment commission, jobs commission etc. The Prime Minister also calls for a new focus on the energy sector, and has therefore announced the establishment of an Energy Development Commission. The idea is to have a focused commission on the sector development without preferred options and obligations. The establishment is yet to be formed. Energy Development Commission (proposed): An element of the power sector reform proposed by MoWIE, includes the establishment of an Energy Development Commission within the Ministry. The details are still under consideration, but in a reformed power sector, attracting private sector participation in a sustainable manner and improving quality of service, it is expected that the key role of MoWIE will essentially be to set overall energy policies and deal with the Council Ministers, whilst the Commission will be responsible for:  Translating general national policies into sector policy, strategies, targets and plans, including engaging with the National Development Commission on mid- to long-term planning;  Monitoring the overall development of the energy sector and security of supply;  Drafting the secondary legal regulation to implement the Proclamation. Also, it is likely that the Commission will draw on the planning and modelling resources in MoWIE and EEP. It may also receive some of the responsibilities for preparing competitive tenders with Independent Power Producers in cooperation with the new Ethiopian Transmission and System Operation Company (ETSO) expected to be created as another element of the power sector reform. Between them, MoWIE and the Commission need the tools for issuing national energy policies, strategies and plans to provide a medium- and long-term vision of the sector and current challenges to develop sustainability. Additional tools for monitoring investment and security of supply, and monitoring results of reform based on reporting by other institutions will also be essential. Further clarifications and details on responsibilities will be needed as part of power sector reform, in particular for each institution to be assigned the necessary powers to carry out its functions providing predictability and credibility to investors and the public. When established, the EDC is therefore expected to play a central role in the programme.

Summary of key partner features

Partner Core Importance Influence Contribution Capacity Exit name business strategy

MoWIE MoWIE is High – the mandate High – MoWIE Main partner for the Without established Will be further responsible for water of the ministry is holds a key role as programme, and structures, allowing elaborated in the resources and water closely linked to the the coordinating body directly responsible for building knowledge programming supply, irrigation and areas of support in the energy sector the affiliates capacities within phase. energy being a key offered through the and is given high contributions. energy planning and government entity as Danish energy political attention renewable energy it plans, leads, partnership – due to the critical MoWIE will give in- integration there is a coordinates and especially by securing importance of the kind contribution by high risk of lack of monitors overall security of supply and energy sector, providing staff, office know-how and energy sector long-term energy responding directly to space and meeting human resources in development and planning. the prime ministers’ facilities. relevant public and strategies. office. private institutions. The reform of the energy sector is anchored and driven by MowIE. MoWIE is the main partner and responsible for the development of the first Ethiopian Energy Outlook.

EEP EEP has the High – There is a High – with direct Key partner for the EEP has different Will be further responsibility for great need for ownership of the programme, and interest in the elaborated in the generation, knowledge of transfer entire generation directly responsible for development of the programming transmission and in both energy capacity in Ethiopia, renewable energy energy sector, e.g. phase. overall system modelling and energy EEP plays a central expansion including institutional operation of the integration where role in the contracting authority expertise regarding Ethiopian energy practical technical development of for IPP energy tenders design, construction system (TSO). capabilities are variable renewable and RE system and operation of necessary for running energy. integration. hydropower a sustainable and facilities. flexible energy system EEP will give in-kind with a high share of contribution by EEP is lacking variable renewable providing staff and some human energy. facilities. resources with know-how and technical capabilities.

Energy The newly announced High (expected) – Unknown – - - - Development EDC is yet to be GoE have requested depending on the Commission established and the support for the decided role and (announced) role of the commission institutional setup of mandate of the decided. However, it the commission and commission. is expected that if the programme can established the therefore influence the commission will play importance and role of a key role in the commission. development of energy policies and strategies focusing on i.e. long- term scenarios.

