Empowered lives. Resilient nations.

NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL THROUGH INNOVATIVE MARKET BASED SOLUTIONS

United Nations Development Programme Contact Information Principal Secretary, Ministry of Environment Natural Resources and Regional Development Authorities / [email protected]

Dr. Alexandra Soezer, United Nations Development Programme (UNDP), Low Emission Capacity Building Programme (LECB) / [email protected]

Technical Oversight and Guidance Dr. Harun M. Warui, Ministry of Environment & Natural Resources / UNDP Dr. Alexandra Soezer, Climate Change Technical Advisor, Low Emission Capacity Building Programme (LECB)

Authors Mr. Arindam Basu and Dr. James D. Marett at Grue + Hornstrup; and Mr. Stefan Wehner at the greenwerk

Contributors Mr. Tom Owino at ClimateCare; Mr. Douglas Marett at Grue + Hornstrup

Acknowledgements We would like to acknowledge the following stakeholders for their participation in the NAMA process: Timothy Ranja - UNDP, Veronica Lekopole - CAGE, Stephen Kiama – KEFRI, John Katimbwa - Matatu Welfare Association, Nyaga Kebuchi – Sustainable Transport Africa, Andrew Cheboi – NETFUND, Suresh Patel - KAM/KEPSA, Francis Nderitu – MOEP, Nathan Bogonko – KIRDI, David M. Kigo - Nairobi County, Fenwicks Musonye – ERC, David B. Adegu – MENRRDA, Joash Obare – ClimateCare, James M. Gatimu - GVEP/CCAK, Michael Muchiri –MOTI, John Kioli – Green Africa Foundation, Elizabeth Murua – MENRRDA, Ivy Murgor – MENRRDA, Richard Mwangi – KFS, Lucy Kamande – MENRRDA, Salome Machua – NEMA, Harrison Oloo – WENMAK

Editor Georgina Wilde

Design Kimberly Koserowski

Disclaimer: The views expressed in this publication are those of the author(s) and do not necessarily represent those of the United Nations, including United Nations Development Programme (UNDP), or their Member States. UNDP LOW EMISSION CAPACITY BUILDING (LECB) PROGRAMME

This product was developed under the LECB Programme, with generous funding from the European Commission (EC), the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), and the Australian Government.

The UNDP Low Emission Capacity Building (LECB) Programme is a country-driven initiative that promotes essential cooperation between relevant institutions, engaging the public sector and industry in a concerted effort to design and implement approaches to low emission development that are consistent with national development priorities. National counterparts are supported to strengthen technical and institutional capacities to identify and formulate Nationally Appropriate Mitigation Actions (NAMAs) and Low Emission Development Strategies (LEDS) in the public and private sectors, and to strengthen the underlying greenhouse gas inventory management and Measurement, Reporting and Verification (MRV) systems.

The LECB Programme runs through 2016 and is active in 25 countries: Argentina, Bhutan, Chile, China, Colombia, Costa Rica, the Democratic Republic of Congo (DRC), Ecuador, Egypt, Ghana, Indonesia, Kenya, Lebanon, Malaysia, Mexico, Moldova, Morocco, Peru, Philippines, Tanzania, Thailand, Trinidad and Tobago, Uganda, Vietnam and Zambia.

The programme is supported through generous contributions from the European Commission, the German Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB), and the Government of Australia.

More information can be found at www.lowemissiondevelopment.org

Empowered lives. Resilient nations. 2 TABLE OF CONTENTS

TABLE OF CONTENTS

List of Figures 6

List of Tables 6

Abbreviations and Acronyms 8

Executive Summary 10

1. Introduction to NAMAs 12

1.1 Setting the Context 12 1.2 Nationally Appropriate Mitigation Actions 13 1.3 Clean Energy NAMA – An Opportunity for Kenya 13 1.4 Purpose and Objectives of the NAMA 15

2. Background to Kenya 16

2.1 Country Topography 16 2.2 Country Administration 17 2.3 Climate 17 2.4 Demography 17 2.5 Socio-Economic Situation 18

3. Background to the Energy Sector 20

3.1 Potential in Kenya 20 3.2 Key Actors – Kenya Energy Sector 21 3.3 Rural Electrification Authority (REA) 22 3.4 Analysis of Household Energy 22 3.5 Current Fuel Use in Households 23 3.6 Use of Improved Cookstoves in Kenya 24 3.7 Solar PV Lighting in Kenya 24 3.8 Barriers to Adoption of Clean Energy Technologies 25 3.9 Key Drivers for Market based Approach 26

4. The Policy Environment in Kenya 28

4.1 28 4.2 Vision 2030 29 4.3 The Second Medium Term Plan (SMTP) 30 NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA TABLE OF CONTENTS THROUGH INNOVATIVE MARKET BASED SOLUTIONS 3

4.4 National Climate Change Action Plan (NCCAP) 31 4.5 National Energy and Policy 32 4.6 Other Programmes 33 4.7 Summary and Conclusion 33

5. NAMA Baseline Information 36

5.1 The NAMA Boundary 36 5.2 GHG Emission Reduction Baseline 37 5.2.1 Kenya: Access to Energy 37 5.2.2 Identified Approach for Determining GHG Emission Reduction 37 5.3 Sustainable Development Baseline 39 5.3.1 Kenya Status – MDG 39 5.3.2 The SD Tool: 40 5.4 NAMA Target 43 5.5 Alignment with the INDC 44 5.6 Alignment with Sustainable Development Goals: 45

6. NAMA Intervention – Private Sector-enabled Business Model 48

6.1 Energy Productivity Zones (EPZs)—The Change Agent 48 6.2 Intervention 1: Establish 28 EPZs in Kenya with their own PV Power Plant 49 6.2.1 Intervention 1—Outcome 1: 28 of EPZs Established 50 6.2.2 Intervention 1—Outcome 2: 500 kWp of Solar PV-based power plant implemented 51 6.3 Intervention 2: Distribute Clean Energy Technologies enabled through consumer finance 52 6.3.1 Intervention 2 – Outcome 1: 1 million PV lanterns distributed 53 6.3.2 Intervention 2 – Outcome 2: 1 million ICS distributed 54 6.3 Eligibility Criteria - Private Sector Engagement 55 6.4 Driving Interventions through Business Models 56

7. Capacity Development 60

7.1 Capacity Development Measures for Intervention 1 61 7.1.1 Technical Feasibility Study for pre-determined EPZ locations 61 7.1.2 Highlight Quality Standards 64 7.1.3 Capacity Development for the NCA and NIE 66 7.1.4 Private Sector Awareness Creation 67 7.1.5 Training of Staff and Workers 68 7.2 Capacity Development Measures for Intervention 2 69 4 TABLE OF CONTENTS

7.2.1 Public Procurement Scheme 69 7.2.2 Marketing and Awareness Creation 70 7.2.3 Capacity Development for Financial Entities (e.g. Banks). 71 7.2.4 Training of Staff and Workers 72 7.3 Summary on Capacity Development Measures 72

8. Implementation Structure 74

8.1 Governance and Management 74 8.2 Institutional Framework for NAMA Implementation and Management 75 8.2.1 National NAMA Approver/Focal Point 76 8.2.2 National Coordinating Entity (NCA) 76 8.2.3 NAMA Implementing Entity (NIE) 77 8.2.4 NAMA Executing Entities (NEEs) 80

8.3 Implementation schedule 81

9. NAMA Finance 84

9.1 Overview of NAMA Finance 84 9.2 NAMA Finance required for Intervention 1 85 9.2.1 Loans for EPZ Business Model 85 9.2.2 Grants for Solar PV Power Plant 87 9.3 Consumer Finance for Intervention 2 88 9.3.1 End Consumer – Equity Contribution 88 9.3.2 End Consumer – Revolving Loan Fund 90 9.4 NAMA Finance Required for Measures 93 9.4.1 Financial Measures for initiating NAMA Implementation 93 9.4.2 Finance for Public Procurement 95 9.4.3 Finance for NCA/NIE Staff 97 9.5 Summary of Financial Requirements: 97

10. NAMA MRV System 100

10.1 Measurement 101 10.1.1 GHG Mitigation 101 10.1.2 Sustainable Development Benefits 106 10.1.3 Measurement – SD Parameters 107 10.2 Reporting 111 10.3 Verification 112 NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA TABLE OF CONTENTS THROUGH INNOVATIVE MARKET BASED SOLUTIONS 5

References 114

Annex es 116

NAMA Summary 116

Outputs, Activities and Measures 117 119 6 LIST OF FIGURES, LIST OF TABLES

LIST OF FIGURES

Figure 1: A Simple Overview of the NAMA Outcomes 14 Figure 2: Map of Kenya 16 Figure 3: Map of Kenya showing Population Density 36 Figure 4: Overview of the objectives, interventions and outcomes of the NAMA 59 Figure 5: Schematic Representation of Capacity development by Government Agencies 66 Figure 6: Schematic Representation of Institutional Structure for the NAMA 75 Figure 7: The Implementation Cycle of the NAMA 83 Figure 8: Schematic Representation of the Revolving Loan Fund 90 Figure 9: Schematic Representation of a Strategic CSA Model 96 Figure 10: Schematic overview of the MRV reporting structure 111

LIST OF TABLES

Table 1: Renewable Energy Potential in Kenya (Ayieko, 2011) 20 Table 2: Number of Households by Fuel type for Lighting and Cooking in Kenya (KNBS, 2009) 37 Table 3: Kenya MDG Progress Snapshot (MoDP, 2013) 39 Table 4: The SD Tool and the indicators relevant to the NAMA 41 Table 5: NAMA targets for various indicators as shortlisted using the SD Tool 43 Table 6: Relevance of the NAMA to stated mitigation priorities in Kenya’s INDC 44 Table 7: Direct SD benefits from the NAMA in the context of SDGs 45 Table 8: Comparison between the two types of EPZs defined under the NAMA 50 Table 9: Two technology product categories for two distinct sets of end consumers 51 Table 10: Schematic representation of suggested approach 52 Table 11: Indicative number of units of PV lanterns manufactured across the lifespan of NAMA 53 Table 12: Indicative number of units of ICS `manufactured across the life span of NAMA 55 Table 13: Types of capacity development measure proposed under the NAMA 61 Table 14: Existing access to energy by County (No. of households rounded to nearest, 000) 62 Table 15: Summary table for Capacity development Measures 72 Table 16: Number of new business enterprises / NEEs by Business Model type 80 Table 17: Summary table for NAMA Finance – Interventions 84 Table 18: Summary table for NAMA Finance Measures 85 Table 19: Indicative start year for EPZ implementation 86 NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA LIST OF FIGURES, LIST OF TABLES THROUGH INNOVATIVE MARKET BASED SOLUTIONS 7

Table 20: Summary table for Loans required for EPZ and Business Models 86 Table 21: Summary table for Grants required for PV Power Plant 87 Table 22: The proposed distribution of clean energy technologies by year (i.e. direct sale) 88 Table 23: The equity and loan components for 800,000 Units 89 Table 24: Loan pay back required for 1.6 Million Units (Table 22 provides values for 800,000 Units) 91 Table 25: Actual NAMA Finance Required annually for 16 Million Units 92 Table 26: Estimated finance and number of units distributed under Public Procurement 95 Table 27: NAMA Finance Overview – Annual Values 98 Table 28: NAMA Finance Overview – Total Values 98 Table 29: Estimation of emission reductions achieved under the NAMA (tCO2) 102 Table 30: NAMA Targets (as per the SD Tool) tracked under the MRV 106 8 ABBREVIATIONS

ABBREVIATIONS AND ACRONYMS

BAU Business as usual CCAK Clean Cookstove Association in Kenya CDM Clean Development Mechanism CEEC Centre for Energy Efficiency and Conservation COP Conference of Parties CSA Corporate Sustainability Actions CSR Corporate Social Responsibility CTCN Climate Technology Center and Network ERC Energy Regulatory Commission EPZ Energy Productivity Zone GDC Geothermal Development Company GHG Greenhouse Gas GoK HDI Human Development Indicator ICS Improved Cookstoves INDC Intended Nationally Determined Contribution IPPs Independent Power Purchasers KEBS Kenya Bureau of Standards KenGen Kenya Electricity Generating Company KEREA Kenya Renewable Energy Association KETRACO Kenya Electricity Transmission Company KNBS Kenya National Bureau of Statistics KPLC Kenya Power and Lighting Company LECBP Low Emission Capacity Building Programme LED Light Emitting Diode MDG Millennium Development Goal MOEP Ministry of Energy and Petroleum MRV Measurement, Reporting and Verification NA NAMA Approver NAMA Nationally Appropriate Mitigation Action NCA NAMA Coordinating Authority NCCAP National Climate Change Action Plan NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA ABBREVIATIONS THROUGH INNOVATIVE MARKET BASED SOLUTIONS 9

NCCRS National Climate Change Response Strategy NEMA National Environmental Management Authority NERA National Electricity and Renewable Energy Authority NEE NAMA Executing Entities NEP National Energy Policy NEPP National Energy and Petroleum Policy NIE NAMA Implementing Entity PV Photovoltaics RE Renewable Energy REA Rural Electrification Authority RERAC Renewable Energy Resources Advisory Committee RLF Revolving Fund SD Sustainable Development SDG Sustainable Development Goal SE4All Sustainable Energy for ALL SHS Solar Home Systems STMP Second Medium Term Plan UNFCCC UN Framework for Climate Change Convention 10 EXECUTIVE SUMMARY

EXECUTIVE SUMMARY

The successful conclusion of the Paris Agreement calls for 190+ parties/countries to participate in climate actions through adaptation and mitigation, limiting the effects of global temperature increase. One of the frameworks (Article 6, Paragraph 8 of the Paris Agreement) recommended under mitigation calls for “non-market based approaches to assist implementation of their nationally determined contributions”. (UNFCCC_COP21, 2015). Currently the UNFCCC’s Nationally Appropriate Mitigation Actions (NAMA) framework is ideally placed for developing countries such as Kenya to harness finance, technology, capacity development and facilitate implementation of technical interventions that lead to emission reduction and sustainable development.

This document follows the NAMA framework and introduces an innovative market based approach through private sector participation for the manufacture and distribution of 1 million units of solar PV-based lanterns and improved cookstoves respectively (collectively referred to as “Clean Energy” technologies or solutions in this document) in Kenya.

This “innovative market based approach” entails the establishment of 28 Energy Productivity Zones (or EPZs) across Kenya that are self-sufficient in their electricity requirements. The power for the EPZs will be supplied through a solar power plant (with solar panels either installed on the building roof tops or on open ground as appropriate) with a total capacity of 500 kWp for the 28 EPZs.

The EPZs will provide infrastructure and support services for the private sector to invest in the manufacture and distribution of the clean energy technologies on a for-profit basis (i.e. operated as business models).

The suggested approach looks at creating an appropriate enabling market environment for the private sector to take a lead in promoting “Made in Kenya” clean energy technologies, leading to sector transformation in addition to emissions reduction from use of clean energy and a corresponding boost to sustainable development.

The NAMA proposal explores making available finance through a combination of international grants and loans in addition to contributions (financial and in-kind) by the country. The technical interventions will be supported through a variety of measures to create an enabling market environment.

The suggested approach proposed is sustainable, as the focus is on providing access to energy to the people of rural Kenya and in addition to creating and building momentum for a market for clean energy technologies.

In order to facilitate the purchase of the technologies this NAMA also provides attractive consumer finance mechanisms, through a revolving loan fund and other measures, that will ensure universal access to both technologies, even for the poorest in Kenya. Finally, the NAMA will also ensure fully integrated and coordinated efforts by both national and county/city/rural governments and the private sector in implementing these objectives and resulting interventions.

This document focuses on the key building blocks of a NAMA required to implement the proposed approach and aims to provide national stakeholders and potential donors with detailed information regarding the overall structure. Information contained in this document includes the following chapters:

1. Introduction to NAMAs 2. Background to Kenya NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA EXECUTIVE SUMMARY THROUGH INNOVATIVE MARKET BASED SOLUTIONS 11

3. The Clean Energy Sector in Kenya 4. The Policy Environment 5. Baseline Information and Targets 6. Technical Interventions 7. Capacity- Building Measures 8. Implementation and Governance 9. Finance 10. The MRV System

The ultimate objective of this NAMA proposal is to achieve lasting results, which will depend on its ability to facilitate the transformation of the energy sector in Kenya, particularly in the context of providing energy to households in rural Kenya. The NAMA therefore aims to achieve 10 key success factors that the document identifies to create a pathway for the effective and sustainable implementation of a mitigation programme that can lead to green and sustainable growth. The NAMA therefore will promote:

■ Sector Transformation: Spur development of an environment which facilitates transformation of the energy sector in Kenya, particularly for rural households.

■ Alignment with national priorities: Be fully embedded in Kenya’s national and sectoral development policies, strategies and targets.

■ Define Interventions: Detail concrete technological actions that will lead to real, transparent and measureable emission reductions and help the country to achieve its national goals and targets while contributing to collective efforts on international climate actions.

■ Define Eligibility Criteria: Clearly define the eligibility criteria for private sector participation and funding.

■ Value for Money: Be cost effective and provide value for money.

■ Approval Structure: Define a structure for approval of funding to beneficiaries of grant and concessional loans to ensure transparent disbursement of funds.

■ Management Entity: Detail an institutional and management system for smooth implementation.

■ Capacity Development: Define capacity development measures to drive the technical interventions and sector transformation

■ Finance: Include a financial plan and management in sufficient detail.

■ Measurement Reporting and Verification (MRV): Apply transparent and robust MRV for GHG Emission Reductions and Sustainable Development Impacts.

Additionally, this document refers to a #Sustainable Development Evaluation Tool (also referred to as SD Tool in this document) provided by UNDP to elaborate on the specific indicators that will be tracked under the NAMA to measure the specific outcomes of the proposed activities. 12 INTRODUCTION TO NAMAS

1 INTRODUCTION TO NAMAS

1.1 Setting the Context

In Kenya, wood fuel, charcoal, dung and agricultural residues are widely used for cooking while kerosene is used mostly for lighting in rural homes and in peri-urban settlements.

Direct fuel combustion of biomass from wood sources, such as wood fuel and charcoal, is the dominant fuel source in Kenya. Wood fuel is also an important energy source for rural households and small-scale rural industries. Households in informal settlements in Kenya depend almost entirely on woody biomass charcoal, for basic cooking. Kerosene, in conjunction with other carbon intensive energy sources such as candles, paraffin and biomass remains the principal source of lighting. Biomass accounts for almost 90 per cent of energy use in rural Kenya.

The nation’s poor continue to lack access to quality healthcare, clean water and basic sanitation, education and modern energy technologies. In rural areas, the quality of air is affected by over-reliance on fuel wood, agricultural activities and poor housing. There are several studies that note that exposure to smoke from burning biomass and kerosene increases the risk of childhood acute respiratory infections and is among one of the leading causes death for children below 5. Indoor air pollution is possibly the most important cause of chronic obstructive pulmonary disease in the non-smoking population.

Clean Energy technologies/solutions in the form of Improved Cook Stoves (ICS) which allow biomass (wood fuels, charcoal etc.) to be burnt more efficiently and of solar powered lanterns, which are not dependent on fossil fuels, help to address many of these macro socio-economic challenges. By increasing access to affordable lighting, cooking and energy for productive income- generating activities, renewable energy or clean energy technologies offer an unprecedented opportunity to accelerate the expansion of energy access in remote and rural areas while at the same time contributing to the transition to modern energy services.

Access to clean energy technologies also results in significant socio-economic benefits, such as health, particularly for children and women who appear to bear the brunt of the ill-effects from existing harmful NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA INTRODUCTION TO NAMAS THROUGH INNOVATIVE MARKET BASED SOLUTIONS 13

sources of energy (e.g. inhaling soot and other particulate matters released by burning kerosene for lighting or woodfuels for cooking) and increasing income generation opportunities (e.g. extended lighting during evening time can be used for gainful commercial activities).

Moreover, in making manufacturing and distribution of these clean energy technologies available, there is an additional benefit for job creation, community development and overall improvement in the lives of the rural communities. Thus, ensuring access to clean energy provides an opportunity as a transition phase towards grid connected electricity by making energy available to the most remote locations in the immediate future while promoting sustainable development of the communities served.

1.2 Nationally Appropriate Mitigation Actions

The success of the Paris Agreement signals a significant step towards the future of climate action. This UNFCCC-led process involving over 190+ parties led to an agreement in December 2015 that saw countries agree to cut emissions with the aim of limiting temperature increase. The agreement lays down several “building blocks” that can help the world collectively undertake climate actions and NAMAs are expected to play an important role in driving this transformation.

Nationally Appropriate Mitigation Actions (NAMAs) are voluntary, non-binding policy instruments that provide a framework for pursuing a country’s socioeconomic and development goals, while contributing towards global greenhouse gas mitigation efforts. NAMAs were first introduced at the 13th Conference of Parties to the Kyoto Protocol (COP13) in Bali in 2007.

Many developing countries are taking steps to develop and implement NAMAs, which can help countries achieve their growth objectives and participate in the global climate change mitigation agenda. NAMAs help governments leverage national and international support to achieve appropriate, effective and transformational GHG mitigation and sustainable development targets for the country and within communities.

COP 19 in 2013 saw the introduction of Intended Nationally Determined Contributions (INDCs), which were to be submitted by all parties, developed and developing, to the UNFCCC. The INDCs formed the crucial basis for the discussions leading to the successful Paris Agreement (COP 21) and provide an indicative list of activities that a party is willing to undertake in the period following 2020.

Though not explicitly mentioned in the Paris Agreement, NAMAs are currently the only “framework for non- market approach to sustainable development” (as noted in the Paris Climate Agreement) and are expected to play an important role in helping developing countries plan and execute mitigation actions as elaborated in their INDCs. Moreover, the overall scope of a NAMA, i.e. mitigation action combined with sustainable development leading to sector transformation, makes it an ideal framework that can successfully balance national development priorities with global climate actions.

1.3 Clean Energy NAMA – An Opportunity for Kenya

Kenya is a party to the UNFCCC process and is committed to tackling climate change, as indicated by its various policies and programmes. Kenya submitted its INDC to the UNFCCC in July 2015 and has set an emission reduction target of 30 per cent by 2030 compared with its BAU scenario. NAMAs form an essential element of Kenya’s commitment to the UNFCCC process. 14 INTRODUCTION TO NAMAS

Kenya is committed to ensuring access to energy for its growing population, including bringing access to grid electricity. Clean energy for lighting and cooking offers a unique opportunity to accelerate access to electricity through small-scale, off-grid and stand-alone projects, often with simple and cost-effective solutions. Additionally, clean energy provides income-generating opportunities to the local population.

Financing, whether in terms of high up-front costs or lack of access to credit, remains one of the most significant challenges for renewable energy, particularly off-grid renewable energy. A NAMA provides an opportunity to facilitate the flow of financing for renewable energy. In Kenya, a clean energy NAMA that is designed within the appropriate policy environment and regulatory framework, and which has a sufficient level of technical and financial support, could be a catalyst for transformational change in the energy sector.

The proposed clean energy NAMA for Kenya focuses on creating a market-based environment for the manufacture and distribution of clean energy technologies, namely solar PV lanterns and improved cookstoves (ICSs). The guiding principle for the NAMA is to encourage private sector participation in leading sector transformation by making affordable clean energy technologies, namely solar PV lanterns and, available to the entire population of Kenya, supported by a consumer financing scheme.

By promoting this NAMA, the resultant activities will address multiple SD objectives—poverty alleviation, local job creation, alternative income generation, provision of income equality opportunities, improved energy access and better health, educational and environmental conditions. More important, by creating an enabling environment for the private sector to participate, the NAMA will ensure the longevity and sustainability of the activities that it encompasses, even after the technical life span of the NAMA.

Figure 1: A simple overview of the NAMA Outcomes NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA INTRODUCTION TO NAMAS THROUGH INNOVATIVE MARKET BASED SOLUTIONS 15

1.4 Purpose and Objectives of the NAMA

The overall purpose of this Clean Energy NAMA in Kenya is to increase access to clean energy technologies (i.e. PV lanterns and ICSs) in a sustainable manner while leading to transformational change.

The two Objectives of this NAMA are:

■ Objective 1: Enable the private sector to participate in the manufacture and distribution of clean energy technologies in Kenya.