Annex 3: Preliminary Results Framework

Thematic Programme Enhanced Ethiopia-Denmark Energy Partnership

Thematic Programme Choice awareness in the energy sector development and increased security of supply. Objective Through larger shares of variable renewable energy sources, strong system integration and solid energy planning and modelling. Leading to stronger Ethiopian government structures, institutions and systems thereby enabling access to energy (SDG 7)

Impact Indicator Ethiopia achieves the vision of building a Climate Resilient Green Economy and reaching lower middle-income status by 2025, realising its NDC goals, and achieves SDG7 and SDG13 targets.

DED – Enhanced Ethiopian-Denmark Energy Partnership (to be elaborated during programming)

Outcome 1. Ethiopia has taken ownership of the developed wind energy sector with a regulatory, institutional, financial framework in place. A wind energy sector that promotes and creates an enabling environment for using best available practice in planning, risk mitigation and cost reducing measures to continue the implementation of ambitious expansion plans for the power sector. 2. Choice awareness; within long-term energy planning strategy; Ethiopia has introduced “choice awareness” in the decision- making process in its energy sector development and taken ownership of Ethiopia Energy Outlook guided by state- of-the-art long-term energy modelling tools based on a regularly adjusted Ethiopia specific technology catalogue. 3. Stable & flexible electricity system; Ethiopia has developed a stable and flexible electricity system actively using system operational planning and forecasting to integrate more renewable energy.

Outcome indicator 1. Developed wind energy sector - Xx amount of wind energy in the national power supply by 2026. 2. Choice awareness - Ethiopia has introduced choice awareness in its energy sector development and taken ownership of Ethiopia Energy Outlook guided by state-of-the-art long-term energy modelling tools based on a regularly adjusted technology catalogue. 3. Stable & flexible electricity system Ethiopia has developed a stable and flexible electricity system actively using system operational planning and forecasting to integrate more renewable energy.

Baseline Year 2021 1. [Situation prior to engagement activities] 2. First Ethiopian Energy Outlook with focus on the power sector is introduced 3. Incomplete framework for integration of variable renewable energy in place. Challenges with power system operation, calling for highly flexibility power system that integrate VRE in the most efficient and cost-effective manner.

Target Year 2026 1. [intended situation by the end of engagement] 2. MoWIE has taken ownership of the development of a yearly Ethiopian Energy Outlook and is used as the main vehicle to evaluate and revise future energy and climate plans. 3. RE forecasting ancillary services deployment and evaluation of power market stakeholders is governed by enhanced regulatory framework

27 and through enhanced capability is conducted supporting a flexible power system operation resulting in VRE integration and system stability.

Output 1 indicator (Developed wind energy sector)

Baseline Year 2021

Annual target Year 1 2022

Annual target Year 2 2023

Annual target Year 3 2024

Annual target Year 4 2025

Target Year 5 2026

Output 2 indicator (Choice awareness)

Baseline Year 2021

Annual target Year 1 2022

Annual target Year 2 2023

Annual target Year 3 2024

Annual target Year 4 2025

Target Year 5 2026

Output 3 indicator (Stable & flexible electricity system)

Baseline Year 2021

Annual target Year 1 2022

Annual target Year 2 2023

Annual target Year 3 2024

Annual target Year 4 2025

Target Year 5 2026

Annex 4: Budget Details

Budget in DKK million

Outcome 1 Developed wind energy sector 13

Outcome 2 Choice awareness 13 Including a continuation/merging with the SSC programme activities 2023-25.

Outcome 3 Stable & Flexible Electricity System 13

Two embedded long-term advisors (each 5 years @ DKK 1.5 million, 1 16 million DKK recruitment).

Analysis (including mid-term Review - 0,4 mio.) (Managed by the 3 Embassy), seminars and other local activities.