■ Objective 2: Create an enabling market environment that encourages distribution of clean energy technologies through an appropriate financing model.

16 BACKGROUND ON KENYA

2 BACKGROUND TO KENYA

With a population of 45 million and occupying Figure 2: Map of Kenya an area of 582,000 km2, the Republic of Kenya is developing country located in East Africa. The most recent World Bank data indicate a GDP value of US$ 61 billion with an average annual growth rate of 5-6 Per cent in the last 5 years. This makes the country one of the most prosperous nations in Sub-Saharan Africa, behind South Africa and Nigeria. Nairobi, its capital, is the financial hub of East Africa and the country is a founding member of the . The country shares borders with Ethiopia and South Sudan in the north, Uganda in the west and Tanzania in the south. The eastern borders of the country are shared between Somalia and the Indian Ocean, with Mombasa, its second largest city, an important port. (World Bank_Kenya, 2016)

Source: (Embassy_Kenya, 2016) 2.1 Country Topography

The country’s topography is described as simple and diverse, with its relief separated into lowlands and uplands with varied landform types consisting of plains, escarpments, hills with low and high mountains and breaks. From the coastline in the southeast, one comes to a narrow low-lying plain. The altitude then gradually changes to low plateaus, mainly of a semi-arid nature that spread in the eastern and northern parts of the country and are sparsely populated. From the low plateaus the terrain runs to an elevated plateau and mountain region in the southwest, forming the Kenyan highlands. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA BACKGROUND ON KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 17

The highlands contain the bulk of the country’s population and farmland. The highlands are cool and agriculturally rich. Both large- and small-holder farming is carried out here. Major cash crops are tea, coffee, flowers, vegetables, pyrethrum, wheat and maize. Livestock farming is also practiced. Much of the highlands lie 1,500 to 3,000 m above sea level and are dotted by extinct volcanoes. The bisects the highlands into east and west forming a steep sided trench of 30 to 40 miles (48 to 64 km) wide and 600 to 900 m deep. Mount Kenya the highest mountain in the country is found on the eastern side while Mount Elgon is to the western side on the border of Kenya and Uganda.

2.2 Country Administration

Politically, Kenya is a unitary state with a multi-party political system. In 2013, Kenya introduced devolved two tier government consisting of a national government and 47 autonomous county Governments. The devolved government, proposed during the making of the new constitution, is primarily geared towards achieving two main objectives.

■ Involving the people in governance;

■ Allowing better supervision and implementation of policies at the grassroots level.

The county Governments, which replace the previous provincial administrations, have the following responsibilities:

■ Exercising the powers of enacting laws at the county level;

■ Acting as a means of oversight of the county executive;

■ Approval of plans and policies for smooth operation and management of resources and county institutions.

2.3 Climate

Kenya’s climate varies considerably across the country. It is hot and humid onthe coast, temperate inland, and very dry in the north and northeast parts of the country. The climate is heavily influenced by its variable topography and the weather patterns that affect the areas around the equator. Its location also makes the country prone to cyclical droughts and floods with climate change expected to make climate-driven events increase in intensity and frequency. The temperatures vary dramatically, with the highlands experiencing considerably cooler temperatures than the coastal and lowland regions. Kenya has an average annual precipitation of about 700 mm and the amount of annual rainfall influences the agricultural productivity of the country.

2.4 Demography

Kenya ranks 145th out of 188 countries in the United Nations Development Programmes (UNDP) Human Development Index (HDI), which measures development in terms of life expectancy, educational attainment and standards of living. More than three quarters of the population live in rural areas, and rural households 18 BACKGROUND ON KENYA

rely on agriculture for most of their income. The rural economy, in turn, depends mainly on smallholder farming, which produces the majority of Kenya’s agricultural output. (UNDP_HDI, 2015)

Kenya also has one of the world’s highest rates of population growth. The population has tripled in the past three decades, increasing pressure on the country’s resources and leaving young people particularly vulnerable to poverty. Rural women are vulnerable as well; because they do not have equal access to social and economic assets, subsistence farming is the primary source of livelihood for most of these women. Yet women and young people have great potential for contributing to economic development and social progress if they are able to fulfil their potential.

2.5 Socio-Economic Situation

Kenya is the leading economy of East Africa and one of the largest economy in Sub-Saharan Africa Most businesses are privately owned, with foreign investment supporting the agricultural and mining sectors.

Much of the country’s manufacturing revolves around food and beverages and the economy also benefits from the port of Mombasa, which is a key transit point for imports into the east African region. Exporting petroleum products to its east African neighbors from crude oil shipped into the country remains important, in addition to agricultural products such as tea, coffee, fruits, vegetables and fresh flowers. Other important exports include limestone, salt, fluorite/fluorspar and soda ash. Kenya also has deposits of gold and precious stones.

Kenya’s wildlife attracts many visitors to the country’s national parks and game reserves. Its sandy beaches and coral reefs are also a draw for foreign visitors. Tourism is therefore of key importance to the economy. With a boom in mobile telecommunications, even among the poorest, Kenya is leading the way in innovative mobile services such as telephone banking.

Because of its long history of attracting visitors, Kenya’s service industries—such as banks, hotels, restaurants­—are well-developed and outperform those of others in the region. The government hopes to encourage the growth of new service industries (e.g. call centre operations).

The future success of the economy depends largely on a stable political situation and the curbing of corruption and patronage, which limits the private sector’s willingness to invest in the country. Population growth has also put a huge strain on Kenya’s land and the environmental impact of deforestation is already being felt. But with better protection of the environment and a reduction in corruption and mismanagement, Kenya’s trading culture, many entrepreneurs and strong industry sectors should foster a favorable future.

Rural poverty in Kenya is also strongly linked to environmental concerns—especially poor water management, soil erosion, declining soil fertility and land degradation. Climate change, which is one of the major challenges facing the Kenyan economy, could undermine the resource base and contribute to declining agricultural yields.

Although Kenya’s prospects for long-term growth are among the most favorable in East Africa, poverty alleviation remains a challenge. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA BACKGROUND ON KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 19

Kenya: At a Glance

Full name: The Republic of Kenya Population: 45 million (2014 estimates) Capital: Nairobi Area: 582,000 km2 Major languages: Swahili, English Major Towns: Mombasa, Kisumu, Nakuru, Eldoret, Nyeri. Currency: Shilling Time: GMT + 3 hours 20 BACKGROUND TO THE ENERGY SECTOR

3 BACKGROUND TO THE ENERGY SECTOR

The Government of Kenya (GoK) set forth, in its Vision 2030, a programme to transform Kenya into a “newly industrializing, middle-income” country. Kenya’s energy generation falls into three main categories, namely hydropower (45 per cent), thermal or conventional power (24 per cent) and other renewables (31 per cent). It is estimated that Kenya’s installed power-generating capacity as of 2015 stood at 2,150 MW, to serve a population of 45 million, which constrains economic growth (Oxford Business Group, 2015). The National Energy and Petroleum Policy notes that the GoK proposes to raise the total installed capacity to 6,700 MW by March 2016, however as noted above, the current capacity is significantly lower. (GoK, NEPP, 2015) p14.

3.1 Renewable Energy Potential in Kenya

Kenya is believed to possess more than 7,000 MW of undeveloped geothermal energy resources in the Rift Valley. The NEPP notes that the government proposes to develop at least 1,900 MW by 2017 and 5,500 MW by 2030. (GoK, NEPP, 2015) p13. Wind and biomass energy are also significant potential sources of power generation. With the equator passing right through the middle of the country, the country has plenty of solar insolation and the potential for solar energy in Kenya remains significant and untapped. The table below provides an overview of renewable energy potential

Table 1: Renewable Energy Potential in Kenya (Ayieko, 2011)

No. Renewable Energy Potential Areas 1 Geothermal 7,000 MW Rift Valley 2 Solar 4-6 kWh/ m2/day 80% of the country 3 Wind 346 watts/ m2 Parts of Nairobi, east, NE and Coastal Kenya 4 Large Hydro 6,000 MW -- NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 21

No. Renewable Energy Potential Areas 4 Small Hydro 3,000 MW Five drainage Basins 5 Biomass/Co-gen 300 MW Sugarcane belt 6 Other Biomass 300 MW --

In January 2015 the Ministry of Energy and Petroleum released an updated National Energy and Petroleum Policy featuring a proposed new regulatory agency and coordination structure for upstream petroleum production, coal, renewable energy and framework legislation on natural resources revenue management, which will include the creation of a sovereign wealth fund. The Government of Kenya aims to create a stable investment climate for private sector participation in energy, developing expanded transmission and distribution networks to deliver power to customers, maintaining cost-reflective tariffs, and reducing inefficiency in the sector to support more affordable end-user tariffs.

3.2 Key Actors – Kenya Energy Sector

The key public sector institutions involved with managing and regulating the energy sector in Kenya are:

Ministry of Energy and Petroleum (MOEP): www.energy.go.ke

Responsible for policy formulation including feed-in tarrifs and creating a framework for growth, investment and sufficient operating capacity in the energy sector.

Energy Regulatory Commission (ERC): www.erc.go.ke

Responsible for the regulation of the energy sector. Established under the Energy Act of 2006, the ERC acts as an independent regulatory authority with responsibility for economic and technical regulation of electric power, renewable energy and downstream petroleum sub-sectors including tariff setting, review, licensing, enforcement, dispute settlement and approval of power purchase and network service contracts.

Kenya Power and Lighting Company / (KPLC): www.kplc.co.ke

Wholesale buyer of electricity, obligated to buy electricity from all power generators including KenGen and IPPs on the basis of negotiated power purchase agreements. KPLC is responsible for onward transmission of purchased electricity and is the sole distributor of electricity from national grid to consumers in Kenya.

Kenya Electricity Generating Company (KenGen): http://www.kengen.co.ke/

KenGen manages all public power generation facilities and is the main generator of electricity in Kenya which it sells on a wholesale basis to Kenya Power. KenGen has an installed capacity of a little over 1,500 MW which accounts for almost 70 per cent of the total installed capacity in the country including hydro, geothermal, renewables and conventional power. 22 BACKGROUND TO THE ENERGY SECTOR

Geothermal Development Company (GDC): www.gdc.co.ke

This 100 per cent government-owned entity has the specific mandate to undertake all exploration and development activities of geothermal activities in Kenya.

Kenya Electricity Transmission Company (KETRACO): www.ketraco.co.ke

Established in 2008 with the mandate to develop new high voltage electricity transmission infrastructure to facilitate grid access to rural areas, allow for grid interconnection with new plants and enabling regional power trading with neighboring countries.

Independent Power Purchasers (IPPs):

Private companies in the power sector dealing with either thermal (conventional) energy or renewable energy sources under government’s feed in tariff policy. The IPPs collectively contribute to almost the remainder of Kenya’s power generating capacity (see KenGen).

The other relevant actors relevant in the context of the NAMA are:

National Environmental Management Authority (NEMA)

NEMA is responsible for enforcement of environmental laws and regulations.

Centre for Energy Efficiency and Conservation (CEEC):

The Centre was established jointly by the GoK and the Kenya Association of Manufacturers to champion energy efficiency and conservation efforts in Kenya.

3.3 Rural Electrification Authority (REA)

The Rural Electrification Authority was established under Section 66 of the Energy Act, 2006 as a corporate entity under the Ministry of Energy and Petroleum (MOEP) with the mandate to accelerate the pace of rural electrification in the country, a function which was previously undertaken by the MOEP. (See Section 9.2.3 for more information)

The REA has been identified as the key NAMA Implementing Entity (NIE) for the technical implementation of the NAMA activities.

3.4 Analysis of Household Energy

Access to electricity is considered an important driver of economic growth. About 600 million people in Sub-Saharan Africa—over two-thirds of the population—are without electricity. Most of these households without electricity are thought to be off grid, or located too far away to connect to the national grid. Currently there is limited evidence on the economics of rural electrification in Sub-Saharan Africa, however studies have been initiated by the Government of Kenya, including one by the REA. Since 2006, the REAhas been entrusted with the expansion of the national grid, installing electricity distribution lines and NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA BACKGROUND TO THE ENERGY SECTOR THROUGH INNOVATIVE MARKET BASED SOLUTIONS 23

transformers across many of the country’s rural areas. Despite this expansion in grid coverage, household electrification rates in Kenya are estimated to be low. The draft National Energy and Petroleum Policy (NEPP) states that as of June 2014, 32 per cent of Kenyans had access to electricity. A study commissioned by the Ministry of Energy and Petroleum in 2014 established that Kenya has one of the highest connection charges, contributing to low access to electricity supply. (GoK, NEPP, 2015) (p81).

Despite the successful electrification of public facilities in rural areas, most rural households remain unconnected. The NEPP states that “…for the socio-economic transformation of the country, the Government has set a goal of 70% and universal access to electricity by 2017 and 2020, respectively. Electricity alone is not sufficient to spur economic growth, but it is certainly necessary. Access to electricity is particularly crucial to human development, as certain basic activities—such as lighting, refrigeration, running household appliances, and operating equipment—cannot easily be carried out by other forms of energy. Sustainable provision of electricity can free large amounts of time and labour and promote better health and education.” The NEPP goes on to state that “going by the current pace at which connections are being effected, the achievement of 70% universal access to electricity by 2020, will not be possible without a paradigm shift in the electrification strategy” (GoK, NEPP, 2015) (pp83-84).

Despite the impressive goals, The GoK faces several challenges in improving and distribution to meet increasing energy demand. Some of the major challenges include:

■ Connecting several thousand new consumers per year to the electricity grid, including expansion of the Rural Electrification Programme;

■ Reducing the cost of electricity production in Kenya, which is higher than the costs of regional economic competitors such as South Africa;

■ Investing in upgrading of the national electricity grid to provide constant high quality power, especially to industrial consumers;

■ High consumer tariffs due to operational inefficiencies and high taxes.

3.5 Current Fuel Use in Households

Kerosene as a cooking and lighting fuel is important for the poor in rural and urban areas and has in some cases served as a substitute for wood fuel. Hence, any efforts to increase kerosene consumption will undoubtedly relieve pressure on wood use. Indeed, the government has often used tax reductions (or zero increases) for kerosene for this purpose and also as a poverty mitigation measure. Key emerging concerns in this regard are the impact of kerosene on the levels of indoor air pollution, the consequent health impacts on the poor, and the adulteration of other fuels with kerosene.

Wood fuel has remained the most important source of energy in Kenya, meeting over 70 per cent of the country’s total energy consumption needs. As the primary source of fuel for rural households, use of wood fuels has a major impact on the sustainable development of Kenya. The lack of efforts with reforestation, unsustainable harvesting, and on-farm planting of wood lots, have often led to soil degradation and deforestation. 24 BACKGROUND TO THE ENERGY SECTOR

About half Kenyan households use charcoal. Some 80 per cent of urban households use the fuel compared with around 30 per cent of households in rural areas. Charcoal continues to be harvested from trust lands and gazetted forests, and efforts to introduce improved charcoal production technology have had minimal impact on recovery and production due to increasing demand. Some of the charcoal in Kenya is dubbed environmentally friendly and exported, but accurate figures are unavailable.

The Constitution calls for efforts to increase tree cover to 10 per cent of Kenya’s total surface area. The total forest cover for Kenya, is estimated at only 2-7 per cent depending on the source of information. Kenya has 3.467 million ha of forest cover which is equivalent to 5.9 per cent of the land area, out of which 1.417 million ha comprises indigenous closed canopy forests, mangroves and plantations. The Kenya Forest Service has estimated that in 2009 annual wood demand in Kenya stood at 37 million m3, while the estimated sustainable wood supply was only 30 million m3. (Kenya_Forest_Service, 2009) pp. 9,10

This wood deficit of 7 million m3 does not bode well for efforts to increase Kenya’s forest cover, unless supply (plantings) can be increased ordemand (wood use) can be reduced through actions and technologies like the improved cookstove initiatives. An important and fundamental co-benefit of improved cookstoves programmes is the reduction of wood use for fuels and a corresponding contribution to improving Kenya’s current deficit in wood balance.

3.6 Use of Improved Cookstoves in Kenya

The use of improved cookstoves (ICS) in Kenya is not a new phenomenon. Production of rudimentary cookstoves has taken place perhaps as early as the early 1980s. A study conducted by Global Village Energy Partnership (GVEP) International, a non-profit organization in 2012 estimates that between 2.5 and 3 million Kenyan households use some form of improved cookstoves. Imported stoves from Envirofit and the Kenyan Jiko Poa, Upesi, Uhai, and Rocket stoves have been in the Kenyan market since 2010. The cost in 2012 ranged from US$6- 20. Currently, less than 37 per cent of households in Kenya use a form of improved cookstove (ICS) while the rest use cooking devices with low thermal energy efficiency ratios and high negative health impacts associated with indoor air pollution. (GVEP-GACC, 2012) p35. Most of the ICS in Kenya fall below ‘tier 2’ category as defined by the Global Alliance for Clean Cookstoves (GACC) demonstrating significant margins for improvement. As one might expect, use of wood and kerosene tends to decline with rises in income whilst use of LPG, electricity and biogas increases with higher income levels, especially in urban areas (GVEP-GACC, 2012) p40-48.

In short, the need for improved cookstoves in Kenya is widely recognized and acknowledged by Kenyan government policy documents, as well as international NGOs and donor organizations.

3.7 Solar PV Lighting in Kenya

Solar PV lighting and lantern programmes have also been introduced in Kenya inthe recent past. Kerosene- based lighting continues to be the leading source of illumination at the household level. An average household uses a significant portion of its income on kerosene fuel, kerosene use contributes to greenhouse gas emissions, and the air particulate emissions generated by the use of kerosene lamps further contribute to household air pollution. The government, regulators and development agencies have for several years been on the forefront of advocating for a swift transition from kerosene use for lighting to other modern and renewable energy sources including solar lanterns. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA BACKGROUND TO THE ENERGY SECTOR THROUGH INNOVATIVE MARKET BASED SOLUTIONS 25

Solar lanterns are often discussed within the context of solar home systems (SHS) which comprises solar lighting with or without additional facilities for mobile charging, radio etc. The country has one of the most mature and dynamic commercial photovoltaic (PV) markets in Africa. This is driven by relatively high consumer awareness of the solar products and sustainable consumer demand from a relatively prosperous non-electrified rural population. A distribution chain has developed that is effective in supplying and installing solar home systems and institutional systems throughout the country. Work on the development of the solar lantern has generated a considerable amount of interest amongst potential customers, importers, distributers and manufacturers alike.

Kenya’s National Climate Change Action Plan designates improved cook stoves and solar lanterns as one of the country’s six top Priority Mitigation Programmes (GoK, NCCAP, 2013) (p79), identifies the promotion of improved cookstoves as a priority intervention in climate change, and recognizes the considerable social, economic, and healthcare related co-benefits associated with improved cookstoves and solar lanterns, especially for women and children.

3.8 Barriers to Adoption of Clean Energy Technologies

The World Bank-IFC Lighting Africa Progress Report in 2010 noted that there were over 70 solar lighting products produced by more than 50 companies available in Africa at prices ranging from US$25-$50. Nonetheless, the World Bank also found that providing better financial mechanisms, for both producer and the consumer, is essential for continued market penetration. A lack of financing options is a significant barrier to the growth of solar lighting and technologies in Africa (World Bank-Lighting Africa, 2010) (p23). The same report found that lack of consumer education, the need for product quality assurances, and the lack of monitoring and evaluation processes also pose formidable barriers (World Bank-Lighting Africa, 2010) p26-29. The World Bank report also highlights the socio-economic co-benefits it has witnessed through the Lighting Africa programme, including: improved lighting quality for households; increased school retention and improved grades for children; increased income levels for small and medium businesses (SMEs); and reduced GHG emissions (World Bank-Lighting Africa, 2010) (p24).

In Kenya, Solar Aid through Sunny Money in April 2014 claimed sales of 183,000 solar lanterns in Kenya. M-Kopa, a company with an established presence in East Africa currently pursues a lease based model for the distribution its solar lanterns, disseminated over 50,000 solar home systems by 2013 in Kenya alone. While it is estimated that ICS account for almost one third of national sales figures, the quality of ICSs has not been up to the mark. Transformational change is necessary in implementing large scale adoption programmes for ICS and solar lanterns in Kenya. While there have been multiple unilateral and multilateral efforts by various official donors and NGOs over the past two decades to introduce new cook stove technologies, uptake has been slow.

A 2012 review of Household Clean Energy Technologies in Kenya and Tanzania by the African Biodiversity Collaborative Group, USAID, and GVEP concluded that the lack of financing for both the consumer and the entrepreneur was a major constraint to widespread adaptation, as well as lack of skilled technicians and maintenance facilities, lack of production standards and quality control, cultural reluctance to change from traditional ‘three stone’ cooking methods, and reticence on the part of lending instructions due to small loan amounts, high transaction costs, and lack of qualified banking personnel to assess consumer loans for household technologies. Outright grant programmes were also found to be ineffective. (GVEP-USAID, 2012) 26 BACKGROUND TO THE ENERGY SECTOR

In short, larger scale introductions of solar lanterns and ICS need to be supported by adequate consumer and producer financial mechanisms, maintenance and warranty facilities, adequate quality control certifications at the national and county levels, and customer service and training facilities, without which the programme will not be sustainable. The NAMA aims to tackle several of these challenges through its market based approach.

3.9 Key Drivers for Market based Approach

The NAMA identifies 5 “drivers of change” that can support transformational change in driving forward a market driven model for promoting clean energy technologies, namely:

■ Market Intelligence: By lowering entry barriers into the market and helping inform the design of appropriate products for the African market while providing periodic insights and trends to support decision-making processes.

■ Quality Assurance: By establishing quality specifications to promote quality clean energy technologies that reduce market “spoilage”.

■ Access to Finance and After Sales: Support members of the value chain (manufacturers, distributors, retailers, and end-consumers) to access easy financing and ensuring longevity of the product, thus building the confidence of financing agencies.

■ Marketing and Awareness Creation: Generate demand for clean energy technologies and associated services by educating, informing and raising awareness.

■ Policy Environment: Engaging the government to create a favorable environment for the private sector to participate in the value chain. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA BACKGROUND TO THE ENERGY SECTOR THROUGH INNOVATIVE MARKET BASED SOLUTIONS 27 28 THE POLICY ENVIRONMENT IN KENYA

4 THE POLICY ENVIRONMENT IN KENYA

Kenyan national policies have undergone some significant developments in the wake of the new 2010 Constitution and the 2013 presidential elections. The new Constitution, for the first time, shares power through “devolution” and through its Bill of Rights assures Kenyans’ access to essential economic, social, and environment rights. The Constitution and these new government policies have direct relevance to this proposed Clean Energy NAMA in several critical areas, especially since significant integration and implementation activities for this NAMA will take place at both the national the county levels. Without careful alignment of the NAMA with current government policies, the NAMA will not attract the requisite government and political support to be sustainable and successful. Nor will the NAMA be successful if it does not contribute to meeting the expectations of Kenya’s citizens and stakeholders.

This next section briefly and broadly reviews specific government policies concerning the NAMA and can be broadly divided into two categories, the Constitution, Vision 2030 and the SMTP forming the high-level long- term strategic outlook and the NCCAP, NEPP and other sister initiatives providing the sector specific focus

4.1 Constitution of Kenya

The new Constitution of Kenya, approved by the public in 2010, is the legal foundation of the government’s authority and legitimacy and guarantees (promises) a clean and healthy environment (Articles 42, 69, and 70), which is of direct relevance to this NAMA in terms of household air pollution. Also included in the Constitution is a goal of reaching 10 per cent forest cover for the nation (Article 69), relevant for wood use for fuels and the sustainable wood balance in Kenya. The Constitution guarantees public’s right to access to healthcare, housing, freedom from hunger, clean and safe water, social security, access to information, and education (Article 43). The Constitution also defines the distribution of functions between the national and county governments (Fourth Schedule) which implies that the county governments will become major stakeholders and participants in this NAMA. Mitigation of GHG emissions and improvements in noise, air and healthcare related pollutants resulting from wood burning for cooking and lighting are also guaranteed under articles 42, 69, and 70 in protection of the environment (GoK_Constitution, 2010) NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA THE POLICY ENVIRONMENT IN KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 29

County government functions are detailed in the Constitution under its Fourth Schedule. Of special importance to this NAMA are the transfer of powers to the county for control of air and noise pollution and healthcare delivery. County government functions of significance to this NAMA include, among others:

■ Control of air and noise Pollution, public nuisances; and

■ Trade development, licensing, fair trade practices, Cooperative Societies

Constitution—Clean Energy NAMA Relevance

The proposed Clean Energy NAMA directly addresses multiple articles under the Constitution’s Bill of Rights in the form of indirect economic-social-environmental co-benefits associated with healthcare related particulate emissions and a clean and healthy environment (Articles 42,69, and 70). This Clean Energy NAMA also directly addresses Article 69 aspirations to achieve a national 10 per cent forest cover by reducing the amount of wood required, and reducing wood demand, for cooking though higher efficiency cook stoves.

A principal objective and resulting requirement of this Clean Energy NAMA is to ensure full integration of County Governments. County Governments will be actively involved in trade development, licensing, taxation, and environmental and pollution administration and enforcement.

4.2 Vision 2030

Kenya’s Vision 2030 is the national long-term development blueprint for Kenya that is implemented through a series of five-year development plans—the current being the Second Medium Term Plan (SMTP) 2013- 2017. Vision 2030 aims to transform Kenya into a newly industrializing “middle-income country providing a high quality of life to all its citizens by 2030”. Vision 2030 is a living document that was first published in 2007 and is currently updated periodically in a web-hosted version. (GoK_Vision 2030, 2007) (p1).

Promoting the development of an indigenous clean cookstove and solar PV industry in Kenya, especially in rural areas, is seen as a concrete contribution to fulfilling Vision 2030’s goal of increasing national GDP growth to 10 per cent per annum by 2030 as well as providing enhanced equity and wealth creation opportunities for the poor through creation of meaningful employment in rural areas. By implementing manufacturing and distribution centers under this NAMA, improvements in trade promotion, licensing, poverty reduction and human resource development are anticipated. This Clean Energy NAMA also supports creation of an increasingly clean, secure and sustainable environment by reducing household air pollution through reductions in the amount of wood burning and directly addresses Vision 2030’s stated concern that poor air quality due to wood reliance leads to upper respiratory infections. 30 THE POLICY ENVIRONMENT IN KENYA

Vision 2030—Clean Energy NAMA Relevance

This Clean Energy NAMA directly supports the Vision 2030 goal of reaching 10 per cent GDP growth by 2030 through the development of an indigenous cook stove and solar lighting industries in rural areas and the resulting creation of employment opportunities for the rural poor, especially women and youth. It further secures a clean and safe environment through mitigating one of the leading causes of mortality in Kenya—household air pollution. Finally, it will improve public sector efficiency, help remove trade and investment barriers, streamline licensing, and lead to enhanced equity and to poverty reductions, especially for women and youth.

4.3 The Second Medium Term Plan (SMTP)

The Second Medium Term Plan (SMTP) 2013-2017 is the new administration’s five-year plan which prioritizes, among other goals, the country’s rapid economic transformation and growth through infrastructure development, maintaining a stable economic environment, promoting diversification and a greater contribution from manufacturing, and paying full attention to securing the environment and building resilience to climate change (GoK_SMTP, 2012)

The SMTP identifies alignment with the UN’s Sustainable Development Goals (SDGs) as a priority, including achieving development without ruining the environment, reducing extreme poverty, achieving health and wellbeing for all ages, curbing human-induced climate change with sustainable energy, and improving governance and aligning business behavior with all SDG goals. This Clean Energy NAMA supports reductions in poverty through job creation especially for women and youth in rural areas, and helps align county government and business practices with the SDG goals in the planned small and large Energy Economic Production Zones (EPZs) discussed later in the NAMA. The development of the EPZs in mostly rural areas under the NAMA will support the capacity development and improved alignment of county and local governments in terms of trade development; taxes, licensing, and environmental regulations.

The SMTP also calls for full attention to the environment, building resilience to climate change, and increasing the share of energy generated from renewable energy sources is directly addressed under the Clean Energy NAMA.

Replacing the widespread use of kerosene lanterns through an indigenous, “made-in-Kenya,” array of solar lantern production and distribution centers, will begin to make a significant reduction in kerosene use, resulting in reductions in particulate household air pollution, and serve as a transformational approach to increase solar renewable energy use, especially in rural, off- grid, locations in Kenya.

SMTP—Clean Energy NAMA Relevance

This Clean Energy NAMA directly supports the government’s Second Medium Term Plan for sustainable economic and social development by 2030, while protecting the environment. The NAMA directly addresses increases in renewable energy through solar lighting, reduction of healthcare related household air pollution and Kenya’s leading cause of death creation of jobs and employment for women and youth in rural areas; capacity development and integration with local governments on business and investment opportunities, reductions in GHG emissions arising from inefficient wood-based cooking fuels, and improvement in the wood balance and forest cover through reductions in wood fuel use. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA THE POLICY ENVIRONMENT IN KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 31

4.4 National Climate Change Action Plan (NCCAP)

The National Climate Change Action Plan (NCCAP) 2013-2017 is Kenya’s first Action Plan on climate change. It has been developed with the aim of implementing the National Climate Change Response Strategy (NCCRS) that was launched in 2010. It is an extensive 268-page blueprint addressing Kenya’s priorities and responses to climate change mitigation and adaptation. One of the major contributions the NCCAP makes is defining Kenya’s national GHG mitigation goals: Kenya hopes to reduce GHG emissions to 15 per cent below 2010 levels by the year 2015 and to 70 per cent by 2030; a quite ambitious target (GoK_NCCAP, 2012) (pg 27). This Clean Energy NAMA helps reduce GHG emissions by reducing the amount of wood fuels utilized in inefficient cook stoves and will further reduce GHG emissions by substituting solar PV lighting for the widespread practice of using kerosene for this purpose.

It is estimated by the NCCAP that up to 5.6 million tCO2e (ton CO2 equivalent) can be saved annually by 2030 through a sustainable program to introduce improved cookstoves and alternative fuels and up to 1.5M mtCO2e annually by 2030 through the use of solar lighting and household solar PV systems. (GoK_NCCAP, 2012) (p 68). It should be noted that this Clean Energy NAMA implements transformational change in these two areas by introducing an indigenous, “made-in-Kenya,” structure of up to eight cookstove and solar lighting production facilities and up to 20 distribution points around the country. This is designed to insure consistent and sustainable introduction and use of these, and other, renewable energy and higher efficiency technologies by 2030. Improved cookstoves and solar lanterns are included in the six Priority Mitigation Programmes in the NCCAP and are identified as priority interventions (GoK_NCCAP, 2012) (p 79).

Finally, the Clean Energy NAMA will support three additional priority programmes under the NCCAP: provide capacity development in the areas of national GHG inventories; measurement, reporting, and verification (MRV) of GHG emissions; and introduce transformational change in climate change finance options by introducing new financial instruments and opportunities. In climate finance, the NCCAP identifies development of (international and private) partner funding for key priorities, improving the regulatory and policy framework for low carbon investments, and establishing a platform for engagement between the Kenyan government and investors as priority action programmes (GoK_NCCAP, 2012) (p 93).

The NCCAP establishes broad national GHG emission reduction goals, estimates potential GHG emission reductions for both the improved cookstove and solar lighting programmes, and identifies both of these programmes as national priorities or implementation plans.

NCCAP—Clean Energy NAMA Relevance

This Clean Energy NAMA directly supports the government’s first and most comprehensive National Climate Change Action Plan in reducing national GHG emissions by 15 per cent on 2010 levels by 2015 and up to 70 per cent by 2030. The NCCAP estimates that up to 5.6M mtCO2e mitigation can occur through sustainable introductions of improved cookstoves and up to 1.5M mtCO2e mitigation can result from the sustainable introduction of solar lighting. This NAMA proposal promotes the transformational implementation of these programmes.

The economic-social-environmental benefits called for by the NCCAP and derived from this proposed NAMA are outlined in detail above and throughout this document. Promotion of alternative fuels and renewable energy, creation of Green Jobs and employment for women and youth, capacity development in GHG inventories, MRV, and climate change finance are only a few directly related, yet significantly important, co-benefits resulting from approval of this Clean Energy Cookstove and Solar Lighting NAMA. 32 THE POLICY ENVIRONMENT IN KENYA

4.5 National Energy and Petroleum Policy

The National Energy and Petroleum Policy (NEPP) draft stipulates that Kenya’s overall energy and petroleum policy is to ensure affordable, competitive, sustainable and reliable supply of energy to meet national and county development needs at least cost, while protecting and conserving the environment. The NEPP draft is the culmination of efforts, begun with Sessional Paper No. 4 of 2004, the Energy Act 2006, and subsequent sector laws, by-laws and regulations, other policies, administrative procedures, government guidelines and circulars relating to energy since then. The NEPP addresses national energy (electricity) production, transmission, and distribution issues, as well as providing two short chapters on biomass (chap. 3.5) and solar energy (chap. 3.7). (GoK_NEP, 2014)

The NEPP addresses the national wood balance, forest cover, wood supply, and wood demand, noting that firewood and charcoal supply 69 per cent of Kenya’s total energy consumption; 55 per cent from farm residues and 45 per cent from forests. There is a huge gap between the nation’s existing tree cover and the constitutional requirement for 10 per cent tree cover. The NEP identifies the country’s unsustainable use of biomass, the widening gap between wood supply and demand, emissions from wood fuels, and inadequate alternative clean energy sources as major challenges.

In solar energy, the NEPP notes that Kenya has a large-scale market-driven penetration of small solar PV systems (12-50 watts) and that by 2014 an estimated 6MW of solar power has been installed. By December 2013, a total of 977 schools and health facilities had benefitted from government-sponsored efforts to install solar PV lighting systems (p. 57). The NEPP calls for government efforts to provide incentives to promote local production of efficient solar systems, install solar PV systems on all remaining off-grid public facilities, and procure and distribute solar lanterns on a national scale (p. 58).

The NEPP also finds that the burning of wood fuels and solid fuels leads to serious health- related concerns, including increased indoor air pollution which leads to Upper Respiratory Tract Infections, and that there is a need to move consumers from the consumption of kerosene to efficient renewable energy solutions (p. 95).

This Clean Energy NAMA directly addresses many of the concerns and calls for action contained in the NEPP, including reduction in demand for wood cooking fuels, reduction in indoor household air pollution, and an increasing fuel switch from the use of kerosene lights to solar PV lanterns, all consistent with this new national energy policy.

NEPP—Clean Energy NAMA Relevance

This Clean NAMA directly supports the government’s draft National Energy Policy though e reductions of wood use, decreases in household air pollution and subsequent reduction in health- related upper respiratory infections, and the substitution of kerosene with solar power lighting. The NEPP notes that both of these programmes have been introduced and are well received in Kenya, though far from comprehensive or sustainable at the present. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA THE POLICY ENVIRONMENT IN KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 33

4.6 Other Programmes

Sustainable Energy for ALL (SE4All) Investment Prospectus is a Ministry of Energy and Petroleum supported documented published with the participation of several official donor and development agencies including the EU, BizClim, ACP, the United Nations Development Program, NEPAD, and SE4All-Kenya. Its principal objective is to further the development of renewable and sustainable energy in Kenya. SE4All calls for universal access to modern energy, doubling the amount of renewable energy, and doubling energy efficiency in Kenya by 2030.

Global Alliance for Clean Cookstoves (GACC) is working with the Clean Cookstoves Association of Kenya (CCAK), with Kenya’s Ministry of Environment, Water, and Natural Resources, and with the Ministry of Health to promote the adoption of clean cookstoves and fuels among 5 million households by 2020.

Clean Cookstove Association in Kenya (CCAK) is an NGO working with the World Bank supported Global Alliance for Clean Cookstoves. The mission of the CCAK is to facilitate innovations in design, testing, production, marketing, and use of clean cookstoves and fuels through improved government policies, increased public awareness, and capacity development. In the context of the NAMA, the CCAK target of 5 Million cookstoves was noted as the NAMA target during the stakeholder meetings.

Collectively, between the above GACC, the CCAK, other NGO’s, private industry, and the Ministry of Energy and Petroleum resources, it is estimated that between 1.5–3.5 million improved cookstoves have now been deployed in Kenya, though most of these are still at the Tier 1, most basic, efficiency level. The pioneering efforts of these organizations in building public awareness and acceptance of improved cookstoves fits well with this NAMA’s Clean Energy cookstoves and solar lighting objectives, enhancing the chances of sustainable success.

4.7 Summary and Conclusion

In conclusion, it should be clear from the above national and sectoral policy reviews, that multiple Kenyan national policy documents, from the Constitution, Vision 2030, the Second Medium Term Plan, the National Climate Change Action Plan, and the National Energy and Petroleum Policy, down to various sub-sectors, NGOs and private industry levels, that Kenyan government and public recognition of the need for such programmes has been established.

This NAMA focuses on transformational changes in the manufacturing, distribution, and capacity development sectors of the Kenyan national economy so that the Clean Energy NAMA becomes widespread, supportable, accessible to the poor, and sustainable going forward. The table below summarizes the key policies discussed in the section above and their alignment with two objectives of the NAMA: (Section 2.4) 34 THE POLICY ENVIRONMENT IN KENYA

NAMA Objective 1 NAMA Objective 2 Common Objectives National Policies Enable private sector Consumer Finance participation Model Constitution Clean environment Access to information Economic- social rights

Economic-social rights Economic-social rights Devolution to County Government Articles 42, 43, 69, 70 Articles 35, 42, 43 Article 43, 70 Fourth Schedule Vision 2030 Achieve 10 per cent annual Diversification and Full economic and Second Medium GDP growth through deepening of capital functional integration Term Plan (SMTP) infrastructure development. markets of County Governments through devolution Increase productivity, access Capital markets to work, commercial, financial infrastructure and Prioritize job creation centres, and essential services institutions especially for youth and women Improve distribution of goods Access to finance for and services SMEs National Climate Reduce GHG cookstove Financing NCCAP Develop cooperative Change Action emissions by 5.6M mtCO2e; Implementation partnerships to engage Plan (NCCAP) 1.5M mtCO2e solar lighting government and civil emissions by 2030 Improving Financial society Absorptive Capacity Capacity development in and Engagement with Develop effective social GHG and MRV actions Investors mobilization network (Chapter 10) Improved cook stoves and Improve Regulatory & solar lanterns as Priority Policy Framework for Mitigations Climate Action related Investments National Energy Promote local production of Finance, investment, Improve management, & Petroleum solar systems, reduce wood incentives reform coordination, and Policy (draft) fuel emissions as health integration of energy hazard, replace kerosene with related planning solar lighting Sector and Other GACC/CCAK target of 5 Financial products, Promote public Policies million improved clean incentives awareness and cookstoves by 2020 understanding of Public-Private renewable energy and Create large wholesale and Partnership Act (2012) clean cookstoves distribution networks (GACC) NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA THE POLICY ENVIRONMENT IN KENYA THROUGH INNOVATIVE MARKET BASED SOLUTIONS 35 36 NAMA BASELINE INFORMATION

5 NAMA BASELINE INFORMATION

The baseline scenario consists of two components, a Figure 3: Map of Kenya showing Population GHG emission reduction baseline and a Sustainable Density Development (SD) baseline. Setting the baseline scenario allows the impacts due to the NAMA interventions to be properly assessed and quantified through the monitoring activities described in the Measurement, Reporting and Verification (MRV) system.

5.1 The NAMA Boundary

The geographical boundary of the NAMA covers the whole of Kenya but it focuses on rural communities and is targeted at the entire rural population with its various economic needs. The groups defined by these needs have different consumption levels

and different levels of ability to pay for goods Source: (SEDAC, 2000) and services. The proposed intervention under this NAMA will make sure that the right services are made available to the different user groups according to an appropriate pricing model. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA BASELINE INFORMATION THROUGH INNOVATIVE MARKET BASED SOLUTIONS 37

5.2 GHG Emission Reduction Baseline

5.2.1 Kenya: Access to Energy

The baseline scenario of the NAMA is the hypothetical scenario describing what will happen in the absence of the proposed NAMA interventions. The national statistics on “Household Source of Lighting Fuel by County and District” and “Household Source of Cooking Fuel by County and District” provide an overview of the current sources of energy for lighting and cooking respectively by county and districts.

Table 2: Number of Households by Fuel type for Lighting and Cooking in Kenya (KNBS, 2009)

Household Source of Lighting Fuel Household Source of Cooking Fuel (Kenya Total) (Kenya Total) Source of No. of % of Total Source of No. of % of Total Energy Households Households Energy Households Households Electricity 1,989,730 22.69 Electricity 70,433 0.80 Pressure Lamp 52,240 0.60 Paraffin 1,014,446 11.57 Lantern 2,670,397 30.46 LPG 43,8381 5.00 Tin Lamp 3,373,126 38.47 Biogas 63,356 0.72 Gas Lamp 84,375 0.96 Firewood 5,666,216 64.62 Fuel Wood 396,062 4.52 Charcoal 1,483,901 16.92 Solar 142,273 1.62 Solar 4,469 0.05 Others 59,751 0.68 Others 26,752 0.31 Total 8,767,954 100.00 Total 8,767,954 100.00

As can be inferred from the data, 70 per cent of the households use fossil- fuel- based lamps (kerosene, paraffin etc.) as the primary source of lighting and more than 80 per cent of the households in Kenya are dependent on either firewood or charcoal as the primary source of cooking fuel. Therefore, the baseline for this NAMA assumes a continuation of the situation should the interventions fail to occur.

5.2.2 Identified Approach for Determining GHG Emission Reduction

The GHG emission reduction achieved by the NAMA intervention will be determined as the difference between the baseline emissions and the NAMA intervention emissions. As the basis for the calculation the following approved small-scale Clean Development Mechanism (CDM) methodologies have been reviewed:

■ Solar PV power plants at EPZs: CDM Methodology AMS-I.A: Electricity generation by the user

■ Solar PV lanterns: CDM Methodology AMS-III.AR: Substituting based lighting with LED/CFL lighting systems 38 NAMA BASELINE INFORMATION

■ ICS: CDM Methodology AMS-II.G: Energy efficiency measures in thermal applications of non-renewable biomass

The approaches presented in the methodologies have been simplified where appropriate to accommodate the overall objectives and requirements of the NAMA.

Baseline for Solar PV Power Plant:

The CDM Methodology AMS-I.A. is applicable for measures related to providing power from renewable energy sources to individual households and users who had no national or regional grid connection before the project. In fact AMS I.A. is applicable for a broad range of technologies including solar, hydro, wind, biomass gasification and other technologies that produce electricity, all of which is used on-site/locally by the user, e.g. solar home systems, wind battery chargers. Based on the methodology, the baseline emissions are calculated as power consumption multiplied by an emission factor (tCO2e/MWh). For the emission factor, a default value of 0.8 tCO2e/MWh, which is derived from diesel generation units, is used.

Baseline Scenario for Solar PV Lanterns:

The baseline scenario of this Project is foreseen as the use of kerosene lamps to supply light in the absence of the project activity. Therefore, the baseline emission level is the amount of greenhouse gas emitted from kerosene lamps when lighting source displaced by solar energy. The methodology AMS III.A.R provides guiding principles which are well-suited for PV-based LED lighting projects and reducing the time and cost of qualifying a project and documenting the carbon savings, while requiring performance disclosure and embedding new criterion for minimum product quality while rewarding those products that exceed these minimums. In most cases, independent testing is required in order to demonstrate performance. Based on the minimum performance criteria specified in the new approved methodology, the estimated savings would be appropriately modest: 0.16 tonnes of CO2 per lamp (over a 2-year deemed service life).

Baseline Scenario for Improved Cookstoves:

Between 1990 and 2005, Kenya lost roughly 12,050 hectares of forest cover per year. This translates into a rate of deforestation of 0.32 per cent per year. Of the wood used in 2005, 100 per cent came from forests. The wood was used either as industrial wood or as fuel. In 2005, 1.6 million m3 was harvested for industrial wood and 27.4 million m3 was used as fuelwood. In summary 94 per cent of wood removal in 2005 was to be used as fuel and all of it came from forests. Since forest cover has been decreasing steadily since 1990 it can be concluded that non-renewable biomass has been used in Kenya since 1989 and is the baseline scenario in line with methodology AMS II.G.

Summary:

From the analysis of the 3 CDM methodologies, the baseline scenario for the three technical interventions under the NAMA are as follows:

■ Solar PV power plant in EPZs: Diesel generator systems

■ Solar PV based lanterns: Use of fossil fuel (i.e. kerosene)

■ Improved Cookstoves (ICS): Use of less efficient stoves burning non-renewable biomass/charcoal NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA BASELINE INFORMATION THROUGH INNOVATIVE MARKET BASED SOLUTIONS 39

5.3 Sustainable Development Baseline

5.3.1 Kenya Status – MDG

Having incorporated the Millennium Development Goals (MDGs) into Vision 2030, Kenya was better prepared than many African countries to implement the MDGs and make a seamless transition into the post- 2015 era. Data from the Millennium Development Goals - Status Report 2013by the Ministry of Devolution and Planning are summarized in the table below for some of the key indicators:

Table 3: Kenya MDG Progress Snapshot (MoDP, 2013)

MDG Goal Target 2015 Target 2009 Comment Value

Goal 1 Halve the population below 21.7% 45.2% Progress has been poverty line (in the period difficult 1990-2015) Poverty Gap Ratio 9.6% 12.2% Marked improvement between 2005 and 2009 Goal 2 Net enrolment in primary 100% 96% Significant progress education Literacy rates (15-24 age group) 100% 80.3% Significant progress from 58% in 2005 Goal 3 Ratio of girls to boys in primary 1 0.98 Gender parity has been historically high Share of women in non- 50% 35.9% Steady progress from agricultural wage employment 29.5% in 2000 Goal 4 Child mortality under 5 32/1000 74/1000 While mortality rates have declined since Infant mortality 22/1000 52/1000 1990s, there remain several challenges Goal 5 Maternal mortality 147/1000 488/1000 The figures remain high and have not fallen significantly from 590 in 2000 Proportion of births attended 90% 46% Minimal progress by skilled health personnel Goal 6 Proportion of population with 80% 42.5% Inconsistent progress (2013) from 3% in 2003 rising advanced HIV infection with up 78% in 2009 and access to antiretroviral drugs dropping to 42.5% in 2013 40 NAMA BASELINE INFORMATION

MDG Goal Target 2015 Target 2009 Comment Value

Goal 7 Proportion of land area covered 10% 6.4% Steady increase from 6% by forest in 2000 to 7% in 2013 Proportion of population using 78% 52.6% Insufficient progress an

improved drinking Water source Proportion of population using 77% 61.1% Insufficient progress an

improved sanitation facility Goal 8 Proportion of total country 100% 98.6% Significant success imports to Kenya admitted duty free

While significant progress has been made on Goals 2 and 3 on education and women’s empowerment, infant and maternal mortality ratios remain high. The forest cover in Kenya has shown an upward trend but there has been a lack of sufficient progress on access to safe drinking water and sanitation, indicating that Kenya has been successful in achieving certain targets while progress on others has been slow. The NAMA has the potential to contribute to several of the MDG targets under the new post 2015 SDG indicators as summarized by the SD Tool below.