Unallocated funds (Maximum 10 % of total, limit is set for each 2 programme by the Programme Committee. Unallocated funds should to the degree possible be earmarked to thematic programmes and budgeted accordingly)

Grand total 60

Notes: The total budget for the five-year programme is DKK 60 million, of which DKK 50 million is sourced from the Danish Climate Envelope 2021. An additional DKK 10 million is expected to be sourced from the Danish Climate Envelope 2022 subject to parliamentary approval of the finance act for 2022. Including contingencies of 5% under each Engagement covering unforeseen expenditures. The embedded long-term advisor positions will be further discussed with Ethiopian partners during formulation and the draft job description and anchoring/duration of the position will be clarified during formulation. DEA Administration has not been estimated separately as it will depend upon the recruitment modality for the long-term advisor. This will be clarified during the formulation.

29 Annex 5: Risk Management Matrix

Contextual risks Risk Factor Likelihood Impact Risk Residual risk Background to response assessment Political, Likely Medium In accordance Medium Political, social, and ethnic social, and with the tensions remain high in ethnic Country Policy Ethiopia. Tensions have in tensions Paper for the past fuelled protests remain high Ethiopia, and unrest in parts of and will result monitor the Oromia, Amhara, and in protests and situation and Somali Regional States, unrest in parts adjust the which has disrupted of the country. Programme development and accordingly. investment activities. It is expected that the Political Likely Medium Energy sector Medium energy sector will continue disputes and remains to be central, and thus also the Covid-19 important the support to the pandemic. The programme. In the general recovery of the Covid- election is pandemic the energy sector postponed will be central for a fast due to the recovery. Covid-19 pandemic. The election will determine the future political direction. In Denmark the “not-in- Lack of social Unlikely Low to Will be included Low my-backyard” syndrome vs. acceptance of medium in programme wind turbines and the Wind document scepticism about variability deployment. and security of supply are examples of challenges to social acceptability. Land rights and land availability for development of RE are also challenges and risk factors

Programmatic risks (for country programmes/regional programmes filled out for each thematic programme) Risk Factor Likelihood Impact Risk Residual Background to response risk assessment Slow or stagnant Likely Major Monitor the Major Improvements in general improvements situation and conditions for private sector in the general engage in investment/engagement in private sector dialogue with Ethiopia (availability of forex, framework GoE, including addressing cumbersome conditions. with procedures, permits, customs This includes development etc.) does not match the the process of partners and ambitions of GoE leading to unbundling the private sector, increased frustration by entities private sector as well as

30 Risk Factor Likelihood Impact Risk Residual Background to response risk assessment responsible for to raise issues of affecting the growth of the transmission concern. private sector negatively. and generation and a partial privatisation of utilities Low and Likely Minor The Embassy Medium Based on the experience of overstretched will set realistic previous support, GoE- capacity of milestones and implemented programmes are implementing timelines for the often delayed and lacks partners slows early stages of coordination and transparency down the the Programme, among stakeholders requiring needed and allocate significant resources from intervention appropriate development partners. agendas. resources to oversight. Termination of Unlikely Major The Embassy Low The interest to engage in engagement will set realistic collaboration is clearly from partner milestones and expressed by the minister and organisations: timelines and his request to extend the engage with current partnership. It implementing stipulates the strong political partners buy-in and engagement also focusing on from staff level in partner timely planning. organisations. The high level of engagement must be continued in the future cooperation by involving a broadened spectre of relevant institutions from GoE. The Danish experiences and expertise within development of renewable energy is highly valued by the Ethiopian partners. Availability of Moderate to Major The risk is Low Efficient capacity building in data Lack of unlikely reduced by the energy planning and modelling willingness to existing requires detailed information share the collaboration and data from the Ethiopian available data where a great energy and especially power can affect the deal of trust has sector. quality of the been built with During the inception phase it technical the partner is been emphasised that the assistance organisations. cooperation is a Government- provided. to-Government cooperation why the Ethiopian partners have expressed their willingness to share data.