5.3.2 The SD Tool

The Sustainable Development (SD) indicators were selected based on the Sustainable Development Evaluation Tool (SD Tool) provided by UNDP. The SD Tool defines 5 different SD domains: (UNDP_SDT, 2014)

■ Environment

■ Social

■ Growth and Development

■ Economic

■ Institutional

The tool requires for each of the interventions that it be decided which indicator (such as air pollution, job creation, health, etc.) is selected, the potential impact be identified, an explanation on the chosen indicator be added, the effect (positive, negative, both) be defined and that it be indicated whether monitoring NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA BASELINE INFORMATION THROUGH INNOVATIVE MARKET BASED SOLUTIONS 41

is done. The NAMA interventions will contribute to improvement of various sustainable development indicators as shown in the table below:

Table 4: The SD Tool and the indicators relevant to the NAMA

Domain Indicator Measured under NAMA Contribution (Yes/No) to specific SDG and targets

Air pollution/quality No Water pollution/quality No Soil pollution/quality No Others (Noise/visibility) No

Environment Biodiversity and Ecosystem balance No Climate change adaptation and Yes—GHG Emission Reduction Goal 13 mitigation Health No Livelihood of poor, poverty Yes Goal 1.4 alleviation, peace Total no. of ICS/PV lanterns distributed to the ‘poorest of poor’ Affordability of electricity No Access to sanitation and clean No drinking water

Social Food security (Access to land and No sustainable agriculture) Quality of employment Yes Goal 8.3

Total no. of EPZs established through loans/grants etc. Time savings/time availability due to No project No child labour No 42 NAMA BASELINE INFORMATION

Domain Indicator Measured under NAMA Contribution (Yes/No) to specific SDG and targets

Access to clean and sustainable Yes Goal 7.1 energy Total no. of lanterns / ICS distributed Education No Empowerment of women Yes Goal 5.5

Total no. of women employed Access to sustainable technology Yes Goal 9.5a

Total capacity of Solar PV power plant installed Energy security No

Growth and Development Growth Capacity development Yes Goal 4.4

Total no. of training and capacity development programmes Equality (quality of jobs given, job No conditions for men/women)

Income generation/expenditure No reduction/balance of payments Asset accumulation and investments Yes Goal 9.3

Total no. of enterprises by type of EPZ Model (i.e. manufacturing, distribution etc.) Economic Job Creation (number of men and Yes Goal 8.3 women employed) Total no. of new employment created through EPZs Policy and planning Yes Goal 16.6

NAMA Coordinating and implementing entities mandated for NAMA Laws and regulation Yes Goals 17.1 Institutional Total grants/loans and country contribution for the NAMA NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA BASELINE INFORMATION THROUGH INNOVATIVE MARKET BASED SOLUTIONS 43

5.4 NAMA Target

Note: This section must be read in conjunction with Chapter 7 on Technical Interventions.

While the NAMA supports Kenya’s various policy targets on improving access to energy, increasing private sector involvement and capacity development, the specific NAMA targets need to be set in a way that they can be aligned to specific SD indicators from the SD Tool. The NAMA targets (values) are defined in the table below:

Table 5: NAMA targets for various indicators as shortlisted using the SD Tool

Domain Parameters Baseline Target Value Value (estimated ex-ante) Environment GHG Emission Reduction Refer to 6.17 million tCO2e Potential 11.1 Social Total no. of clean energy 0 200,000 PV lanterns and 200,000 technology units distributed to ICS (estimated at 20% of total units) the “poorest of poor” Total no. of EPZs established 0 8 large EPZs (EPZ-L) and 20 small EPZs (EPZ-S) Growth and Total no. of clean energy units 1,000,000 PV lanterns and 1,000,000 Development distributed (all categories) ICS Total no. of women employed 0 200 (refer total no. of new jobs below) (at 50% of total no. of people employed) Total capacity of solar PV 0 500 kWp (50 kWp x 8 EPZ-L and 5 power plant installed kWp x 20 EPZ-S) Total no. of training 0 16 per annum (2 training programmess programmes/year per EPZ-L for Interventions 1&2 respectively) Economic Total no. of new enterprises 0 64 new enterprises established (8 enterprises – EPZ-L Model 1, 20 enterprsises – EPZ-S Model 1, 8 enterprises – EPZ Model 2 and 28 enterprises – EPZ Model 3) Total no. of new jobs/ 0 400 new jobs created employment created (10 x 8 enterprises – EPZ-Model 1, 5. X 20 enterprises – EPZ Model 1, 10. x 8 enterprises – EPZ Model 2 and, 5. x 28 enterprises – EPZ Model 3) 44 NAMA BASELINE INFORMATION

Domain Parameters Baseline Target Value Value (estimated ex-ante) Institutional NAMA institutions established 0 NAMA Coordinating and implementing entity including MRV Cell established and operationalized Loans/grants distributed 0 US$ 13.26 Mio

5.5 Alignment with the INDC

Kenya, like other developing economies of Sub-Saharan Africa, bears the brunt of climate change impacts and the associated socio-economic losses. As a signatory to the UNFCCC process, Kenya submitted the country’s Intended Nationally Determined Contribution (INDC) before the COP 21 meeting in Paris. Kenya’s INDC includes both mitigation and adaptation components based on national circumstances. In the case of mitigation, the INDC states:

“Kenya seeks to undertake an ambitious mitigation contribution towards the 2015 Agreement. Kenya therefore seeks to abate its GHG emissions by 30% by 2030 relative to the BAU scenario of 143 MtCO2eq in line with its sustainable development agenda. This is also subject to international support in the form of finance, investment, technology development and transfer, and capacity development.” (GoK_INDC, 2015) p.2.

The proposed emission reduction under this NAMA proposal of approximately 6 million tCO2e will therefore contribute towards the stated abatement target of 30 per cent. The NAMA proposal also explicitly notes the required support in the form of finance, technology, and capacity development. Among the specific activities and programmes listed under mitigation, the Clean Energy NAMA directly contributes to the priorities, listed in Table 6.

Table 6: Relevance of the NAMA to stated mitigation priorities in Kenya’s INDC

Stated priority in INDC Relevance of the Clean Energy NAMA Expansion in geothermal, solar and wind energy The NAMA directly contributes to the promotion production, other renewables and clean energy of renewable/clean energy, namely solar PV and options biomass Enhancement of energy and resource efficiency The NAMA directly contributes to improving energy across the different sectors and resource efficiency as it promotes PV and ICS which reduce dependency on baseline fuels such as kerosene and woody biomass Progress towards achieving a tree cover of at Use of ICS can directly contribute to reducing least 10% of the land area of Kenya deforestation as less charcoal and wood fuels is used for cooking Clean energy technologies to reduce As stated above, use of ICS reduces the overreliance overreliance on wood fuels on wood fuels NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA BASELINE INFORMATION THROUGH INNOVATIVE MARKET BASED SOLUTIONS 45

In addition, the INDC notes that Kenya does not rule out the use of international market-based mechanisms in line with agreed accounting rules. The MRV system proposed under this NAMA therefore will be transparent and available for international inspection as appropriate.

5.6 Alignment with Sustainable Development Goals

The Government of Kenya’s overriding objective is give all its citizens the opportunity to live a quality life within a clean and secure environment as envisaged in the country’s primary development blueprint, the . In pursuit of this objective, the Government had placed great emphasis on achieving the Millennium Development Goals (MDGs) as a framework for attaining balanced socio-economic development. As the MDG concluded in 2015 and were replaced by the Sustainable Development Goals (SDGs), the NAMA will contribute to the national targets for the revised SDG parameters and Vision 2030 in establishing Kenya as an industrializing, middle-income country, with the capacity to provide a high quality of life to all its citizens.

The table below provides an indicative list of SDG targets, in line with the SD Tool (Section 6.3.2) that will be positively affected by the SD benefits resulting from the NAMA.

Table 7: Direct SD benefits from the NAMA in the context of SDGs

SDG Goals/ Indicator Brief Description of Potential Impact through the SDG Indicator NAMA SD Benefits 13 Emission reduction through NAMAs are mitigation actions and the mitigation directly contribute to technical interventions will lead to climate change under Goal 13 emission reduction, thus contribute to positive climate action. 1.4 Ensure poor have access to In making clean energy technologies services and new technology available to the “poorest of poor”, the NAMA ensures access to basic services and new technology to all sections of society, particularly the rural poor of Kenya. 8.3 Growth of SMEs including access An enabling environment for to finance manufacturing and distribution under the NAMA is created through setting up of EPZs, which are provided with finance in the form of loans and grants. 7.1 Universal access to affordable, The distribution of 2 million clean reliable and modern energy energy technology units, namely PV services lanterns for lighting and ICS for cooking helps to bring universal access to affordable, reliable and modern energy services to rural households. 46 NAMA BASELINE INFORMATION

SDG Goals/ Indicator Brief Description of Potential Impact through the SDG Indicator NAMA SD Benefits 5.5 Ensure equal opportunities and The EPZ business models allow the participation of women creation of local employment and the NAMA aims to ensure that 50% of the new jobs will be for women. 9.5a Facilitate SD infrastructure By creating an environment for setting development through enhanced up 500 kWp of solar PV power plant on financial, technological and EPZs supported through grant finance, technical support to African the NAMA directly contributes to setting countries up SD infrastructure in Kenya. 4.4 Increase skills of youth and By creating new employment and adults for employment and training of workers and staff to entrepreneurship undertake skilled jobs (e.g. assembly of lanterns, manufacturing of ICS), the NAMA directly contributes to new employment but also entrepreneurship (e.g. repair and after sales services). 9.3 Increase small scale enterprises The 28 EPZs will contain several including access to finance and individual micro- and small- scale integration to value chain and enterprises that will be supported markets through loans and the entire NAMA supports the creation of an enabling market environment across the value chain, from manufacturing, distribution, marketing and after sales for clean energy technologies. 8.3 Promote job creation The 28 EPZs along with small-l scale enterprises will directly promote job creation while supporting several indirect jobs. Moreover, the jobs will be created across several location of the country, increasing the outreach of the resulting socio-economic benefits across Kenya. 16.6 Develop effective, accountable and The NAMA will directly contribute to transparent institutions at all levels the objectives of the National Energy Policy, objectives and targets by supporting the creation of a NCA and NIE with adequate training and capacity development. 17.1 Strengthen resource mobilization The NAMA Finance elaborates not including international support only the country contribution, but also recommendations for international donor contribution in the form of loans and grants. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA BASELINE INFORMATION THROUGH INNOVATIVE MARKET BASED SOLUTIONS 47 48 NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL

NAMA INTERVENTION— 6 PRIVATE SECTOR-ENABLED BUSINESS MODEL

This chapter focuses on the key “building block” of the NAMA, namely the proposed “technical interventions” that will ultimately lead to scaled up emission reduction, sector transformation by bringing about access to energy and an increased level of sustainable development among communities within Kenya. The interventions proposed under the NAMA are directly aligned to the objectives of the NAMA stated in Section 2.4. The two objectives result in two distinct physical interventions:

■ Intervention 1: Establish 28 Energy Productivity Zones’ in Kenya with their own PV- based electricity power plant.

■ Intervention 2: Distribute Clean Energy Technologies, enabled through consumer finance.

Physical Outcomes:

The technical interventions of the NAMA that will result in real and measureable outcomes that will lead to scaled up emission reduction are quantified below:

■ Intervention 1 - Outcome 1: 28 of EPZs established in Kenya and operationalized

■ Intervention 1 - Outcome 2: 500 kWp of Solar PV based power plant implemented

■ Intervention 2 – Outcome 1: 1 million PV lanterns distributed (NAMA life span)

■ Intervention 2 – Outcome 2: 1 million ICS distributed (NAMA life span)

6.1 Energy Productivity Zones (EPZs)­—The Change Agent

The objectives of the NAMA will be met by setting up a network of Energy Productivity Zones (EPZs) across Kenya. EPZs embody holistic approach to tackling several challenges under a NAMA. The concept of EPZs is not entirely new; they already exist in Kenya in the form of ‘Energy Centers’. The idea of establishing NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL THROUGH INNOVATIVE MARKET BASED SOLUTIONS 49

Energy Centers is taken a step further by stimulating an environment that allows for the manufacturing and distribution of clean energy technologies.

The EPZ model simultaneously looks into the issues of access to an assured supply of clean energy, socio-economic development of local communities and a business model that is sustainable and can attract finance. The model recognizes that the solution to lifting communities out of poverty is access to sustainable modern electricity services, but that the same communities often do not possess the income streams to pay for the often high cost of electricity.

In creating an income generating opportunity the EPZs will have a positive impact on the livelihoods of people directly/indirectly employed in manufacturing of clean energy technologies and EPZs but also the community at large. As incomes rise, there will be an improvement in the standards of education, healthcare and sanitation levels of the local communities.

6.2 Intervention 1: Establish 28 EPZs in Kenya with their own PV Power Plant

Objective 1 calls for enabling the private sector to participate in the manufacturing and distribution of the clean energy technologies in Kenya. This will be done by setting up 28 Energy Productivity Zones (EPZs) across Kenya.

The EPZ is the physical intervention and consists of several elements including work spaces, an energy supply (see below) and supporting services and infrastructure. These elements of the EPZ are intended to be permanent structures designed and built using local materials, local manpower with consideration for the local climate to keep the capital investments affordable and low in maintenance.

■ Work Spaces: Consisting of well-lit and well-ventilated group of buildings, the work spaces consist of areas for manufacturing, storage and office spaces designed for businesses and private sector enterprises to undertake gainful income generation activity. When fully realized, the work areas will support a broad variety of economic activities through micro, small- and medium- scale enterprises that can support and be supported by the local economy.

■ Energy Supply: To enable the physical activities to take place, every EPZ will be provided with an assured supply of electricity, typically through a solar PV- based power plant consisting of solar modules, inverters, battery banks and a mini grid that connects the power supply to the individual work spaces. The final design of the solar power plant may be a hybrid solution combined with grid supply or diesel generators or other small renewable energy solutions (e.g. pico-hydro, small wind etc.), but for the purpose of this NAMA it is intended to be a stand-alone PV- based power solution to ensure that the design is universally applicable across Kenya.

■ Supporting services and Infrastructure: There are supporting services and infrastructure required to ensure the overall success of the EPZ and the NAMA. These will include:

—— Facilities for training, capacity development and raising awareness;

—— Shops or stores for the actual sale of goods and services;

—— IT infrastructure and facilities for data collection and recording (e.g. NAMA MRV)

—— Office spaces for supporting activities (e.g. microfinance institutions). 50 NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL

Manufacturing and Distribution Facility:

The purpose of the EPZs is to encourage the private sector to participate in the manufacturing and distribution of clean energy technologies proposed under the NAMA.

■ Manufacturing Facilities: The EPZs, with work spaces, energy and supporting services will allow private sector actors (e.g. existing cookstove manufacturers, businesses, cooperatives etc.) to establish manufacturing and/or assembly facilities for clean energy technologies under the EPZ. It must be noted, however, that only eight of the 28 EPZs are intended to have manufacturing facilities.

■ Distribution facilities: All EPZs are expected to act in a manner similar to Energy Centers and be involved with the distribution and retail of the clean energy technologies across Kenya. The private sector actors involved with manufacturing may choose also to own the distribution facilities in the same EPZ and/or may choose to set-up distribution points in other EPZs. This is expected to encourage private sector actors pro-actively to promote clean energy technologies and create a competitive business environment.

6.2.1 Intervention 1—Outcome 1: 28 of EPZs Established

The NAMA recognizes that a “one size fits all” approach may not be the most appropriate one given the wide socio-economic differences in Kenya and it is proposed to establish 2 categories of EPZs, namely large (L), and small (S). Of the 28 EPZs, the following distribution has been considered under the NAMA:

■ Eight large EPZs: EPZ-L.

■ Twenty small EPZs: EPZ-S.

The reason for categorizing EPZs is to ensure that the design and scope are well placed to meet the local conditions where the EPZ is located. While the actual locations and number of EPZs will be determined by a Implementation Plan (see Capacity development Measure - Implementation Plan), this document provides the potential locations based on the concept of “catchment area”, i.e. the potential population that an EPZ can service. The Implementation Plan will spell out “Eligibility Criteria” for each type of EPZ, including the minimum requirements that need to be met by the private sector actors investing in the business models and the EPZs. The table below provides indicative eligibility criteria for EPZs assumed under the NAMA:

Table 8: Comparison between the two types of EPZs defined under the NAMA

EPZ-L EPZ-S Catchment area (e.g. population of the town) Greater than 200,000 Less than 200,000 No. of EPZs (total 28) 8 20 Manufacturing Facility (8.) Yes No Distribution hub (28.) Yes Yes PV Power Plant (per EPZ) 50kWp 5kWp NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL THROUGH INNOVATIVE MARKET BASED SOLUTIONS 51

EPZ-L EPZ-S MRV point for data collection Yes No Internet enabled IT facility Yes Yes Training facility (e.g. A/V equipment) Yes No Finance (e.g. office for micro-finance) Yes No

6.2.2 Intervention 1—Outcome 2: 500 kWp of Solar PV-based power plant implemented

To encourage the private sector to invest in the EPZ, the NAMA proposes to provide every EPZ with a PV- based power plant so that it is self-sufficient in its energy requirements. While the exact technical specifications (e.g. standalone PV plant or a hybrid system with grid supply or diesel generator) and capacity of the PV power plant will be determined under the ‘Implementation Plan’ and the power requirements of the various income generating activities, for the purpose of this NAMA, the PV Power Plants are assumed to be standalone PV power plant consisting of modules, battery banks, electronics of the following capacities:

■ EPZ-L – 50 kWp for each of 8 EPZs (total: 400 kWp)

■ EPZ-S – 5kWp for each of the 20 EPZs (total 100 kWp)

Total PV power plant capacity: 500 kWp

6.3 Intervention 2: Distribute Clean Energy Technologies enabled through consumer finance

To tackle the challenge of lighting and cooking in rural communities, Kenya is currently promoting the use of solar PV technology based lanterns (PV lanterns) and improved cookstoves (ICS). However, the current efforts are limited in terms of scale and outreach due to several practical challenges, and the NAMA will facilitate the distribution of the following technologies through appropriate financing schemes:

Table 9: Two technology product categories for two distinct sets of end consumers

Product Category Target Consumers Distribution Model Basic PV Lantern The “poorest of the poor” Distributed under a grant based model under sections of the society Public Procurement Scheme General PV Lantern All sections of the rural Distributed through the Consumer Finance society model Basic ICS The “poorest of the poor” Distributed under a grant based model under sections of society ‘Public Procurement Scheme General ICS All sections of the rural Distributed through the Consumer Finance society model 52 NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL

For the purpose of the NAMA two types of product categories are considered:

Basic Product Category for PV lantern and ICS:

These are intended to be a cost effective solution procured by the government directly from manufacturers or distributors under a public procurement scheme and distributed to the “poorest of the poor” sections of the society under a grant based model.

While the basic product makes access to energy accessible to the economically weakest members of society in Kenya, the public procurement scheme will help kick-start the manufacturing and distribution activities thanks to assured uptake of clean energy technologies. This will be crucial to the success of the EPZ model during the initial years of NAMA implementation.

General Product Category Models of PV Lanterns and ICS:

These are general category products that will be made available to all sections of the society through an appropriate financing scheme. While several product models for each of the two technologies can be manufactured and distributed, the NAMA uses a single model / single price approach for the purpose of simplification.

Rationale for two Product Categories

There are certain advantages/disadvantages in pursuing two strategies with the models. Kenya can choose to wither have a single model for both categories with different pricing (Strategy 1) or have two distinct models for both product categories (Strategy 2).

The advantage of Strategy 1 is lower production costs due to mass production and no difference in the product offered to all sections of the society including the poorest. The challenge however is to prevent the ‘basic’ models made available almost free of cost to the poorest of poor from being re-sold at market price to the general population. This can be partly resolved through Strategy 2 where distinct colours, specifications etc. can ensure a distinction between the two models, making it easier to track any potential mis-management of the supply chain.

Table 10: Schematic representation of suggested approach (images used are for representation purpose only)

Suggested Strategy 1 Suggested Strategy 2

Single model for entire group of end-consumers Multiple models with varying features reflected but differential pricing in differential pricing NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL THROUGH INNOVATIVE MARKET BASED SOLUTIONS 53

6.3.1 Intervention 2—Outcome 1: 1 million PV lanterns distributed

Solar PV Lantern Technology:

A typical solar lantern consists of light-emitting diodes (LEDs), a PV panel and a rechargeable battery, encased in a durable plastic shell. A standardized product that can be sold off the shelf, the solar lanterns can offer 3-4 hours/day of run-time (i.e. the number of hours the lamp is operational on a full day charge). Solar powered lanterns are poised to improve incomes, educational attainment and health across the developing world. As solar lanterns would typically replace kerosene based lighting solutions, they bring in train significant socio- economic benefits from reduced exposure to fumes, recurring fuel costs and improved illumination.

Under the proposed distribution scheme of the NAMA, 1 million solar PV lanterns (Basic plus General Models as elaborated under ‘Strategy 2’ above) will be distributed over the life span of the NAMA Table 11 below provides indicative numbers of units of PV lanterns manufactured across the 8 large EPZs. It is assumed that all 28 EPZs will procure a minimum number of units annually for further distribution through the ‘end- consumer financing model’ (refer Section 10.3.2 on Revolving Loan Fund for more information).

Table 11: Indicative number of units of PV lanterns manufactured across the lifespan of NAMA

EPZ-1 EPZ-2 EPZ-3 EPZ-4 EPZ-5 EPZ-6 EPZ-7 EPZ-8 2017 2018 5,000 5,000 2019 5,000 5,000 2020 10,000 10,000 5,000 5,000 5,000 5,000 2021 10,000 10,000 5,000 5,000 5,000 5,000 2022 10,000 10,000 10,000 10,000 10,000 10,000 5,000 5,000 2023 20,000 20,000 10,000 10,000 10,000 10,000 5,000 5,000 54 NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL

EPZ-1 EPZ-2 EPZ-3 EPZ-4 EPZ-5 EPZ-6 EPZ-7 EPZ-8 2024 20,000 20,000 10,000 10,000 10,000 10,000 10,000 10,000 2025 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 2026 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 2027 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 2028 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Total 160,000 160,000 120,000 120,000 120,000 120,000 100,000 100,000

■ 200,000 Basic model of Solar PV lanterns distributed (through public procurement)

■ 800,000 General models of Solar PV lanterns distributed (through consumer finance)

Total PV lanterns distributed: 1 million units. (2017-2018)

6.3.2 Intervention 2—Outcome 2: 1 million ICS distributed

Improved Cookstove Technology:

Improved cookstoves (ICSs) are wood fuel based cooking solutions that use a significantly lower quantity of fuel (wood or charcoal) than traditional cookstoves (e.g. traditional three stone or open fire cooking arrangements). There are several improved cookstoves programmes in the developing world. The largest global programme is the Global Alliance for Clean Cookstoves with a target of reaching 100 million households by 2020. Currently, the interest in ICSs focuses on the “triple benefits” they provide: in improved health and time saved for households, in preserving forests and associated ecosystem services, and in reducing emissions that contribute to global climate change. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL THROUGH INNOVATIVE MARKET BASED SOLUTIONS 55

Under the proposed distribution scheme of the NAMA, 1 million ICS (Basic + General) shall be distributed over the life span of the NAMA. The Table 12 below provides indicative numbers of units of ICS to be manufactured across the 8 large EPZs. It is assumed that all 28 EPZs will procure a minimum number of units annually for further distribution through the end consumer financing model.

Table 12: Indicative number of units of ICS `manufactured across the life span of NAMA

EPZ-1 EPZ-2 EPZ-3 EPZ-4 EPZ-5 EPZ-6 EPZ-7 EPZ-8 2017 2018 5,000 5,000 2019 5,000 5,000 2020 10,000 10,000 5,000 5,000 5,000 5,000 2021 10,000 10,000 5,000 5,000 5,000 5,000 2022 10,000 10,000 10,000 10,000 10,000 10,000 5,000 5,000 2023 20,000 20,000 10,000 10,000 10,000 10,000 5,000 5,000 2024 20,000 20,000 10,000 10,000 10,000 10,000 10,000 10,000 2025 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 2026 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 2027 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 2028 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Total 160,000 160,000 120,000 120,000 120,000 120,000 100,000 100,000

■ 200,000 Basic model of ICS distributed (through Public Procurement)

■ 800,000 General models of ICS distributed (through consumer finance)

Note: Table 11 and 12 are identical as the number of PV lanterns and ICS units are the same.

Total PV ICS distributed: 1 million units. (2017-2018)

6.3 Eligibility Criteria - Private Sector Engagement

The NAMA aims to stimulate transformation for the household energy sector by creating an enabling environment for private sector entities to participate in the proposed interventions. To maximize the social, economic and environmental impact of every dollar invested and create the required momentum for entrepreneurs to participate in creating a market- driven” EPZ sustainable business model”, the NAMA places no restriction on the type of participants and is open to all, including the following:

■ Existing private sector entities in Kenya involved in the manufacture and distribution of renewable energy and clean cooking solutions, including PV lanterns and improved cookstoves.

■ Future players and businesses can be both national and international stakeholders willing and capable of participating in the NAMA. 56 NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL

■ Local communities/cooperatives who may register with the appropriate government authorities to participate in the NAMA.

The term “private sector entity or participant” is used to refer to various types of organization that will be invited to participate in the NAMA. While there is no restriction on the type of private sector participants, the Government of Kenya (GoK) will establish a set of eligibility criteria to ensure that interested private sector participants have the minimum level of operating capacity (e.g. financial strength, manpower, knowledge base etc.) required to undertake the activities under the business model and ensure the overall success of the NAMA. A proposed idea is to develop a scoring system, based on the following:

Technical Capacity: The entity must exhibit a certain level of competence with regards to availability (or access to) skilled work force and knowhow. The criteria can ensure that participants bidding for a certain type of activity (e.g. manufacturing or distribution) have specified skills and technical or market knowledge (e.g. entities interested in assembling PV lanterns may be required to have existing skills, such as soldering of electrical circuit boards).

Financial Capacity: Private sector entities must exhibit a minimum level of financial readiness to undertake the interventions. This can be crucial in accessing financing (e.g. bank loans) and a differentiated scoring system can ensure that various categories of entities can participate. For example, the equity contribution of existing players can be different from that of new entities, to reflect the higher risks associated with the later. (E.g. the scoring can be structured in a manner that the equity contribution for existing/ experienced entities can be set at 20 per cent while making it higher for new participants to make up for their relative lack of experience).

SD Benefits: Additional points can be made available to entities that exhibit greater potential for sustainable development (e.g. entities involved with youth/women empowerment). The eligibility criteria can ensure that an interested participant brings a certain type of value addition that can strengthen the delivery of sustainable development benefits under the NAMA.

6.4 Driving Interventions through Business Models

The EPZ model represents a holistic approach to tackling several challenges under a NAMA and simultaneously addresses three interconnected issues that will collectively contribute to the overall success of the two interventions, namely:

■ Access to an assured supply of clean energy technology;

■ Socio-economic development of local communities; and

■ A business model that is sustainable and attractive to finance.

The model recognizes that the solution to lifting communities out of poverty is access to sustainable modern electricity services, but that the same communities often do not possess the income streams required to pay for the relatively high cost of electricity. In creating, an income generating opportunity the EPZs will have a positive impact on the livelihoods of people directly or indirectly employed in the manufacture of clean energy technologies and in the EPZs, but also on the community at large. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL THROUGH INNOVATIVE MARKET BASED SOLUTIONS 57

The process for approval for private sector entities must recognize three distinct types of participation in the commercial activities or business models under the NAMA:

■ EPZ Business Model 1: Participation in the physical infrastructure related to the EPZ;

■ EPZ Business Model 2: Participation in the manufacture of clean energy technologies;

■ EPZ Business Model 3: Participation in the distribution of clean energy technologies.

While a single private sector entity can participate in all of the three business models, this NAMA document elaborates the models separately, as the activities and capabilities required to build, own and operate each is distinct, as are the revenue streams. The impact of business Models 1 and 2 relate to Intervention 1, while Business Model 2 and 3 relates to Intervention 2, as further elaborated below.

EPZ Business Model 1—Participation in EPZ Infrastructure and Services

The first category of business model focusses on entities that will participate in establishing the physical infrastructure including the solar PV power plant and associated services (i.e. construction of the EPZ infrastructure, workspaces, installation, operation and maintenance of the solar PV power plant, purchase of land for construction, etc.). The participant will generate income by renting out workspaces to other entities in the EPZ, (e.g. the manufacturer and distributor of clean technologies) and by engaging in other income generating activities (e.g. renting out spaces to other entities) and by charging consumers for the electricity consumed. By ensuring income generation from sale of electricity, the EPZ model ensures the safety (against potential thefts), upkeep and maintenance of the solar PV power plant.

EPZ Business Model 2—Participation in Manufacturing Activities

The second category of business model focusses on entities that will participate in the manufacturing of the clean energy technologies (1 million PV lanterns and 1 million ICS) in the designated large EPZs. The participants will be responsible for procurement of the technical equipment and machinery, and to manufacture the required number of units as per established quality standards and procedures, employing and training staff, renting workspaces in the EPZ to undertake the activity and paying for the electricity consumed. In ensuring the later (i.e. using and paying for electricity from solar PV power plants), the manufacturers will ensure that the power plants are designed for a defined capacity, operated and maintained, making it attractive for other entities to participate in the EPZ model. The participant will generate income by bulk sale of the finished goods (i.e. PV lanterns and ICS) to distributors and to the government under a public procurement scheme (i.e. the basic models.

EPZ Business Model 3—Participation in Distribution / Retail and After Sales

The last category of business model focusses on entities that will participate in the distribution and in providing after sales service of the clean energy technologies (1 million PV lanterns + 1 million ICS) to end- consumers, engaging with financial institutions to make finance available and participating in the MRV process as appropriate. It is in the distributor’s interest to undertake marketing, participating in road shows and raising awareness of the clean energy technologies, consumer finance and the benefits of the NAMA in general. The participant will generate income by selling individual units to end-consumers (by direct sale or through consumer loans). As the point-of-sale, the distributors are also ideally placed to negotiate attractive 58 NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL

consumer financing schemes with local financial institutions, maintain a record of sales (for commercial purposes) which in turn can benefit the MRV data collection process and provide after sales as a means to boost brand value—thereby strengthening the interventions.

Developing an Inclusive Business Model through Social Impact Investing

Inclusive businesses integrate people with low-incomes into their value chains as consumers, employees, producers or retailers. The organizations behind such business models range from small enterprises to multinational corporations and originate from both industrialized and developing countries. Private sector entities venturing into inclusive businesses mainly target startups and small-to medium-sized enterprises.

Impact investing combines the advantages of large corporations and inclusive businesses, and thus reduces some of the potential risks and weakness. The term “impact investing” has gained popularity in recent times to refer businesses generating financial, strategic, social and environmental returns. Corporations participating in social impact investing benefits from the resulting reputational benefits (e.g. Corporate Social Responsibility or CSR) and gain a foothold in a new market. Inclusive business enterprises benefit from reduced risks, opportunities for scale, the ability to attract additional financing, gain business experience and perspective from a large corporation and advance their sustainable development impacts. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA INTERVENTION—PRIVATE SECTOR-ENABLED BUSINESS MODEL THROUGH INNOVATIVE MARKET BASED SOLUTIONS 59

Figure 6, below provides a schematic overview of the inter-relationship between the various interventions, outcomes and the business models as discussed in this chapter.

Figure 4: Overview of the objectives, interventions and outcomes of the NAMA 60 CAPACITY DEVELOPMENT

7 CAPACITY DEVELOPMENT

This chapter focuses on the key capacity development activities that are proposed under the NAMA. The approach in developing capacity development measures is the process through which individuals, organizations and societies obtain, strengthen and maintain the capabilities to set and achieve the expected development objectives over time. To ensure that capacity development is undertaken across the various categories, the capacity development measures are categorized into systemic, institutional and individual levels, defined as below:

■ Capacity development at the systemic level is the broad enabling environment within which the individuals and institutions function and this includes all the national/sectoral policies, comprehensive studies, rules and regulations that are required for the proposed activities under the NAMA to take place.

■ Capacity development at the institutional level refers to strengthening of internal structures, procedures and internal policies that will determine the effectiveness of an organization. The institutions considered under this chapter are the NAMA coordinating authority (NCA) and NAMA implementing entity (NIE).

■ Capacity development at the individual level addresses the skills, experience and knowledge that will be required by individual members of the participating stakeholders (e.g. private sector participants), either acquired formally through education and training or informally through practice and observation.

These kinds of capacity development are expected to bring about the expected sector transformation within Kenya, generated and sustained over a period of time. The table on the next page provides an overview of the capacity development categorized by the specific interventions: NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 61

Table 13: Types of capacity development measure proposed under the NAMA

Intervention 1: Establish 28 EPZs in Kenya with PV based electricity power plant.

Systematic level ■ Technical Feasibility Study for pre-determined locations

■ Highlight “Quality Standard” for clean energy technologies

Institutional level* ■ Awareness creation for private sector participants

■ Capacity development for the NCA and NIE including Measuring, Reporting and Verification (MRV) Cell.

Individual level ■ Training of workers and staff for Business Models 1 and 2 Intervention 2: Distribute “clean energy technologies” enabled through consumer finance.

Systematic level ■ Public procurement scheme

■ Community level demonstration and awareness creation

Institutional level ■ Capacity development for the NIE with focus on financing entities

Individual level ■ Training of workers and staff for Business Model 3

* Capacity development for the NCA and NIE is relevant for both interventions. The MRV Cell is a sub-unit under the NIE responsible for the overall MRV activities under the NAMA.

7.1 Capacity development Measures for Intervention 1

Intervention 1 calls for establishing 28 EPZs across Kenya along with 500 kWp of Solar PV based power plants to ensure that the EPZs are self-sufficient in their energy requirements. The activities proposed under Intervention 1 will be primarily through the activities of private sector participants with a focus on supporting EPZ Business models 1 and 2 (see Section 7.5 on Interventions). However, the NAMA will need to support a series of measures to ensure that the stated outcomes are met.

7.1.1 Technical Feasibility Study for pre-determined EPZ locations

To determine the locations of the EPZs, the NAMA looks at the currently available statistical data from Kenya National Bureau of Statistics (KNBS) on the number of households by lighting fuel and cooking fuel by county. (KNBS, 2009). Table 14 looks at the total number (no.) of households (HH) in each county, and the number of households with electricity and LPG respectively to determine the total number of households without access to either of the two energy sources. This provides an estimate of the market potential for PV lanterns and ICS. The original KNBS statistical data show that the households without electricity are dependent on kerosene lanterns, pressure lamps and tin lamps as the primary source of lighting, while the most popular alternatives to LPG are charcoal and firewood. 62 CAPACITY DEVELOPMENT

Table 14: Existing access to energy by County (No. of households rounded to nearest, 000)

No. County Total HH with HH HH with HH HH without EPZ HH Electricity without LPG without Elec & LPG Type 1 Nairobi 985,000 712,000 273,000 221,000 764,000 1,037,000 2 Kakamega 355,000 20,000 335,000 3,000 352,000 687,000 EPZ-L

3 Nakuru 409,000 139,000 270,000 20,000 389,000 659,000 EPZ-L 4 Kiambu 470,000 253,000 217,000 62,000 408,000 625,000 EPZ-L 5 Meru 319,000 43,000 276,000 5,000 314,000 590,000 EPZ-L 6 Bungoma 270,000 12,000 258,000 2,000 268,000 526,000 EPZ-L

7 Machakos 264,000 45,000 219,000 8,000 256,000 475,000 EPZ-L

8 Muranga 255,000 35,000 220,000 5,000 250,000 470,000 EPZ-L 9 Kisii 245,000 19,000 226,000 3,000 242,000 468,000 EPZ-L 10 Kisumu 226,000 41,000 185,000 7,000 219,000 404,000 EPZ-S 11 Homa Bay 206,000 7,000 199,000 1,000 205,000 404,000 EPZ-S

12 Kitui 205,000 10,000 195,000 1,000 204,000 399,000 EPZ-S 13 Siaya 200,000 8,000 192,000 1,000 199,000 391,000 EPZ-S 14 Kilifi 200,000 33,000 167,000 4,000 196,000 363,000 EPZ-S 15 Migori 186,000 10,000 176,000 1,000 185,000 361,000 EPZ-S 16 Mombasa 268,000 158,000 110,000 24,000 244,000 354,000 EPZ-S

17 Makueni 183,000 11,000 172,000 1,000 182,000 354,000 EPZ-S 18 Nyeri 202,000 53,000 149,000 10,000 192,000 341,000 EPZ-S 19 Uasin Gishu 202,000 56,000 146,000 10,000 192,000 338,000 EPZ-S

20 Narok 169,000 10,000 159,000 2,000 167,000 326,000 EPZ-S 21 Trans Nzoia 170,000 15,000 155,000 1,000 169,000 324,000 EPZ-S

22 Kericho 160,000 17,000 143,000 1,000 159,000 302,000 EPZ-S 23 Nandi 154,000 10,000 144,000 1,000 153,000 297,000 EPZ-S 24 Busia 154,000 10,000 144,000 1,000 153,000 297,000 EPZ-S 25 Kirinyaga 154,000 25,000 129,000 4,000 150,000 279,000

26 Bomet 142,000 5,000 137,000 - 142,000 279,000 27 Nyandarua 144,000 15,000 129,000 1,000 143,000 272,000 28 Nyamira 131,000 7,000 124,000 1,000 130,000 254,000 29 Kajiado 173,000 70,000 103,000 22,000 151,000 254,000 30 Mandera 125,000 3,000 122,000 - 125,000 247,000 31 Turkana 123,000 3,000 120,000 - 123,000 243,000 EPZ-S NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 63

No. County Total HH with HH HH with HH HH without EPZ HH Electricity without LPG without Elec & LPG Type 32 Embu 131,000 19,000 112,000 3,000 128,000 240,000 33 Vihiga 123,000 8,000 115,000 1,000 122,000 237,000 34 Kwale 122,000 12,000 110,000 2,000 120,000 230,000 35 Baringo 110,000 10,000 100,000 1,000 109,000 209,000 36 West Pokot 94,000 2,000 92,000 - 94,000 186,000

37 Garissa 98,000 11,000 87,000 - 98,000 185,000 EPZ-S 38 Laikipia 103,000 18,000 85,000 4,000 99,000 184,000 39 Wajir 88,000 3,000 85,000 - 88,000 173,000 EPZ-S 40 Tharaka 88,000 7,000 81,000 1,000 87,000 168,000 41 El-Marakwet 77,000 5,000 72,000 - 77,000 149,000 42 Taita Taveta 71,000 10,000 61,000 1,000 70,000 131,000 EPZ-S

43 Marsabit 57,000 4,000 53,000 - 57,000 110,000 EPZ-S 44 Tana River 47,000 1,000 46,000 - 47,000 93,000 45 Samburu 47,000 3,000 44,000 - 47,000 91,000 46 Isiolo 31,000 6,000 25,000 - 31,000 56,000 47 Lamu 22,000 4,000 18,000 - 22,000 40,000

Location of 8 large EPZs (EPZ-L):

Based on the above data, it can be determined that excluding the capital city of Nairobi, the eight counties of Kakamega, Nakuru, Kiambu, Meru, Bungoma, Machakos, Muranga and Kisii have a market potential of at least 400,000 households. Hence, it is proposed that the large EPZs for manufacturing and distribution be located in these eight counties.

Location of 20 small EPZs (EPZ-S):

The remaining small 20 EPZs are categorized into two types, 5 EPZs are located in the remote and large counties of Turkana, Garissa, Wajir, Taita taveta and Marsabit each with a minimum market potential of 100,000 households with the remaining 15 EPZs located in the next most populous counties in terms of market potential as shown in the table above.

Expected Outputs of Technical-Feasibility Study

As noted above, the locations of the 28 EPZs (8 EPZ-L and 20 EPZ-S) have been identified in line with the existing population and “catchment area” (i.e. potential target market for each EPZ for sale of clean energy technologies). However, the current information is based on official statistics that will be outdated at the time of implementation and it is proposed that a national consultant be hired and entrusted with undertaking a feasibility study to reinforce the locations of the 28 EPZs. The feasibility study should be undertaken as a combination of desk based review and field visits to select sites and carried out in 64 CAPACITY DEVELOPMENT

cooperation with Kenya National Bureau of Statistics. The final report should include (but not be limited to) information on the following:

■ Updated population data, including the number of rural households;

■ Number of households by existing baseline fuel (e.g. kerosene, charcoal etc.);

■ Potential location within each county for EPZs;

■ Potential demand for technologies based on existing baseline data;

■ Existing policies, programmes and projects that overlap with the NAMA; and

■ A list of potential private sector participants.

Entity Responsible: A national consultant can be appointed by the MOEP to undertake the feasibility study. Alternatively, the study can be carried out by the KNBS and submitted to the MOEP. The financial outlay for this measure is the allocation for hiring the services of a national consultant. The expected budget is outlined in Chapter 10 on Finance.

Timeframe: 3 months (2017)

Final Deliverable: A study report containing information on the pre-determined locations

7.1.2 Highlight Quality Standards

Note: The standards highlighted in this section already exist and no specific activity is intended under this measure except making the standards available for easy access by potential private sector participants. The purpose of this section is to elaborate on the existing standards.

The objective for highlighting Quality Standards for PV Lanterns and ICS is to ensure that the manufacturing of models by various private sector entities complies with minimum technical specifications of existing standards identified by the GoK. This will ensure several advantages that will ultimately support the overall success of the NAMA, namely:

■ Manufactured products of a certain model type are of uniform minimum (or better) quality;

■ Products that have minimum technical life span thus building market confidence;

■ Fair market competition due to fair pricing;

■ Avoiding the market being flooded with low quality or counterfeit products;

■ Strengthening private sector participants and promoting local manufacturing. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 65

Existing Standards in Kenya:

KS 2542:2014 Kenya Standard—Off-grid Solar Photovoltaic Lighting Kits

This draft standard applies to off-grid lighting appliances or kits that can be installed by a typical user without employing a technician. The kits generally consist of a light source (LED, CFL, or other), a rechargeable energy storage device (usually a battery), an energy generation device or source (PV module, dynamo, AC grid, unregulated DC input, or other), and internal electronics. Lighting appliances or kits with PV modules larger than 15 Watt-peak (peak power under standard test conditions) are excluded from the scope of this standard.

Reference: Kenya Gazette Notice No. Vol.CXVII-No.17 - (GoK_KenyaLaw, 2015)

Additional Source: (ERC-Kenya, 2014)

KS-1814-1: 2005—Kenya Standard for Improved Cookstoves

The Energy Regulatory Commission (ERC) points to KS-1814-1: 2005 developed by the Kenya Bureau of Standards as the default standard for the manufacture and distribution of improved cookstoves. In addition, in the ”Proposed Regulations In Respect Of Energy (Improved Biomass Cookstoves) Regulations, 2013” the ERC identifies the requirements for licensing of improved biomass cookstove technicians, licensing for manufacturers, distributors and contractors and additional conditions (e.g. inspection, suspension of licenses etc.)

Reference Kenya Gazette Notice No. Vol.CXV-No.65 - (GoK_KenyaLaw, 2013)

Additional Source: (ERC-Kenya, 2013)

It is proposed that the above stated standards for the PV lanterns and ICS as specified in the government Gazette form the basis for the Quality Standards under the NAMA.

Entity Responsible: Setting quality standards is led by the Kenya Bureau of Standards (KEBS) the designated government authority for promoting standardization in industry and commerce. The above quality standards currently exist in Kenya and will form the basis for manufacturing and distribution of clean energy technologies. No specific action is envisaged at this point of time, but the KEBS will be responsible for updating of the existing standards on a periodic basis and informing the MOEP of the changes. As the standards already exist, no additional finance is allocated now.

Timeframe: Quality Standards already exist.

Final Deliverable: The MOEP is expected to make the Quality Standards available on a public platform for easy access by potential participants. 66 CAPACITY DEVELOPMENT

7.1.3 Capacity development for the NCA and NIE

The second institutional level capacity development focuses on the government entities responsible for the overall coordination and implementation of the NAMA, including the MRV system. The capacity development for the two entities will consist of two components:

Component 1: Targets support of the implementation (e.g. improvement of policies and coordination of public institutions, processes, preparation of documentation) of the NAMA and will provide capacity development for the other involved governmental entities (e.g. the NIE). The capacity development programme under Component 1 will support:

■ Improving NAMA related laws;

■ Implementing NAMA processes (technical and financial project cycle) and institutional coordination;

■ Preparing NAMA project documentation; and

■ Searching for and training staff for new vacancies under the NAMA.

This first component is focuses solely on activities which have to be performed by the NAMA Coordinating Authority and the NAMA Implementing Entities.

Component 2: Focus on the awareness raising and marketing side of the NAMA after implementation and will provide (i) general capacity development to create a common awareness of the NAMA but also (ii) specific stakeholder-oriented capacity development. The capacity development under Component 2 will be undertaken by the staff of the NCA and NIE trained under Component 1. This second component of the capacity development programme will consist of two sub-strategies:

■ First, private- sector- specific marketing/awareness raising strategies to ensure participation in the EPZ business model under the NAMA. This is further elaborated in ‘Private Sector Awareness Creation’ in Section 8.14 below.

■ Second, a country-wide generic marketing/ awareness raising strategy for the NAMA will create a common understanding of the benefits of the NAMA objectives and procedures. This is further elaborated in “Marketing and Awareness Creation” in Section 8.2.2 under Intervention 2 below.

The capacity development for the government is graphically represented as in Figure 7 below.

Figure 5: Schematic Representation of Capacity development by Government Agencies NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 67

Existing Policy Alignment:

The objectives of the National Energy Policy, 2014 have several elements that highlight the role of the government in promoting clean energy technologies. Among these are the following aims.: (GoK_NEP, 2014) (pp. 10-11)

■ Promote capacity development in the sector through energy research, development, training and local manufacture of energy plant, equipment, appliances and materials.

■ Promote appropriate standards, codes of practice and specifications for equipment, systems and processes in the energy sector.

■ Promote healthy competition in the sector.

■ Promote cost effective and equitable pricing of energy.

■ Protect producer, supplier and consumer interests.

■ Promote both local and international investments in the energy sector.

■ Promote indigenous investments in the energy sector through incentives.

■ Promote and develop Government owned agencies in the development of energy resources.

Entity Responsible: A national consultant or technical programme manager will be appointed to lead the proposed activities. The consultant will be employed by the MOEP under the proposed actions to convert REA into NERA (See Section 4.3 for more information). As the role of the proposed national consultants will directly contribute to the stated objectives and will greatly enhance the creation of NERA from REA, it is proposed that costs pertaining to salaries and operating expenses are borne by the GoK. The financial measure considers under “national contribution” the salary of a technical consultant for a period of three years. After this period the in-house staff of NCA and NIE will be sufficiently qualified to undertake periodic capacity development for the remainder of the NAMA life span.

Timeframe: On-going basis over the NAMA implementation with an initial appointment of three years for a national consultant (2017-2019).

Final Deliverable: The NCA, NIE and MRV Cell are operationalized.

7.1.4 Private Sector Awareness Creation

The success of the NAMA implementation is based on informing, inviting and encouraging the private sector to participate in the business models under the NAMA. This will require a level of outreach and building awareness around specific elements of the NAMA, including (but not limited to):

■ An overview of the NAMA, including its stated objectives, timeframes, expected outcomes and the broader goals of sector transformation, emission reduction and sustainable development; 68 CAPACITY DEVELOPMENT

■ Detailed understanding of the proposed business models under the NAMA and the expected activities that a participating entity is expected to undertake, including a techno-commercial plan (e.g. the solar PV power plant and availability of electricity, pathways for income generation, potential number of units that can be sold based on the Technical Feasibility Study etc.);

■ The financial support available (equity contribution, expected loans, repayment models, etc.);

■ Supporting measures and compliance (e.g. Quality Standard, eligibility criteria); and

■ Expected additional tasks concerned with transparency and MRV (e.g. reporting the number of units sold).

Existing Policy Alignment:

In line with the NEPP as stated in Section 8.13, this capacity development measure directly contributes to the following objectives:

■ Promote both local and international investments in the energy sector.

■ Promote indigenous investments in the energy sector through incentives.

The aim of the awareness creation is to ensure that a high level of interest is generated among potential stakeholders (existing manufacturers, local communities, and international participants) to participate and invest in the business activities proposed under the NAMA. The participants must be made fully aware of the technicalities involved in establishing a business under the EPZ models and ensure a smooth transition from information gathering to starting e physical activities under the NAMA.

Entity Responsible: A national consultant or a business manager will be appointed to undertake the proposed activities. As the role of the business consultant is in line with the stated objectives of the NEP 2014 the financial measure considers under “national contribution” the salary of a business consultant for a period of three years—the time required to establish and operationalize the 28 EPZs.

Timeframe: Initial three years of NAMA implementation (2017-2019)

Final Deliverable: 28 EPZs are operationalized with private sector participation.

7.1.5 Training of Staff and Workers

While a dedicated business consultant will support the private sector participants for an initial period of three years, the regular training of staff and workers is expected to be undertaken by the private sector entity participating in the business models for EPZ and manufacturing. The focus of the training will include (but not be limited to):

■ Understanding of the overall goals of the NAMA including sustainable development;

■ Specific training related to operating of plant and machinery (e.g. solar power plant, manufacturing of PV lanterns and ICS etc.); NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 69

■ Importance of MRV and the need for providing appropriate data to the members of the MRV Cell;

■ Additional information as appropriate.