Institutional risks Risk Factor Likelihood Impact Risk response Residual risk Background to assessment Maintaining Likely Major The project will Major The partnership is based capacity and emphasise on on the assumption that it personnel in transferring is a mutual cooperation technical studies where resources for 31

Risk Factor Likelihood Impact Risk response Residual risk Background to assessment partner into policy knowledge transfer is organisations development available. The partner and/or policy organisations must ensure implementation. sufficient capacity to Solid energy receive technical sector assistance in order to administration is create sustainable results. central for The availability of capacity conducting sector and resources with the regulation. Ethiopian partners has It is necessary to been discussed extensively engage in a true during the inception partnership, phase. The technical where the capacity of the current Ethiopian staff is estimated to be partners are high due to their level of actively involved education and the general and reserve the technical understanding required resources should be sufficient. for capacity building. The Likely High Careful Medium Clean energy programme identification development is a crowded could done of other field in Ethiopia. duplicate relevant bilateral Denmark is a small existing donor and development partner, but activities and multilateral the unique value added of sources of development authority-to-authority finance and/or partner support. cooperation is a key fails to Denmark’s role as feature of the programme recognise co-chair of energy and something no other interfaces and donor group will development partner synergies with actively be used. provides. Furthermore, other Denmark boasts unique initiatives in a knowledge on offshore crowded wind, power plant arena. flexibility, forecasting and modelling. The Unlikely Major The theory of Low This programme is programme change and results strategic and high-profiled could fail to framework deliver its indicators will be outcomes, designed with which will realistic and reflect measurable negatively on targets. DEA, MoWIE, and the MFA.

Annex 6: List of Supplementary Materials # Document / Material Source 1 Ethiopia Growth and Transformation Plan II (and III)

2 Executive brief on DK-ETH energy sector cooperation (in Danish)

3 AWPGE Thematic Programme Document

4 Implementing Partnership Agreement and Development Engagement Documents

5 Supplementary Support Agreement for 1-year Cost-Extension MoU, including revised activity plan and budget

6 Progress Reports for 2017, 2018 and 2019 (restricted)

7 Minutes from meetings of Management Group and Steering Committee (restricted)

8 Wind Project Development Roadmap

9 Wind Curtailment Report (confidential)

10 Real-times Values Assessment (confidential)

11 Draft 2018 Operation Analysis (confidential)

12 Midterm review of the AWPGE programme

13 SSC programme agreement and workplans

14 Presentations by State Minister Dr. Frehiwot Woldehanna on: 1. Energy Reform Overview and Reform Direction, and 2. Energy Resource Mix in Ethiopia – Current Status and Future Direction

15 National Electrification Programme 2.0

16 USAID/Nexant Grid Management Program System Integration Study (confidential)

17 RES4Africa/CESI Integration of Variable Renewable Energy in the National Electricity System of Ethiopia

18 MoF/PPP DG PPP Guidelines (restricted)

19 Ethiopia NDC and NDC tracker

20 Transparency International and local corruption assessments (corruption diagnostics and barometer reports, etc.)

33 # Document / Material Source 21 DEA on the Danish Energy Model

22 Ethiopia’s Climate Resilient Green Economy

Annex 7: Preliminary Communication Plan

What? When? How? Audience(s) Responsible (the message) (the timing) (the mechanism)

As part of the Signing of As part of the Communication The Sector embassy’s new programmes, embassy’s activities will be Counsellor in communication major results like communication targeted to an cooperation with strategy major launching of work, achieved Ethiopian and the messages and Ethiopian Energy results will be Danish audience - communication stories will be Outlook, wind communicated respectively. team at the identified. power through an Embassy. developments. established communication Possibly also a platform and series of articles on social media project channels. The developments e.g. programme results in Ingeniøren. and priorities will Ongoing results also be included in will be included in ongoing thematic the Embassy’s communication inter-active products on green communication growth and green platform. energy transition.