Entity Responsible: All in-house training of workers and staff will be carried out by the private sector entity participating in the two business models (EPZ Business Models 1 and 2). A minimum of one training/ capacity development programme per year will be required to be undertaken in eight of the EPZ-L. No financial allocation is considered under the NAMA as the costs for such training programmes will be borne by the private sector participants.

Timeframe: Over the NAMA lifespan.

Final Deliverable: One training programme per year for each of the eight EPZ-L.

7.2 Capacity development Measures for Intervention 2

Intervention 2 calls for the distribution of 1 million PV lanterns and ICS respectively over the life span of the NAMA (2017-2028). This will be done through an appropriate consumer financing scheme. However, the NAMA will need to support a series of measures to ensure that the stated number of units are successfully distributed to end consumers.

7.2.1 Public Procurement Scheme

The idea of “Public Procurement” is to ensure that the poorest sections of society, with very little or no ability to pay for the goods or services are provided with a minimum level of access to clean energy by making available PV lanterns and ICS. Under this NAMA it is proposed that 20 per cent of the total number of units (i.e. 200,000 of 1 million units each of PV lanterns and ICS) are procured directly by the government from the manufacturers at a fixed price. As the technology models under public procurement have a price cap, the government can require the manufacturers to develop a “basic” version of the models that are cost effective solutions (e.g. a PV lantern without a mobile charging facility as compared to a “general” version of the lantern) or can choose to pick an agreed number of “general” versions of the models at a pre-agreed price.

Existing Policy Alignment:

As noted in the NEPP, the government currently has a mandate to promote the installation of 100,000 solar PV home systems by 2017 and roll out a programme to distribute solar lanterns. (GoK_NEP, 2014) (p. 58). The NAMA recommends that the MOEP extend the mandate to include ICS and establish a procurement scheme for 200,000 (or 20 per cent) units each for PV lanterns and ICS. The procurement scheme is expected to last over a period of 10 years.

Entity Responsible: The MOEP as the NCA will be responsible for coordinating with various other government agencies in establishing the procurement scheme. The financial outlay will be equivalent to the selling price payable to the manufacturers for procuring the total number of units under the public procurement scheme.

Timeframe: Initial 10 years of NAMA implementation (2017-2026) 70 CAPACITY DEVELOPMENT

Final Deliverable: 200,000 PV lanterns and 200,000 ICS are procured and distributed.

7.2.2 Marketing and Awareness Creation

Marketing, awareness creation and community level demonstration are essential to ensure that rural communities are made aware of the technologies and proposed financing scheme to create a “market pull” from the demand side. As this is expected to benefit the private sector the major effort in marketing and awareness creation will be led by the individual private sector entities responsible for distribution and retail of the technologies, with additional support from the NCA and NIE.

In addition to strengthening the capacity of the private sector to undertake community level project demonstrations and county/local level marketing, the government of Kenya will support a national campaign through a combination of newspaper advertisements, radio advertisements and billboards during the initial year to raise awareness about the NAMA, particularly informing rural communities on the following:

■ The technologies proposed under the distribution model, including the specific models;

■ Consumer financing schemes and accessibility;

■ The quality standards and life expectancy of the technology;

■ The socio-economic benefits including, the impact on maternal and child health;

■ Other benefits—e.g. women and youth employment opportunities in EPZs etc.

Existing Policy Alignment:

The NEPP recognizes the need for awareness creation and promotion of clean energy technologies as a strategy for increasing renewable energy in Kenya. As a cross-cutting policy and strategy for renewable energy, the NEPP will (p. 68):

■ Develop capacity development programmes for players in renewable energy technologies in collaboration with training institutions and the energy centers;

■ Promote community based power generation;

■ Create awareness on the benefits resulting from development of clean energy technologies;

■ Establish a Renewable Energy Research Centre within the National Energy Institute for the handling of renewable energy promotion, potential analysis, mapping and other related studies;

■ The government will provide necessary support for the implementation of the renewable energy projects in populated areas including facilitation of acquisition, relocation and resettlement of project affected persons.

As inadequate awareness and consumer apathy are clear challenges that the government wants to tackle, the capacity development measures supporting marketing of the NAMA and awareness creation are clearly in alignment with the government’s existing priorities. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 71

Entity Responsible: The NIE will be responsible for overseeing the marketing and awareness creation activities, and this will include a dedicated one-year campaign using radio, newspaper and other local media (e.g. pamphlets, billboards etc). The financial measure takes into account the cost of these marketing activities, including 200 minutes/year of radio campaign, one half page newspaper advertisement per month in a national newspaper and a lump sum cost for other marketing material for a maximum period of one year.

Any direct marketing and demonstration projects at county and/or community level will be directly undertaken by the distributors as part of their marketing and outreach activities.

Timeframe: Initial year of NAMA implementation (2017)

Final Deliverable: 200 minutes of radio campaign, 12 newspaper advertisements and other media based marketing and awareness creation undertaken in the first year.

7.2.3 Capacity development for Financial Entities (e.g. Banks)

This institutional capacity development measure is the capacity development for the NCA and NIE but will focus on strengthening the institutional capacity of financial entities (e.g. local banks, micro- financing entities, and other private funds) responsible for making consumer finance available for private sector and end-consumers. The type of training will include (but not be limited to):

■ Overview of the NAMA finance including the available national contribution and international finance with a focus on loans, grants available to various types of end users;

■ Specific training for private sector participants on the availability of loans for establishing and operating the EPZ business models including equity, repayment schemes and approval process;

■ Specific training for distributors on the end-consumer loan process and the revolving loan fund;

■ Understanding the components of MRV and data collection about financial parameters.

Entity Responsible: A fund manager appointed by the international donor will be responsible to undertake the proposed activities. The fund manager will be located either within a designated financial entity or the NIE as deemed appropriate by the international donor. The fund manager will be appointed for a period of three years and the financial support will include salaries for three years plus additional budget for operating expenses (e.g. travel, undertaking local seminars, marketing material etc.). The financial outlay for the consultant will be 10 per cent of the total international donor finance for operating the financial mechanism.

Timeframe: Initial three years of NAMA implementation (2017-2019)

Final Deliverable: The local bank(s) are selected and staff trained to disperse loans to private sector participants and end-consumers. 72 CAPACITY DEVELOPMENT

7.2.4 Training of Staff and Workers

The regular training of staff and workers is expected to be undertaken by the respective private sector entity participating in the distribution activities. The focus of the training will include (but not be limited to):

■ Understanding of the overall goals of the NAMA, including sustainable development;

■ Specific training related to distribution and after sales service;

■ Specific training about awareness creation and community level demonstration;

■ Emphasis on the importance of MRV and the need to provide appropriate data to the members of the MRV Cell.

Entity Responsible: All in-house training of workers and staff will be carried out by the respective private sector entity participating in the EPZ Business Model 3 (distribution). A minimum of one training/ capacity development programme per year will be required to be undertaken by eight of the EPZ-L. No financial allocation is considered under the NAMA as the costs for such training programmes will be borne by the private sector participants.

Timeframe: Over the NAMA life span.

Final Deliverable: One training programme per year for each of the 8 EPZ-L.

7.3 Summary on Capacity development Measures

The approach undertaken in defining the capacity development measures is to ensure that financial resources allocated are used efficiently and for maximum impact. The table below summarizes the key capacity development measures, timeframes, entity responsible and financial outlay as highlighted in the specific measures for Interventions 1 and 2 respectively:

Table 15: Summary table for Capacity development Measures

Measure Entity Timeframe Financial Outlay Systematic Capacity development: Technical Feasibility National Consultant 3 months Fixed lump sum consultancy fee Study through MOEP/KNBS Quality Standard KEBS No action None required Public Procurement NCA (MOEP) 10 years Equivalent to a pre-determined selling price for200,000 PV lanterns and 200,000 ICS.

No additional funding is envisaged as the procurement will be cross- subsidized within the NAMA NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA CAPACITY DEVELOPMENT THROUGH INNOVATIVE MARKET BASED SOLUTIONS 73

Measure Entity Timeframe Financial Outlay NAMA Marketing and NIE (REA) 1 year Costs to cover 200 minutes of radio Awareness Creation advertisements, 12 newspaper ads and a lump sum amount for other media. Institutional Capacity development: NCA and technical NIE National Technical 3 years 3 year salary + operating expense of Consultant 2 consultants covered under national Private Sector National Business 3 years budget as the efforts are aligned to Consultant the priorities of the National Energy Policy.

Salaries and operating expensive for all staff appointed for NCA, NIE etc. to be covered under national budget/ contribution. Financial Institutions Fund Manager 3 years Covered by international donor finance as 10% of total grants. Individual Capacity development: Workers and Staff Private Sector 12 years To be borne by the private sector as part of their internal training programmes.

A minimum of 2 training programmes are proposed for each of the 8 EPZ-L annually. 74 IMPLEMENTATION STRUCTURE

8 IMPLEMENTATION STRUCTURE

8.1 Governance and Management

The NAMA is seen as an important instrument for translating mitigation-related aspects of climate change policy into on-ground project implementation. At the same time, the integration of climate change into broader development planning, having NAMAs at the core, implies considering the necessary legal instruments to be established at the highest level to ensure integrated approaches and sustainable and implementable outcomes. This requires that responsibility for implementation lies with entities with sufficient powers of enforcement and for framing the regulatory requirements for the energy sector.

Actions to Institutionalize the NAMA:

The coordination and management of the NAMA requires an institutional structure, which will meet the following requirements:

■ It must be embedded in national and sectoral policies and strategies.

■ It must be capable of effective communication and reporting as required by international agencies, such as the UNFCCC.

■ It must provide an interface to international bilateral and multilateral NAMA funding entities, such as the Green Climate Fund and NAMA Facility, among others.

■ It must be able to ensure proper management of financial flows between the NAMA funding entities and the recipients.

■ It must be able to ensure the achievement of NAMA targets in terms of distribution and use of improved biomass (firewood and charcoal) stoves and solar lighting technologies, GHG mitigation and sustainable co-benefits.

■ It must be able to allow transparent monitoring of GHG emission reductions and Sustainable Development indicators. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA IMPLEMENTATION STRUCTURE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 75

The recommended institutional structure of the NAMA is based on the following principles:

■ Ensuring strong involvement of national stakeholders to create country ownership and political commitment;

■ Using existing and experienced entities and organizational systems which are already in place and allow for prompt and smooth implementation of the NAMA;

■ Ensuring that the institutional structure is appropriate for the receipt of international private and/or public donor funding.

8.2 Institutional Framework for NAMA Implementation and Management

The following institutional bodies will constitute the institutional structure for the NAMA at the country level:

■ NAMA National Focal Point or National NAMA Approver (NA) and NAMA Coordinating Authority (NCA)

■ NAMA Implementing Entities (NIEs)

■ NAMA Executing Entities (NEEs)

The following sections provide an in-depth understanding of the roles and responsibilities of the institutional bodies listed above.

Figure 6: Schematic Representation of Institutional Structure for the NAMA 76 IMPLEMENTATION STRUCTURE

8.2.1 National NAMA Approver/Focal Point

The national NAMA Approver (NA) or Focal Point has the following roles:

■ Approving NAMAs proposed for registration in the UNFCCC NAMAs registry;

■ Reporting to the National Climate Change Steering Committee (NCCC) about international developments and the status of the national NAMA portfolio, and following the advice/guidance of the NCCC on international negotiations;

■ Providing guidance to sectoral NAMA coordinating entities (access to climate finance, financial flows, MRV etc.);

■ Issuing procedures for accounting of emission reductions to avoid double counting of emission reductions from various implemented NAMAs;

■ Supporting the preparation of the National Communication, Biennial Update Reports, and Summary of GHG Reductions etc.

The Ministry of Environment, Natural Resources has already been appointed as the NAMA Approver (NA)/ Focal Point to the UNFCCC.

Contact Information:

The Principal Secretary, Ministry of Environment, Natural Resources and Regional Development Authorities NHIF Building,12th Floor, Ragati Road, Upperhill, P.O Box 30126-00100 Nairobi, Kenya. Web site: www.environment.go.ke

8.2.2 National Coordinating Entity (NCA)

The NAMA Coordinating Authority (NCA) is the entity which coordinates the proposed NAMA. Its main tasks include:

■ Acting as primary contact for international donor(s);

■ Managing and directing the NAMA;

■ Approving NAMA targets in line with the Implementation Plan;

■ Managing the implementation process concerning submissions of project applications and approving disbursement of funds (in close collaboration with NIE - Financial trustee);

■ Approving and updating eligible interventions;

■ Approving annual monitoring reports prepared by the MRV Cell within the NIE (covering inter alia: number of projects implemented, calculation of emission reductions, SD impacts etc.); NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA IMPLEMENTATION STRUCTURE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 77

■ Supervising the financial flows between donors and beneficiaries;

■ Building capacity in institutions involved in the implementation of the NAMA;

■ Developing technical standards for equipment/installations used under the NAMA;

■ Coordinating promotion and awareness raising campaigns and to support the implementation of the NAMA ;

■ Integrating the private sector into NAMA implementation;

■ Coordinating monitoring activities and preparation of monitoring reports through the MRV Cell and with the support of the financial institutions;

■ Facilitating and coordinating verification through the external designated entity.;

■ Reporting to the NA to fulfil reporting requirements to the donor(s);

■ Cooperating with financial internal and external auditors on the MRV process.

The Ministry of Energy and Petroleum will be the NAMA Coordinating Authority.

Contact Information:

The Principal Secretary, State Department of Energy Ministry of Energy & Petroleum, Nyayo House, Kenyatta Avenue, P. O. Box 30582 Nairobi, Kenya Web: http://www.energy.go.ke

8.2.3 NAMA Implementing Entity (NIE)

The NAMA Implementing Entities (NIEs) constitute the main operational body of the NAMA in the energy sector of Kenya. Two specialized NIEs will manage their respective areas, the technical NIE will manage the technical capacity development of the NAMA including MRV and the financial NIE will manage the financial flows from the funding entities to the beneficiaries as well as approval of eligible private sector participants.

The main tasks of the technical NIE are to:

■ Be responsible for the overall technical implementation of the NAMA activities over the life span of the NAMA;

■ Oversee the successful establishment and operationalization of the 28 EPZs across Kenya in pre- determined locations;

■ Act as the key point of contact for all queries and communications with the NAMA stakeholders, particularly the NEEs (NAMA Executing Entity); 78 IMPLEMENTATION STRUCTURE

■ Provide capacity development for institutions and private sector participants involved in the implementation of the NAMA;

■ Coordinate promotion and awareness campaigns about the Clean Energy NAMA;

■ Coordinate and compile data—particularly the indicators described in Section 6.4 on NAMA Targets and in line with the SD Tool;

■ Ensure that outcomes are in line with the SDGs and INDCs;

■ Prepare reports to the NCA in coordination with the financial NIE for MRV of GHG emission reductions and SD impacts.

The MRV (Measurement Reporting and Verification) activities will be undertaken by a dedicated MRV Cell established within the technical NIE.

Technical NIE - Rural Electricity Authority (REA) / NERA:

The Rural Electrification Authority (REA), mandated to be changed into the National Electricity and Renewable Energy Authority (NERA) and be made responsible for all renewable energy activities in Kenya excluding geothermal and large hydro is the designated technical NIE. The REA is a corporate institution set up under the MOEP and is therefore ideally placed to coordinate the activities

The stated mandate of the REA is to accelerate the pace of rural electrification in order to promote sustainable socio-economic development. The REA presently undertakes the following functions:

■ Manage the Rural /electrification Programme Fund;

■ Develop and update the rural electrification master plan;

■ Promote the use of renewable energy sources including small hydro, wind, solar, biomass, geothermal, hybrid systems and oil fired components taking into account specific needs of certain areas including the potential for using electricity for irrigation and in support of off-farm income generating activities;Implement and source of additional funds for the rural electrification programme;

■ Manage the delineation, tendering and award of contracts for licenses and permits for rural electrification.

At present, the REA is the only technically competent organization in Kenya which has an in depth understanding of the rural energy landscape in Kenya. From the above activities, it can be noted that the REA currently has the resources and manpower to undertake activities related to financial management, implementation of projects over a long duration, promotion of the use of various renewable energy sources, sourcing of additional finance and experience with contractual matters and implementation—all essential elements for implementing a NAMA.

Moreover, the National Energy Policy of Kenya, 2014 has proposed to transform the REA into a National Electrification and Renewable Energy Authority (NERA) to be the lead agency for development of all renewable energy resources in Kenya other than geothermal and large hydro. ( (GoK_NEP, 2014) (p. 5). In NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA IMPLEMENTATION STRUCTURE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 79

addition, policy states that NERA will formulate cooperation arrangements with local County Governments for implementation of rural electrification and renewable energy programmes. (p. 8). The policy also notes that NERA will be the “one stop shop” for information and guidance to investors on renewable energy projects. (p. 68)

Apart from strengthening REA into NERA, the energy policy calls for revitalizing the existing MOEP Energy Centers and establishing others to cover all 47 counties with a view to promoting renewable energy use. This is of particular importance in the context of this NAMA as the proposed EPZ Model builds on the existing Energy Centers.

In addition to the proposed changes to the REA, the policy proposes setting up an inter-ministerial Renewable Energy Resources Advisory Committee (RERAC) to advise the GoK and the Cabinet secretary on among others:

■ Criteria for allocation to investors of energy resource areas;

■ Licensing of Renewable Energy resource areas;

■ Management and development of other energy resources such as agricultural and municipal waste, forests, and areas with good wind regimes, tidal and wave energy.

Contact Information of REA: Regional Offices of REA:

Kawi House - South C, Rift Valley Regional Office Redcross road behind Boma Hotel. Giddo Plaza, Room No. 29, Goerge Morara Rd. Nairobi P.O. Box 34585 – 00100 KENYA P.o. Box 16662 – 20100 Phone: +254 20 4953000/3600 Nakuru Fax: +254 20 2710944 Mobile: 254 728 482 987 / +254 728 482 981 Nyanza Regional Office Web: http://www.rea.co.ke Kondele (carwash) - Kibos road P.o. Box 2604- 40100 Kisumu

Mt. Kenya Regional Office Advocate plaza, 1st floor off Kamakwa Road, P.o. Box 1970 Nyeri

West Kenya Regional Office Kiptagich House, 9th floor, off Uganda Road P.o.Box 3015- 30100 Eldoret

Coast Regional Office Mariakani, P.o Box 505 Mombasa 80 IMPLEMENTATION STRUCTURE

Financial NIE

The financial NIE is responsible for all NAMA finance- related activities, primarily dealing with the distribution of loans and grants to private sector participants and end-consumers. The main tasks of the financial NIE are:

■ The approval process with regard to submissions of project applications and disbursement of funds (in close collaboration with the technical NIE and NCA);

■ Approving and updating eligibility criteria of interventions;

■ Selecting experts to implement the capacity development measures as appropriate;

■ Ensuring proper transfer and disbursement of funds from the donors to the recipients based on an agreed set of criteria;

■ Preparing reports to NCA/donors in coordination with technical NIE for use of funds;

■ Cooperating with financial internal and external auditors. A Trustee (typically appointed either by the international donor or selected from within the countries financial/regulatory institution) will be appointed as the financial NIE.

8.2.4 NAMA Executing Entities (NEEs)

The NAMA Executing Entities (NEEs) are the private sector actors (businesses, cooperatives etc.) that will be responsible for manufacturing, assembly, promotion and distribution of the clean energy technologies prioritized under the NAMA. Most of the NEEs will operate from the EPZs and will participate in one of the three EPZ Business Models. Though a single private sector entity can participate in all the three business models, the number of individual NEEs can be categorized into the following, based on the type of business model:

Table 16: Number of new business enterprises / NEEs by Business Model type

Type of NEE and EPZ Business Model No. of NEEs No. of NEEs EPZ-L EPZ-S EPZ Business Model 1: NEE responsible for establishing and operating 8 20 the physical infrastructure of EPZ including solar plant) EPZ Business Model 2: NEE responsible for establishing the 8 -- manufacturing units for clean energy technologies EPZ Business Model 3: NEE responsible for establishing the 8 20 distribution system for clean energy technologies Total no. of NEEs / individual businesses 24 40

Each NEE will:

■ Operate the EPZ, manufacture/assemble and/or distribute the NAMA prioritized technologies in compliance with the rules of the intervention; NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA IMPLEMENTATION STRUCTURE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 81

■ Undertake appropriate marketing campaigns and awareness creation campaigns (e.g. community level project demonstration etc.);

■ Align activities with the set criteria and operating guidelines of the NCA and NIE (e.g. meet the stated quality standards);

■ Coordinate the activities with financial institutions to ensure that finance is made available to end consumers and NEEs as appropriate;

■ Inform the NIE about the performance of the activities as required;

■ Collect data for MRV purposes (as per requirements of the MRV Cell).

The members of the Clean Cookstoves Association of Kenya (CCAK) and the Kenya Renewable Energy Association (KEREA) will constitute a significant proportion of the NEEs. The CCAK KNAC is a national association of clean cookstove and fuel stakeholders that strives to build solidarity amongst its members and to create effective partnerships to ensure that the use of clean cookstoves and fuels is the norm in Kenyan households and institutions. The KEREA is an independent non-profit association dedicated to facilitating the growth and development of renewable energy business in Kenya.

8.3 Implementation schedule

The implementation of the NAMA will be carried out in five main steps. As an initial step, the institutional structure for NAMA implementation will be established. In parallel, the capacity of the coordinating and managing entity staff will be developed and awareness at the community level will be built. Upon accomplishment of the aforementioned steps, implementation of the two interventions will start. The following section gives details of each of the five steps.

Technical Life Span of the NAMA:

The proposed lifespan of the NAMA is 14 years from 2017 until 2030.

Step 1: Establish and operationalize the institutional structure for NAMA implementation

It is suggested that implementation should start with an initial meeting of a NAMA Technical Working Group, which is to act as a kind of temporary supervisory board for the NAMA. Under this step, two main tasks will be accomplished.

■ First a technical consultant will be appointed (Refer Section 8.1.3).

■ Second, the consultant will be responsible for appointing staff and establishing the NCA and NIE. Both tasks will be accomplished in the initial year of NAMA project initiation, which is currently expected to be 2017.

Step 2: Develop the capacity of the stakeholders

To ensure the overall success of the NAMA, the capacity of the relevant stakeholders needs to be built. The capacities mainly pertain to the institutional set-up, namely the NCA, NIE and financial institutions and awareness creation for private sector participants to participate in the three EPZ Business Models. Therefore, 82 IMPLEMENTATION STRUCTURE

under this step, various trainings would be conducted along with the marketing and awareness campaign (Section 8.2.2). For example, trainings for the coordination and management entity’s staff, private sector investors or commercial banks would be conducted in the initial phase of NAMA implementation.

Step 3: Implementation of Intervention 1

Once the institutional structure has been operationalized and the capacity of the relevant stakeholders has been built, implementation of Intervention 1 will start. Under this step, a financial trustee will be appointed and thereafter funds will be secured from national and international sources.

The national sources involve the funds coming from the national budget. The potential international sources of funds involve funds coming through the NAMA support facility, the Global Environmental Facility (GEF), the Green Climate Fund (GCF), the Japan International Cooperation Agency (JICA), or through the various EU climate related funds. The implementation plan will be kick started by presenting the technical feasibility study and the 28 EPZs are expected to be operationalized within the first three years of the NAMA (i.e. 2017-2019)

Meanwhile, the quality standards for technologies considered under the NAMA will be made publicly available and other policy measures (e.g. a policy/mechanism for return of goods after end of its technical life span) can be developed in parallel.

Step 4: Implementation of Intervention 2

Once the institutional structure has been operationalized, the capacity of the relevant stakeholders has been built, and the manufacturing of the first batch of clean energy technologies initiated, the implementation of Intervention 2 will start.

Under this step, a revolving fund () facility will be capitalized and activated to ensure that finance is available to the end consumers at the point of purchase. Moreover, the public procurement scheme can focus on securing 100 per cent of the manufactured units in the initial years until the market conditions are suitable for direct sale of technologies.

Step 5: MRV is operationalized

The final step in operationalizing the NAMA is activating the MRV Cell. This will involve appointing staff in eight of the EPZ-L, setting up appropriate infrastructure (e.g. computers with internet connection and appropriate logistics tracking software) and training of staff for collection of appropriate data from NEEs. Apart from tracking the progress of the NAMA outcomes, the MRV will provide crucial information to the NCA and NIE to improve on the deliverables of the NAMA activities. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA IMPLEMENTATION STRUCTURE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 83

Figure 7: The Implementation Cycle of the NAMA 84 NAMA FINANCE

9 NAMA FINANCE

This chapter provides details about the financial requirements for the NAMA and the financial mechanisms which will be used in the NAMA. First, the financial requirements for the technical interventions will be described, followed by the financial requirements for capacity development. Then, the mechanisms for national and international finance will be described in terms of sources and distribution mechanisms. Finally, indicative NAMA finance needs and the financing provided via the different mechanisms will be detailed. It should be noted that costs are described in light of the 14 year (2017-2030) lifetime of the NAMA, not the lifetime of the interventions and measures, which may extend beyond the NAMA lifetime.

9.1 Overview of NAMA Finance

This section provides an overview of the total financing required from national and international sources for implementing the NAMA, based on the specific interventions and measures. The table summarizes the key categories of finance tackled in this chapter:

Table 17: Summary table for NAMA Finance – Interventions

No. Interventions Description Amount Relevant (US$) Section 1 Establish 28 EPZs Total loans accessed by NEEs for setting up the 3 3,380,000 10.2.1 types of EPZ business models 2 500 kWp of PV Grants for setting up PV Power Plant 1,250,000 10.2.2 3 1 million PV lanterns 20% distributed under the Public Procurement scheme (see Table 18) and + 1 million ICS 80% (or 800,000 Units) distributed through direct sales by end-consumer distributed financing (i.e. Revolving Loan Fund) 800,000 PV lanterns + Equity contribution by end-consumers 8,000,000 10.3.1 800,000 ICS Units Financed by the Revolving Loan Fund 8,400,000 10.3.2 NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 85

The direct sales of 80 per cent of the units is considered under Interventions for Finance while the sale of 20 per cent under Public Procurement is considered as a Measure because the latter is intended to facilitate the development of a consumer market for direct sales

The following table on Measures should be read in conjunction with Chapter 8 on Capacity development Measures.

Table 18: Summary table for NAMA Finance Measures

No. Measures Description Amount Relevant (US$) Section 5 Technical One time grant to cover the cost of 50,000 10.4.1 Feasibility Study consultancy for undertaking the technical feasibility study 6 Quality Standard Standards already exist hence no additional 0 -- finance is considered under the NAMA 7 NAMA Marketing Costs related to raising awareness about the 54,000 10.4.1 and Awareness NAMA (Year 1 only) Creation 8 NCA and technical Total cost for appointing a national technical 300,000 10.4.1 NIE consultants consultant and a business consultant for 3 years 9 Financial Trustee Allocation for the financial trustee to operate 125,000 10.4.1 the Financing facility 10 Public Procurement Financing for offtake of 200,000 PV lanterns 8,000,000 10.4.2 and ICS 11 NCA and NIE Staff Salaries and Operating cost for NAMA lifespan 2,500,000 10.4.3

9.2 NAMA Finance required for Intervention 1

The financial requirements for Intervention 1 are for establishing the 28 large, medium and small EPZs across Kenya with their own solar PV power plants with a total capacity of 500 kWp. The financing required for intervention 1 can be categorized into two broad categories:

■ The loans required for setting up individual businesses as per the EPZ Business Models;

■ The grants required for solar PV power plant.

9.2.1 Loans for EPZ Business Model

The financing required for EPZs needs to be categorized by EPZ type (i.e. EPZ-L and EPZ-S) and the type of business activity pursued (i.e. EPZ Business Models 1, 2 or 3). It is also assumed that not all 28 EPZs will be set up in Year 1 but spread over the initial years of the NAMA. The table below provides an overview of the proposed number of EPZs set-up by type and business model: 86 NAMA FINANCE

Table 19: Indicative start year for EPZ implementation

EPZ Biz. Model 1 EPZ Biz. Model 2 EPZ Biz. Model 3

Year EPZ-L EPZ-S EPZ-L EPZ-S EPZ-L EPZ-S 2017 2 4 2 - 2 4 2018 - 4 - - - 4 2019 4 4 4 - 4 4 2020 - 4 - - - 4 2021 2 4 2 - 2 4 Total 8 20 8 0 8 20

Note: The total number of EPZs set up is 28 (8 EPZ-L and 20 EPZ-S) which is in line with Intervention 1. Based on the three types of EPZ Business Models, the total number of new business enterprises or NEEs established is 64, which contributes to Kenya’s SDGs.

For the purpose of loans availed under the NAMA, the following assumptions have been made:

■ Loans for EPZ-L: Biz Model 1: US$ 100,000

■ Loans for EPZ-S: Biz Model 1: US$ 50,000

■ Loans for EPZ-L: Biz Model 2: US$ 100,000

■ Loans for EPZ-L: Biz Model 3: US$ 35,000

■ Loans for EPZ-S: Biz Model 3: US$ 25,000

The basis for the loan rests on initial stakeholder feedback received for establishing comparative business in Kenya. However, due to the numerous variables involved (e.g. the cost of land acquisition, the cost of construction, procurement of equipment and machinery etc.), an indicative loan amount was recommended with the balance to be covered by the participating private sector entity as an equity contribution. The approach allows the amount of finance required under the NAMA to be fixed and independent of the on- ground variables (e.g. cost of land, construction, materials etc. which can vary from place to place).

Based on the loan values assumed and the total number of EPZs and enterprises, the table below summarizes of the total amount of loans accessed under the NAMA:

Table 20: Summary table for Loans required for EPZ and Business Models

In US$ EPZ Biz. Model 1 EPZ Biz. Model 2 EPZ Biz. Model 3 Year EPZ-L EPZ-S EPZ-L EPZ-S EPZ-L EPZ-S 2017 200,000 200,000 200,000 - 70,000 100,000 2018 - 200,000 - - - 100,000 2019 400,000 200,000 400,000 - 140,000 100,000 2020 - 200,000 - - - 100,000 NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 87

In US$ EPZ Biz. Model 1 EPZ Biz. Model 2 EPZ Biz. Model 3 Year EPZ-L EPZ-S EPZ-L EPZ-S EPZ-L EPZ-S 2021 200,000 200,000 200,000 - 70,000 100,000 Total 800,000 1,000,000 800,000 - 280,000 500,000 US$ 3,380,000

Potential Source(s) of Finance:

The finance required for setting up EPZs is a loan component and can be financed through international donor finance. Alternatively, organizations such as Yunus Social Business (http://www.yunussb.com/) can be approached to finance individual private sector participants on a case to case basis to establish a “social business” model.

9.2.2 Grants for Solar PV Power Plant

Energy is the key driver for economic growth, but in the case of solar power, the cost of electricity per unit (i.e. US$/kWh) continues to remain relatively high compared withconventional sources. As the commercial activities in the EPZ business models—primarily the manufacture and distribution of clean energy technologies—will be heavily influenced by the input cost of electricity, it is proposed that the cost of procuring the PV technologyis covered by international grant finance.

A grant based model will have a direct impact on the final selling price of the clean energy technologies manufactured in the EPZs by making them affordable to the end-consumers and thus having a positive impact on the overall objective of the NAMA. As the cost of solar PV has been constantly reducing and for the purpose of authenticity, a UK Government supported website, https://www.gov.uk/government/statistics/solar-pv-cost- data, has been used as the basis for determining the cost of PV. The installed cost of PV power plant including operation and maintenance for a period of two years is estimated at US$ 2,500/kWp (UK_Gov_PV, 2015).

Considering the EPZ implementation as elaborated in Table 19 and a capacity of 50kWp for EPZ-L and 5kWp for each EPZ-S, the table below summarizes the total capacity of solar PV installed in kWp and the finance required in the form of grants based on the cost estimations stated above. The total grant component is finance required for 500kWp of PV which is in line with Intervention 1, Outcome 2 of the NAMA.

Table 21: Summary table for Grants required for PV Power Plant

Grants for Solar PV (US$) Capacity Installed Year EPZ-L EPZ-S EPZ-L EPZ-S 2017 250,000 50,000 100 kWp 20 kWp 2018 - 50,000 20 kWp 2019 500,000 50,000 200 kWp 20 kWp 2020 - 50,000 20 kWp 2021 250,000 50,000 100 kWp 20 kWp Total 1,000,000 250,000 400 100 US$ 1,250,000 500 kWp 88 NAMA FINANCE

Potential Source(s) of Finance:

The finance required for setting up EPZs is a grant component and can be financed through international donor finance. Alternatively, organizations such as IRENA-Abu Dhabi Fund for Development (ADFD) (http:// adfd.irena.org/funding.aspx) can be approached by the GoK to receive loans at a subsidized rate (1-2%) for a period of 20 years.

9.3 Consumer Finance for Intervention 2

The financial requirements for Intervention 2 depend on making consumer finance available to end- consumers to facilitate the uptake of clean energy technologies. This is one of the two objectives of the NAMA and supports the creation of a market environment that will promote the development of a local industry for clean energy technologies in Kenya, enable overall sustainable development in addition to emission reduction from the use of the technologies and ultimately drive the transformation of the clean energy sector for rural households.

As the number of units for both types of technologies are identical (i.e. Items 3 and 4), the financing model (i.e. the total amount of grants and loans) is identical. The section however is divided into two parts to reflect the two sources of finance:

■ End-consumer – Equity Contribution

■ End-consumer – Revolving Loan Fund

9.3.1 End Consumer – Equity Contribution

As 20 per cent of 1 million units are expected to be distributed under a public procurement scheme, the balance of 80 per cent or 800,000 units each for PV lanterns and ICS are expected to be available for direct sale to end-consumers. The table below provides an indication of the number of units expected to be distributed over the NAMA lifespan.

Table 22 can be viewed in conjunction with Section 7.3 which discusses the proposed distribution of 1 million units.

Table 22: The proposed distribution of clean energy technologies by year (i.e. direct sale)

EPZ-1 EPZ-2 EPZ-3 EPZ-4 EPZ-5 EPZ-6 EPZ-7 EPZ-8 Total 2017 — — — — — — — — — 2018 — — — — — — — — — 2019 — — — — — — — — — 2020 5,000 5,000 — — — — — — 10,000 2021 5,000 5,000 — — — — — — 10,000 NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 89

EPZ-1 EPZ-2 EPZ-3 EPZ-4 EPZ-5 EPZ-6 EPZ-7 EPZ-8 Total 2022 5,000 5,000 5,000 5,000 5,000 5,000 — — 30,000 2023 15,000 15,000 5,000 5,000 5,000 5,000 — — 50,000 2024 15,000 15,000 5,000 5,000 5,000 5,000 5,000 5,000 60,000 2025 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 160,000 2026 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 160,000 2027 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 160,000 2028 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 160,000 Total 125,000 125,000 95,000 95,000 95,000 95,000 85,000 85,000

800,000 Units (each for PV lanterns and ICS respectively)

A survey of relevant clean energy technology websites (e.g. Global Alliance for Clean Cookstoves for ICS and Lighting Global for Solar PV lanterns) reveals that there are several models of the two types of clean energy technologies currently available in the market at various price ranges and technical specifications. For the purpose of this NAMA, the price of both technologies was considered at US$ 25 per unit and is considered realistic based on the price information available on the websites.

The equity contribution (or down payment) by the end-consumer is targeted to be a minimum of 20 per cent of the total price, i.e. US$ 5 per unit. The balance for the purchase of clean energy technologies will be financed through consumer financing or loans. The table below summarizes the expected grant and equity contribution based on these assumptions.

Table 23: The equity and loan components for 800,000 Units

Year Total Units by year Selling Price @ Equity Contribution @ Consumer Loan @ US$ 25 per Unit US$ 5 per Unit US$ 20 per Unit A (Table 22) B = A x US$ 25 C = A x US$ 5 D = B-C 2017 — — — — 2018 — — — — 2019 — — — — 2020 10,000 250,000 50,000 200,000 2021 10,000 250,000 50,000 200,000 2022 30,000 750,000 150,000 600,000 2023 50,000 1,250,000 250,000 1,000,000 2024 60,000 1,500,000 300,000 1,200,000 2025 160,000 4,000,000 800,000 3,200,000 2026 160,000 4,000,000 800,000 3,200,000 90 NAMA FINANCE

Year Total Units by year Selling Price @ Equity Contribution @ Consumer Loan @ US$ 25 per Unit US$ 5 per Unit US$ 20 per Unit A (Table 22) B = A x US$ 25 C = A x US$ 5 D = B-C 2027 160,000 4,000,000 800,000 3,200,000 2028 160,000 4,000,000 800,000 3,200,000 Total 800,000 20,000,000 4,000,000 16,000,000

The section below summarizes the equity contribution and loan requirements for both types of clean energy technologies combined (i.e. PV lanterns and ICS):

■ Total number of Units: 1,600,000;

■ Total value of loans required: US$ 32,000,000 (US$ 32 Million);

■ Total equity contribution: US$ 8,000,000 (US$ 8 Million)

9.3.2 End Consumer—Revolving Loan Fund

The second component of the consumer finance deals with the consumer loan element, amounting to US$ 32 million and represents the consumer financing extended to end- consumers through commercial loans for purchase of technologies, over and above the consumer equity contribution. The total amount of financing required over the lifespan of the NAMA will be lent through a financing model known as a Revolving Loan Fund.

Figure 8: Schematic Representation of the Revolving Loan Fund NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 91

The concept of Revolving Loan Fund (RLF) as highlighted in the diagram above works by establishing a financing facility with a local bank (with the monies being made available by international donors for the purpose of this NAMA). The amount of donor finance parked with the local bank is not the total loans required (e.g. US$ 32 million) but the loan expected to be distributed in a given year. The “revolving” nature of the loan fund works by re-circulating the principal and interest paid back by end-consumers to fund additional loans in the subsequent years. As the loans extended are relatively small amounts (US$ 20), the repayment is assumed to happen over 2 years at an interest of 25 per cent, which is similar to other microfinance schemes.

The table summarizes the actual volume of loans required over the entire duration of the NAMA and the annual donor finance to replenish the loan fund.

Table 24: Loan pay back required for 1.6 Million Units (Table 22 provides values for 800,000 Units)

Year No. of (A) Loan (B) Total loan Required (C) Loan (D) Loan Repaid Units Distributed at Pay Back including Repaid in in Yr 2 (Refer US$ 20 per Unit 25% interest Yr 1 (B) x 50% Table 22.) (Principle) (Ax1.25) (B) x 50% 2017 — — — — — 2018 — — — — — 2019 — — — — — 2020 20,000 400,000 500,000 — — 2021 20,000 400,000 500,000 250,000 — 2022 60,000 1,200,000 1,500,000 250,000 250,000 2023 100,000 2,000,000 2,500,000 750,000 250,000 2024 120,000 2,400,000 3,000,000 1,250,000 750,000 2025 320,000 6,400,000 8,000,000 1,500,000 1,250,000 2026 320,000 6,400,000 8,000,000 4,000,000 1,500,000 2027 320,000 6,400,000 8,000,000 4,000,000 4,000,000 2028 320,000 6,400,000 8,000,000 4,000,000 4,000,000 2029 — — 4,000,000 4,000,000 2030 — — — 4,000,000

The potential risk for donors are the loan defaults, i.e. the inability of a certain proportion of the end- consumers to pay back the loan, which is estimated at 10 per cent annually and is typical of microfinance schemes. This loan default amount will need to be factored in by the donors as additional finance that will need to be ”topped up” on annual basis. The table below provides an overview of the total loans repaid and the loan defaults to provide the estimated donor financing required for the Financing Facility. It is important to note that the numbers are indicative and are based on the assumptions made for the total number of units sold annually. The negative values indicate the amount of surplus money that can be used to pay back to international donors. 92 NAMA FINANCE

Table 25: Actual NAMA Finance Required annually for 16 Million Units

Year ELoan Repaid (C+D) F Loan Default (10% of E) (G) Donor Finance Required A-(E+F) 2017 — — — 2018 — — — 2019 — — — 2020 — — 400,000 2021 250,000 25,000 175,000 2022 500,000 50,000 750,000 2023 1,000,000 100,000 1,100,000 2024 2,000,000 200,000 600,000 2025 2,750,000 275,000 3,925,000 2026 5,500,000 550,000 1,450,000 2027 8,000,000 800,000 -800,000 2028 8,000,000 800,000 -800,000 2029 8,000,000 800,000 -7,200,000 2030 4,000,000 400,000 -3,600,000

Advantage of the Revolving Loan Fund:

As can be observed from Table 25, using the concept of the Revolving Loan Fund, the actual financing required for the end-consumer finance averages around US$ 1.2 million (2020-2026) with a peak of US$ 4 million in 2025. The nature of the revolving loan fund allows the amounts of loan repaid to be re-used for consumer loan in subsequent years and the donors can expect to be repaid by the end of the NAMA life span.

The annual disbursement of finance required is significantly lower than the total loan value of US$ 32 million and is estimated at US$ 8.4 million the sum total for the period 2020-2026.

Risk for Donors:

Under the above assumptions, the potential financial risk for donors is the loan defaults (assumed at 10 per cent in the calculations) and will need to be borne by the donor or can be factored into the interest rate calculations.

Potential Source(s) of Finance:

The finance required for setting up EPZs is a loan component and can be financed through international donor finance. As the revolving loan fund model allows the financing extended as a loan to be recovered towards the end of the NAMA life span, the model makes it attractive to international donor agencies (e.g. KfW, DFID, USAID etc.) NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 93

The African Renewable Energy Fund (AREF): Nairobi is also the headquarters of the AREF with a market capitalization of US$ 200 million. A dedicated renewable energy fund focused on sub-Saharan Africa, the fund was set up in 2015 with contributions from the European Investment Bank, the Global Energy Efficiency and Renewable Energy Fund (GEEREF), among other investors. The fund is managed by Berkeley Energy, a fund manager focused on developing and investing in renewable energy projects in emerging markets.

(Additional Information: EIB and http://www.berkeley-energy.com/)

9.4 NAMA Finance Required for Measures

The NAMA Finance required for measures consists of three major category of activities:

■ Measures to initiate the NAMA implementation

■ Measures related to the Public Procurement Scheme

■ Measures related to annual operation of the NAMA

9.4.1 Financial Measures for initiating NAMA Implementation

Note: This section refers to Items 5, 6, 8, 9, 12 in the NAMA Finance summary table 17

The financial measures to start the NAMA include the following activities:

■ Item 5. Finance required to undertake the technical feasibility study

■ Item 6. Finance required for Quality Standard (no financing required hence not elaborated)

■ Item 8. Finance required for marketing and awareness creation

■ Item 11. Finance for hiring of two national consultants (three years)

■ Item 12. Finance required for financial trustee (three years)

Finance for Technical Feasibility Study: US$ 50,000 (lump sum)

The NAMA defines the 28 potential locations of the 28 EPZs, based on population data for each county. As noted in Section 8.1.1, the technical feasibility study will require the appointment of a national consultant for a three- month period to verify and update the population data with most current values available from the KNBS. In addition, the consultant can make recommendations about potential locations for the EPZs within each EPZ and identify a list of private sector actors who can be invited to participate in the EPZ business model. The feasibility study will be initiated by the MOEP (NCA) and the finalized study will allow the NCA to initiate the implementation of the NAMA.

Potential Source(s) of Finance:

The technical feasibility study is a grant component and can be financed through international grant finance. Alternatively, the GoK can approach Climate Technology Centre & Network or CTCN (the designated 94 NAMA FINANCE

technical focal point for UNFCCC under the Paris Agreement) through its National Designated Entity to finance the study.

Finance for Marketing and Awareness Creation: US$ 54,000

Marketing and awareness creation is one of the objectives of the GoK as noted in the NEP 2014. The finance required for NAMA marketing described in this section focuses only on Year 1 and consists of the following items:

■ 12 newspaper advertisements in a year at US$ 2,000 per advertisement

■ 200 minutes of radio advertisements at US$ 100 a minute

■ A lump sum amount of US$ 10,000 for other media (pamphlets etc.)

Potential Source(s) of Finance:

The marketing and awareness is a grant component can be financed through international grant finance. Additional marketing and awareness creation in subsequent years can be financed through the national budget as it contributes to the NEP.

Finance for hiring two National Consultants: US$ 300,000

The NAMA requires hiring of two national consultant a technical consultant as the first step in implementation (See Sections 8.1.3 and 9.3), responsible for setting up the NCA and NIE and training staff for a period of three years and a business consultant who shall be responsible for engaging with the private sector and ensuring that the NAMA interventions are undertaken. The costs for hiring the consultants consist of salaries for a period of threeyears and operating costs. The average annual cost per consultant is assumed at US$ 50,000 (i.e. US$ 3,000 per month as salary plus operating expense of US$ 14,000/year for workshops, travel, computers etc.)

Potential Source(s) of Finance:

The hiring of the two consultants is a national contribution as it directly facilitates the development of the energy sector as defined under the NEPP. At present the National Environment Trust Fund (NETFUND), Kenya, is identified as the most suitable organization to finance this component. NETFUND) (http://www. netfund.go.ke/index.php), a state corporation under the Ministry of Environment and Natural Resources, is mandated to further the requirements of environmental management, capacity development, environmental awards, environmental publications, scholarships and grants.

Finance for Financial Trustee: US$ 125,000

The financial trustee is an individual or team typically appointed by the international donor agency with the overall responsibility for management and operation of the NAMA Finance (international grant finance component). Under the NAMA, the trustee will be responsible for identifying local financial institutions, training and supporting the implementation of the NAMA finance scheme as appropriate.

Potential Source(s) of Finance:

The finance is grant component and the financial trustee will be appointed by the donor agency with a cost assumed at 10 per cent % of the total grant component. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 95

9.4.2 Finance for Public Procurement

Note: This section refers to Item 7 in the NAMA Finance summary table 17

Finance for Public Procurement: US$ 8 Million

The concept and rationale behind the Public Procurement is elaborated in Section 8.2.1 and requires the GoK to facilitate the purchase of 200,000 PV lanterns and 200,000 ICS at a pre-determined fixed rate, directly from the manufacturers. The table provides the annual budget required to procure the units at an estimated price of US$ 20 per unit.

Table 26: Estimated finance and number of units distributed under Public Procurement

Year Units Procured Finance required 2017 — — 2018 20,000 400,000 2019 20,000 400,000 2020 60,000 1,200,000 2021 60,000 1,200,000 2022 80,000 1,600,000 2023 80,000 1,600,000 2024 80,000 1,600,000 2025 — — 2026 — — 2027 — — 2028 — — Total 8,000,000

Potential Source(s) of Finance:

The finance is grant component and can be financed through the national budget or through a combination of international programmes that support the distribution of PV lanterns and cookstoves. For example, a US based non-profit organization, One Million Lights footnote?(http://onemillionlights.org/) aims to distribute a million PV lanterns to end-consumers in various countries through public donations received from individual contributions. This financing scheme can be extended through CSR schemes for companies interested in contributing directly to socio-economic development in Kenya and to the SDGs as part of their corporate strategy. 96 NAMA FINANCE

Enabling Private Sector Finance through Strategic Corporate Sustainability Actions (CSA) and Impact Investing

While there appears to be a good understanding of philanthropic CSR within business organizations in Kenya, there is a lack of understanding and awareness of the Paris Agreement and the SDGs and how they can potentially affect businesses in the coming years. An innovative approach to building private sector capacity adapt towards a low carbon future is by undertaking a strategic approach to Corporate Sustainability Actions or Strategic CSA

The concept of “Impact Investing” has been discussed in Section 7.5 and in pursuing Strategic CSA – which combines elements of impact investing with the new global frameworks (i.e. Paris Agreement and SDGs), businesses in Kenya take a pro-active approach to aligning socio-economic impact, environmental benefits, and consistency with national and international priorities into business strategy development.

Some of the more innovative companies in the world are taking advantage of an increasingly connected and digital world to seek out business models drawing on the ideas of the “Circular Economy” and “Internet of Things” which combine elements of Strategic CSA with elements of information technology. These business models are challenging our very notion of markets, ownership and business value proposition and moving us towards a more sustainable and shared economy.