35 Annex 8: Process Action Plan (PAP)

Action/product Deadlines Responsible/involved Comment/status Person and unit Draft short narrative Embassy draft short 18.02.20 TCE-team narrative of Climate and Energy Cooperation Programme VK amb, AFD, GJL, GID 27.02.20 TCE-TEAM / GJL

Formulation of Climate and Energy Cooperation Programme, Concept Note Identification of 27.02.20-31.08.20 TCE-Team programme (2-3 engagements with known partners). Based on the AWPGE components to carry forward and main components from the short narrative. Confirming agenda item for 01.09.20 TCE-Team the Programme Committee meeting First draft circulating for 30.04.20 TCE-Team. comments GJL, GIL, EKL, ENS, Comments received 06.05.20 Hearing partner ToR and tender for Primo July 20 TCE-Team Formulation consultant(s). Finalise Concept Note with By ultimo September TCE-Team annexes Submission of Concept 14.10.20 TCE-Team Note + annexes to MFA (ELK). Presentation of Concept 05.11.20 Embassy (KP, JSS) Note to Programme Committee

Formulation of Climate and Energy Programme, including Development Engagements etc. Engage programming 01.08.20 TCE-Team consultant by direct appointment Formulation mission by After programme TCE-Team and consultant To be decided upon covid consultant committee: Nov

Draft Programme incl. Medio Jan 21 Consultant, TCE-Team Engagement Documents finalised Draft ToR for appraisal 02.11.20 Consultant and TCE-Team Tentative team Agree with EKL on ToR for 13.11.20 TCE-Team Tentative appraisal Submit all documents to 16.01.20 TCE-Team Tentative EKL for appraisal

Appraisal of Programme

Appraisal has been requested for Jan 2021. Draft appraisal report 22.03.21 EKL Tentative submitted to Embassy Embassy to submit 28.03.21 TCE-Team Tentative comments to draft appraisal report and table of recommendations to EKL Final appraisal report and 05.04.21 TCE-Team, approval by Tentative table of recommendations management submitted

Confirmed agenda item to TCE-Team Council for Development April 21 Policy Final draft Programme medio April 21 TCE-Team Documents ready for internal approval at the Embassy Submission of Concept April/May TCE-Team Note + annexes to MFA (ELK) and Country Policy Paper for public hearing. Presentation of Concept May/June 21 Embassy (KP, JSS) Note and Country Policy Paper to Programme Committee

Final Approval Forward all final documents May / June 21 GG-Team to ELK Ministerial approval of May / June 21 EKL/Embassy Country Programme Signing Government to June 21 Embassy (KP, JSS) Government agreement

Signing development June 21 Embassy (KP, JSS) engagement agreements Registration of (tbc) JSS, JC commitments

Annex 9: Intervention Logic/Theory of Change

Inputs Activities Outputs Outcomes Impact Goal

Danish Embassy & DEA’s sphere of control Embassy and DEA’s sphere of influence Embassy and DEA’s sphere of interest Climate 1.1 A regulatory, institutional and 1. Ethiopia has taken ownership Impact Drivers: Envelope 1. Developed wind energy sector : energy standards, spatial financial framework that streamlines of the developed wind energy - High-level support. Support planning, procurement, obstacles for supporting pre-development of wind projects sector with a regulatory, - Effective partner infrastructure, road map development using Danish reducing risk for investors and institutional, financial framework engagement at experience. Jointly organised seminars, workshops, meetings, lenders. in place. A wind energy sector strategic level and learning events with government agencies, experts, private 1.2 Development and that promotes and creates an durable partnerships. sector, and possibly civil society organisations. Study tours and implementation of a coordinated set enabling environment for using - Effective targeted training in Denmark. Peer-to-peer exchange of information and Embassy of measures for reaching targets that best available practice in communication to lessons among government officials, experts, embedded long- experience, minimise construction, operation planning, risk mitigation and cost decision makers. term advisors, and others. relations and and integration obstacles to the reducing measures to continue - Using the “power of the policy development of the wind energy. the implementation of ambitious example”/impact dialogue 1.3 Technical standards and rules expansion plans for the power stories. that ensure security of supply. sector. - Sustained peer-to-peer Ethiopia achieves the exchanges. vision of building a Climate Resilient 2. Ethiopia has introduced “choice Green Economy and 2. Choice awareness (energy planning and modelling), using reaching lower Sector relevant power sector model and training of modelling team; awareness” in the decision- 2.1 Enhanced energy modelling making process in its energy sector middle-income status Counsellor energy technology catalogue; scenarios optimized on security by 2025, and realises of supply and least cost development; demand side modelling. capacity in the relevant Ethiopian development and taken ownership and LTAs institutions. of Ethiopia Energy Outlook guided Choice awareness in its NDC goals, and expertise, Jointly organised seminars, workshops, meetings, learning the energy sector achieves SDG6, SDG7 events with government agencies, experts, private sector, and 2.2 Technology catalogue by state-of-the-art long-term experiences established, updated and used. energy modelling tools based on a development and and SDG13 targets. civil society organisations. Study tours and training in Denmark. increased security of and tools Peer-to-peer exchange of information and lessons among regularly adjusted Ethiopia specific technology catalogue. supply. Through government officials, experts, long-term advisor, and others. larger shares of variable renewable energy sources, 3.1 Revised and strengthened strong system DEA grid codes for VRE integration integration and solid expertise, including wind and VRE sources. energy planning and experience 3. Stable & flexible electricity system. Increasing levels of 3.2 Enhanced flexibility of the modelling. Leading variable renewable energy in the power system; optimized Ethiopian power system for and tools 3. Ethiopia has developed a stable to stronger Ethiopian flexibility of the power system; forecasting; energy efficiency; integration of VRE, security of and flexible electricity system government consolidated grid codes; pricing of energy sources for system supply and cost (through actively system operational structures, optimization; incentive schemes for improved flexibility in establishing price signals in planning and forecasting to institutions and the power plants. Jointly organised seminars, workshops, operational optimization in integrate more renewable energy. systems thereby meetings, learning events with government agencies, integrating RE). enabling access to Decision experts, private sector, and possibly other relevant 3.3 Improved forecasting and water and energy making and stakeholders. Study tours and training in Denmark. Peer-to- implementation of optimal (SDG7) inputs in-kind peer exchange of information and lessons among dispatching tools and from government officials, experts, long-term advisor, and others. procedures for VRE sources. Ethiopian partners

Key: ASSUMPTIONS: From Activities to Outputs to Outcomes Direct links • Ethiopian partners understand the value of strategic cooperation with Denmark for Synergies informed decision making to achieve national goals. ASSUMPTIONS: From Outcomes to Impact ASSUMPTIONS: From Inputs to Activity/Output Areas • Ethiopian partners engage effectively throughout the programme and value peer-to- • Continued Ethiopian government and stakeholder support for the • Cooperation partners committed to sustained engagement and peer exchanges of good practice and paths to avoid. Ethiopian 2025 targets and related policy initiatives. willing to allocate staff time and inputs in-kind to engage • DEA ability to ensure additionality and synergies in a field with many actors. • Denmark’s ability to engage strategically and effectively with key effectively. • Flexibility and continued attention to assumptions and risks during implementation to stakeholders and sustain high-level support. • DEA timely work planning with Ethiopian partners and all Danish ensure continued alignment to Ethiopian priority needs in a highly dynamic context. • DEA ability to strategically support transformational change aligned to inputs well planned to ensure Ethiopian partner input/uptake. • As a cross sectorial approach Ethiopia has established a system for energy data input to Ethiopia’s NDC and SDG targets and partner policies and strategies. • Steering committee/ management structure sufficiently flexible outcome 1-3 and developed a steady supply from universities of well-suited energy • Effective methodology and tools for GHG emission reduction/avoidance to allow for quick remedial action when deviations occur. candidates and energy sector analysis assessment and identification of financial leverage.