The figure below provides an overview of a strategic CSA model that allows the private sector in Kenya to take advantage of the emerging “Opportunity Gap” arising from the new global frameworks by integrating national priorities with elements of impact investing.

Figure 9: Schematic Representation of a Strategic CSA Model NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 97

9.4.3 Finance for NCA/NIE Staff

Note: This section refers to Item 11 in the NAMA Finance summary table 17

Salaries and Operating Cost of NCA / NIE Staff: US$ 2.5 Million

The NCA is the Ministry of Energy and Petroleum and the NIE is the REA, both funded by the national budget. Hence the salaries and operating cost of the NCA and NIE staff will be directly borne by the GoK. The points summarizes the key assumptions:

■ Two department directors: US$ 24,000 / year (total US$ 48,000/year)

■ Three managers: US$ 12,000/year (total US$ 36,000/year)

■ 12 support staff: US$ 6,000/year (total US$ 72,00 year)

■ Total number of years (2017-2030): 14 years

■ Total salaries: US$ 2,184,000

■ Operating expenses at 15 per cent: US$ 327,600

■ Grand Total: US$ 2,511,600 (approx. US$ 180,000 annually)

9.5 Summary of Financial Requirements

The chart below summarizes the annual financial requirement of the NAMA. One component that is constant for the entire duration of the NAMA is the salary and operating cost of the staff. The initial years of the NAMA has loans and grants required to establish the technical interventions (i.e. the 28 EPZs with 500 kWp of solar power plants) along with supporting measures required to initiate the NAMA process (e.g. the feasibility study, the national consultants etc.). As the manufacturing and distribution of clean energy technology starts, the initial years are dominated by the public procurement scheme which supports establishing a consumer- driven market supported by consumer finance. 98 NAMA FINANCE

Table 27: NAMA Finance Overview – Annual Values

Intervention - Loans USD 4,500,000 Intervention - Grants USD 4,000,000 Revolving Loan Fund Public Procurement USD 3,500,000 Other Measures USD 3,000,000 Salaries & Operating Cost of NCA/NIE Sta

USD 2,500,000

USD 2,000,000

USD 1,500,000

USD 1,000,000

USD 500,000

USD 0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

The table below summarizes the overall NAMA Finance required while indicating the potential sources of financing as elaborated in this chapter.

Table 28: NAMA Finance Overview – Total Values

No. Key Financing Categories Description Amount Type (Interventions and Measures) (US$) 1 Establish 28 EPZ Total loans accessed by NEEs 3,380,000 Loan 2a 500 kWp of PV Grants for setting up PV Power 1,250,000 Grant Plant 2b Finance Trustee at 10% 125,000 Grant 3 800,000 PV lanterns and 800,000 Revolving Loan Fund 8,400,000 Loan ICS distributed 4 Technical Feasibility Study One time lump sum grant 50,000 Grant 5 Marketing and Awareness One time lump sum grant 54,000 Grant 6 Public Procurement 200,000 PV National contribution in line 8,000,000 GoK* lanterns and 200,000 ICS with reaching out to the poorest of poor 7 Salaries & operating Cost of NCA/ Total amount spread over the 2,520,000 GoK NIE staff life span of the NAMA NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA FINANCE THROUGH INNOVATIVE MARKET BASED SOLUTIONS 99

No. Key Financing Categories Description Amount Type (Interventions and Measures) (US$) 8 Salaries and operating Cost for 2 Total amount spread over 3 300,000 NETFUND national consultants years Total 24,079,000 Of which International Finance - Loan 11,780,000 International Finance - Grant 1,479,000 National Contribution including 10,820,000 innovative models*

* The public procurement can be funded through various innovative models such as Corporate Sustainability Actions. and not necessarily by the Government of Kenya

In addition, the NAMA will also raise equity from end-consumers (US$ 8 million) and from private sector participating in the EPZ Business Models. 100 NAMA MRV SYSTEM

10 NAMA MRV SYSTEM

The principal objective of the Measuring, Reporting, and Verification (MRV) system is to communicate progress and provide credibility for any intervention and measure. This should be done in a manner that is internationally comparable with the efforts of other parties to the UNFCCC, e.g. determining an appropriate baseline approach and identifying the methodology for the estimation of the emission reductions. The MRV system should establish the environmental integrity of mitigation actions and ensure that no double-counting occurs. Further criteria are transparency, cost-efficiency, a sound institutional framework, consistency, comparability, completeness and accuracy.

Given the overall NAMA concept and intervention for which support is sought, the GHG part of the MRV system should be based on direct GHG emissions (i.e. combustion of fossil fuels and non-renewable biomass) by monitoring. The NAMA framework intends to promote the construction of EPZs equipped with solar PV power plants and distribution of clean energy technologies (i.e. solar PV lanterns and ICS)

The aim of this section is to present the principles and general approach of the proposed MRV system, including data requirements and monitoring procedures for the four dimensions:

■ GHG mitigation

■ Sustainable development benefits

■ Implementation and transformation process—Technical Interventions

■ Implementation and transformation process—Supporting Measures

The objective of MRV systems is to measure and ensure the effectiveness of the proposed intervention a and measures, to check that they are meeting the required standards and expectations (and also as a proof for the stakeholders) and to provide a credible and transparent approach for quantifying and reporting GHG emission reductions. As the NAMA is an output-based supported programme, the results of implementing it need to be considered in order to secure support and to ensure the sustainable success of the interventions. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 101

Hence, the MRV system includes the following elements that need to be defined:

System boundary definition

The system boundary encompasses significant anthropogenic GHG emissions by sources under the control of the project participants that are reasonably attributable to the NAMA interventions as a project activity.

Baseline Scenario

The baseline scenario is the scenario for a project activity that reasonably represents the anthropogenic emissions by GHG sources as well as sustainable development that would occur in the absence of the proposed project activity, i.e. the NAMA intervention. These are elaborated in Chapter 6 on Baseline Information.

Monitoring procedures

The monitoring plan will define the parameters to be monitored based on the methodology followed to determine the emission reduction. It will also include corresponding indicators for sustainable development benefits, the financial management and the implementation status.

Reporting and verification

The reporting and verification process will define the reporting requirements and verification procedures considering the methodology standards and stakeholder requirements.

10.1 Measurement

10.1.1 GHG Mitigation

Objective 1 of the NAMA is to enable the private sector to participate in the manufacturing and distribution of the clean energy technologies in Kenya. Objective 2 is to create an enabling market environment that encourages distribution of the clean energy technologies by the end users supported by an appropriate financing model. Hence, the GHG emission reductions which will be achieved by the interventions, can be calculated by comparing emissions of the implemented NAMA intervention (i.e. solar PV power plants, solar PV lanterns and ICS) with the emissions under a baseline scenario in the absence of the NAMA interventions.

GHG methodology for determining emission reductions

As noted in Chapter 6 on Baseline Information, the following CDM methodologies have been used for estimating the emission reduction calculations as summarized in the table below:

■ Solar PV Power Plant - CDM Methodology: AMS-I.A.

■ Solar PV Lantern – CDM Methodology: AMS.III.AR.

■ Improved biomass cook stoves – CDM Methodology AMS-II.G. 102 NAMA MRV SYSTEM

Emission Reduction

Following the approach described above, the emission reduction due to the NAMA interventions (500 kW solar PV power plant capacity, 1 million solar PV lanterns and 1 million ICS) is calculated as shown in the following table below.

Table 29: Estimation of emission reductions achieved under the NAMA (tCO2)

Year PV power plant PV lanterns ICS Total 2017 117 - - 117 2018 140 800 30,000 30,940 2019 409 1,600 60,000 62,009 2020 444 4,000 150,000 154,444 2021 584 6,400 240,000 246,984 2022 584 8,800 330,000 339,384 2023 584 12,800 480,000 493,384 2024 584 15,200 570,000 585,784 2025 584 20,800 780,000 801,384 2026 584 25,600 960,000 986,184 2027 584 25,600 960,000 986,184 2028 584 25,600 960,000 986,184 2029 584 12,800 480,000 493,384 2030 584 - - 584 TOTAL 6,950 160,000 6,000,000 6,166,950

Based on the 3 CDM methodologies, the emission reduction can be estimated for 2 interventions as follows:

ERy = BEy − PEy − LEy Where:

ERy = Emission reductions in year y (tCO2)

BEy = Baseline emissions in year y (tCO2)

PEy = Project emissions in year y (tCO2)

LEy = Leakage emissions in year y (tCO2)

This NAMA consists of three components, namely solar PV power plants, solar PV lanterns and ICS. Accordingly, the overall emission reduction is derived as followed:

ERtotal,y = ERPVPP,y − ERPVL,y − ERICS,y NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 103

Where:

= Total emission reductions in year y achieved under the NAMA (tCO2) ERtotal,y

= Emission reductions in year y from solar PV power plants (tCO2) ERPVPP,y

= Emission reductions in year y from solar PV lanterns (tCO2) ERPVL,y

= Emission reductions in year y from solar ICS (tCO2) ERICS,y

Baseline Emissions (Solar PV power plants)

Following the approach of AMS-I.A., the baseline emissions are calculated based on the generated electricity times the emission factor for the baseline diesel generation system as per the equation below:

BEPVPP,y = EGPVPP,y × EFBL Where:

= Total baseline emissions in the year y from solar PV power plants (tCO2) BEPVPP,y

= Annual electricity generation from solar PV power plants (MWh) EGPVPP,y

= Emission factor for baseline diesel generation system (0.8 tCO2/MWh) EFBL

As a simplification, technical distribution losses are not accounted for the calculation of emission reductions. This is conservative.

Baseline Emissions (Solar PV lanterns)

Following the approach of AMS-III.AR. with the simplification of applying a default emission reduction per lantern for the operation of one full year, the baseline emissions are calculated as follows:

tPVL,ID,i,y BEPVL,y = ∑ × EFPVL,i,BL Where: 365

= Total baseline emissions in the year y from solar PV lanterns (tCO2) BEPVL,y

= Days of operation of lanterns with specific ID-Number and of type i in year y (d), tPVL,ID,i,y assumed at 365 = Emission reduction per lantern of type i per year of operation (0.08 tCO2/year) EFPVL,i,BL

Baseline Emissions (ICS)

Following the approach of AMS-II.G. with the simplification of applying a default emission reduction per ICS for the operation of one full year, the baseline emissions are calculated as follows:

tICS,ID,i,y BEICS,y = ∑ × EFICS,i,BL 365 104 NAMA MRV SYSTEM

Where:

= Total baseline emissions in the year y from ICS (tCO2) BEICS,y

= Days of operation of ICS with specific ID-Number and of type j in year y (d), tICS,ID,i,y assumed at 365 = Emission reduction per ICS of type j per year of operation (3.0 tCO2/year) EFICS,i,BL

Project emissions under NAMA

In line with the above mentioned CDM methodologies, under the specific situation of the NAMA interventions, the project emissions can be assumed to be zero.

■ As per AMS-I.A. project emissions are zero for solar PV power plants as long as no fossil fuel is used for backup power supply.

■ As per AMS.III.AR. project emissions are zero as only renewable power sources (i.e. PV) are used for charging the lanterns.

■ As per AMS-II.G. project emissions are zero under the circumstances of the intervention proposed under this NAMA.

Leakage under NAMA

■ As per AMS-I.A leakage has to be considered if the energy generating equipment is transferred from another activity. Such transfer is not applicable for the solar PV power plants.

■ As per AMS.III.AR no specific leakage1 has to be taken into account.

■ As per AMS-II.G leakage has to be considered for changes in usage of non-renewable biomass due to the project implementation, transfer of equipment and switching from fuel wood to charcoal. Applying a default value of baseline emissions on the basis of a registered CDM project takes into account the leakage related to changes in non-renewable biomass. Transfer of equipment or change from fuel wood to charcoal can be neglected under the proposed NAMA intervention.

To summarize, in line with the above mentioned CDM methodologies, in the specific situation of the NAMA interventions, leakage can be assumed to be zero or is already covered by the selection and determination of the applied default factors.

Key Parameters Needed

In order to determine the emission reduction as described above, the following parameters will be monitored for the NAMA, related to the determination of the emission reductions:

1 A leakage factor of 1 has to be applied. NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 105

Data / Parameter: Capacity solar PV power plants Data Unit: kWp Description: Total peak capacity of solar PV power plants built at EPZs Measurement Data records from EPZs including contracts for building solar PV power plants criteria / means of measurement Frequency: Annually

Data / Parameter: EGPVPP,y Data Unit: MWh Description: Annual electricity generation from solar PV power plants Measurement The data are derived from electricity meters at each PV power plant supplying criteria / means of electricity to an EPZ. measurement Frequency: Continuously Frequency: Annual

Data / Parameter: No. of solar PV lanterns Data Unit: — Description: Total number of solar PV lanterns produced/distributed Measurement Data from records at manufacturers/distributers at EPZs criteria / means of measurement Frequency: Annually

Data / Parameter: No. of ICS Data Unit: — Description: Total number of ICS produced/distributed Measurement Data from records at manufacturers/distributers at EPZs criteria / means of measurement Frequency: Annually

By using the default emission reduction per device for the solar PV lanterns and the ICS, it is possible to reduce the monitoring parameters and the related effort to a minimum while offering a reliable and conservative basis for the determination of emission reductions as long as the equipment is accepted by the consumers and the quality standards applied will ensure operation of such a period. 106 NAMA MRV SYSTEM

10.1.2 Sustainable Development Benefits

This NAMA is designed considering sustainable development benefits in addition to GHG mitigation. Sustainable Development (SD) co-benefits are considered a central element for climate finance and for encouraging country ownership, as well as having an important impact on the long-term sustainability of a NAMA. For this NAMA a number of sustainable development indicators have been selected, based on the Sustainable Development Evaluation Tool (SD Tool) provided by UNDP.

The Sustainable Development Evaluation Tool:

The SD tool requires for each of the Interventions that an indicator (such as air pollution, biodiversity, health, etc.) is selected, the impact is identified, an explanation on the chosen indicator be added , the effect (positive, negative, both) be defined and that it be indicated whether monitoring is done. For the approach taken using the UNDP’s SD Tool and additional information, see Section 6.3.2 under Baseline and NAMA targets.

Table 30: NAMA Targets (as per the SD Tool) tracked under the MRV

No. Domain Indicator Identified Impact Target Value 1 Environment Climate Change Reduced GHG Emission 6.17 million Adaptation and Mitigation tCO2e 2 Livelihood of poor, poverty Total no. of clean 400,000 units alleviation, peace energy technology (PV lanterns units distributed to the + ICS) Social “poorest of poor’” 3 Quality of employment Total no. of EPZs 28 established 4 Access to clean and Total no. of clean 2,000,000 sustainable energy energy units distributed units (PV (all categories) lanterns + ICS)

5 Growth and Empowerment of women Total no. of women 200 women Development employed 6 Access to sustainable Total capacity of solar 500 kWp technology PV power plant installed 7 Capacity development Total no. of training 16 per year programs 8 Asset accumulation and Total no. of new 64 new investments enterprises established enterprises (all types of Economic NEEs) 9 Job Creation (number Total no. of new jobs/ 400 new jobs of men and women employment created employed) NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 107

No. Domain Indicator Identified Impact Target Value 10 Policy and planning NAMA institutions NCA and NIE established established Institutional 11 Laws and regulation Loans / grants US$ 13.26 distributed million

10.1.3 Measurement—SD Parameters

The SD benefits achieved due to the NAMA interventions should be measured continuously, and reported by the responsible technical NIE regularly. Hard copies or soft copies of the reports should be kept at a safe centralized point, and be archived by the NCA. The tables below provide the indicators that need to be monitored for SD, in line with the SD Tool:

Reference number: 1 (see SD Tool above) Indicator Name Climate Change Mitigation Domain Environment Parameter Name GHG emissions (tCO2e) Baseline Value As per section 6.2.2 Way of monitoring How Calculated in accordance with methodologies define in the NAMA Frequency Continuously By whom MRV Cell and NEEs Project Value 6.17 million tCO2e (rounded value) QA/QC procedures QC check done Third party verification organization

Reference number: 2 (see SD Tool above) Indicator Name Livelihood of poor, poverty alleviation, peace Domain Social Parameter Name Total no. of lanterns distributed to “poorest of poor” Baseline Value 0 Way of monitoring How Tracked by MRV Cell at point of sale Frequency Continuously By whom MRV Cell and NEEs Project Value 200,000 PV lanterns and 200,000 ICS QA/QC procedures QC check done Third party verification organization through sale receipts and random interview with beneficiaries 108 NAMA MRV SYSTEM

Reference number: 3 (see SD Tool above) Indicator Name Quality of Employment Domain Social Parameter Name Total no. of EPZs established Baseline Value 0 Way of monitoring How Tracked by NIE/MRV Cell based on approvals granted and loans accessed Frequency Monthly By whom MRV Cell along with Financial Institution providing loans/ grants Project Value 28 (8. EPZ-L and 20 EPZ-S) QA/QC procedures QC check done Third party verification organization through total finance accessed by NEE and physical verification of existing infrastructure

Reference number: 4 (see SD Tool above) Indicator Name Access to clean and sustainable energy Domain Growth and Development Parameter Name Total no. of lanterns distributed to all sections of society Baseline Value 0 Way of monitoring How Tracked by MRV Cell at point of sale Frequency Continuously By whom MRV Cell and NEEs Project Value 1,000,000 PV lanterns and 1,000,000 ICS QA/QC procedures QC check done Third party verification organization through sale receipts

Reference number: 5 (see SD Tool above) Indicator Name Empowerment of Women Domain Growth and Development Parameter Name No. of women employed Baseline Value 0 Way of monitoring How Tracked by MRV Cell with NEEs based on employment records Frequency Annually By whom MRV Cell and NEEs Project Value 200 (or 50% of total employment) QA/QC procedures QC check done Third party verification organization through monthly salary slips and random interview with staff NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 109

Reference number: 6 (see SD Tool above) Indicator Name Access to sustainable technology Domain Growth and Development Parameter Name Total capacity of solar PV plant installed Baseline Value 0 Way of monitoring How Tracked by NIE based on approvals granted and financial grants accessed Frequency Monthly By whom MRV Cell and NEEs Project Value 500 kWp QA/QC procedures QC check done Third party verification organization through total finance accessed by NEE and physical verification of existing infrastructure (i.e. solar plant)

Reference number: 7 (see SD Tool above) Indicator Name Capacity development Domain Growth and Development Parameter Name Total no. of training programmes undertaken Baseline Value 0 Way of monitoring How Tracked by MRV Cell and NEE based on physical evidence (e.g. photos, attendance list of attendees etc.) Frequency Annually By whom MRV Cell and NEE Project Value 16/year QA/QC procedures QC check done Third party verification organization through random interviews with participants and certificate of participation awarded.

Reference number: 8 (see SD Tool above) Indicator Name Asset accumulation and investments Domain Economic Parameter Name Total no. of individual business created (no. of NEEs) Baseline Value 0 Way of monitoring How Tracked by NIE/MRV Cell based on approvals granted and loans accessed Frequency Monthly By whom MRV Cell and NEEs Project Value 64 new enterprises QA/QC procedures QC check done Third party verification organization through total finance accessed by NEE and physical verification of existing infrastructure (i.e. office set up) 110 NAMA MRV SYSTEM

Reference number: 9 (see SD Tool above) Indicator Name Job Creation Domain Economic Parameter Name Total no. of new employment created Baseline Value 0 Way of monitoring How Tracked by MRV Cell with NEEs based on employment records Frequency Annually By whom MRV Cell and NEEs Project Value 400 QA/QC procedures QC check Third party verification organization through monthly salary done slips and random interviews with staff

Reference number: 10 (see SD Tool above) Indicator Name Policy and Planning Domain Institutional Parameter Name NCA and NIE established and operationalized Baseline Value 0 Way of monitoring How Tracked by NIE based on staff employed within NCA and NIE Frequency Annually By whom MRV Cell Project Value 400 QA/QC procedures QC check done Third party verification organization through monthly salary slips and random interviews with staff

Reference number: 11 (see SD Tool above) Indicator Name Laws and Regulation Domain Institutional Parameter Name Total finance distributed by banks Baseline Value 0 Way of monitoring How Tracked by MRV Cell with support from financial institutions based on total loans / grants distributed Frequency Monthly By whom MRV Cell, financial institution and NEEs Project Value US$ XX Mio QA/QC procedures QC check done Third party verification organization through total finance accessed by NEE and direct interviews with beneficiaries (e.g. end consumers) NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 111

10.2 Reporting

The NAMA will establish the institutional system needed for the coordination, implementation and MRV of the NAMA in the form of NCA, NIE and NEEs. The overall responsibility of the NAMA lies with the NCA which is the Ministry of Energy and Petroleum and will be the key Ministry responsible for communication of the MRV to the designated national focal points for national/sectoral level reporting (e.g. National Communication or bi-annual reporting to UNFCCC or any new reporting requirements established under the Post Paris Agreement). The day-to-day responsibility for data collection, data management, reporting and verification will be undertaken through a dedicated ‘MRV Cell’ under the NIE. The NIE will therefore be responsible for the overall management and ownership of the MRV process and for overseeing the preparation of the annual MRV reports. The MRV Cell will delegate some tasks to the NEEs while be directly responsible for coordinating with other NEEs for specific data sets.

Figure 10: Schematic overview of the MRV reporting structure 112 NAMA MRV SYSTEM

Three broad categories of data sets will be reported:

■ Information regarding the technical implementation (e.g. number of lanterns and ICS units sold annually, electricity generated by the PV power plants). These data sets will directly contribute towards estimation of GHG emission reductions.

■ Information regarding Sustainable Development Benefits including capacity development efforts undertaken at EPZ level (e.g. the new employment created, women / youth employed, staff trained, training programmes conducted, number of community demonstration projects etc.)

■ Information related to finance that will be directly provided by the participating financing entities (e.g. loans / grants provided through local banks or financial institutions to private sector and end- consumers). This information may be a specific requirement of international donors.

10.3 Verification

The NIE will implement a monitoring protocol that allows any third party verifier to verify all relevant data. A NAMA monitoring database shall be established that contains all the specific data required. This database is going to be operated and maintained by the NIE, potentially under supervision of the NCA.

Verification Procedures

As noted, the NIE will be responsible for the preparation of monitoring report(s) and for communication with an appointed verifier during verification activities. The preparation of the monitoring reports, if required, could also be outsourced to competent consultants or trained staff from within the MRV Cell.

Verification initiated by the NIE will occur for the baseline and the NAMA activities (e.g. sampling group). The NIE will be responsible for the preparation of monitoring reports based on the monitoring records and according to the methodology at least once every other year. The monitoring reports will aggregate all required monitoring information, i.e. monitoring records, in order to allow third party verification. Each monitoring report will unambiguously set out the data on emission reductions generation, SD impact, and financial management during the monitoring period consistent with the requirements of this MRV system.

The objective of the verification is to have an independent third party auditor ensure that the NAMA is operating as planned and that the measuring and reporting system is being implemented as planned. The verification also ensures that emissions reductions and SD benefits are real and measurable. Auditors should be accredited entities, such as under the CDM or under another accreditation system.

Verification should occur every one or two years. The verification will consist of:

■ Desk review of NAMA monitoring reports prepared by the NIE;

■ Site visits/interviews of key stakeholders;

■ Drafting of a verification report;

■ Providing feedback on the report by the NIE and the NA; NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA NAMA MRV SYSTEM THROUGH INNOVATIVE MARKET BASED SOLUTIONS 113

■ Finalization the verification report.

Quality Assurance Procedures

Use of the monitoring database, including monitoring and identification records, will ensure that double counting of emission reductions.

The length, i.e. the start and end date of each monitoring period, together with the corresponding monitoring records for that monitoring period, will be recorded in the database.

Record-keeping procedures undertaken by the NIE will ensure that the monitoring records attributed to a monitoring period can be clearly attributed to the NAMA activities and will furthermore prevent double counting of emission reduction data.

For data quality control, the data and information provided to the NIE will be checked internally to ensure the accuracy and completeness of data. In the case of mistakes, corrective action will be applied to avoid future similar mistakes. Subject to the requirements of the NA and the donor there might be additional requirements of the MRV system, e.g. donors might wish to send their own QA/QC to check the NAMA performance.

In order to assure quality of data handling, training will be provided to monitoring personnel. The NIE, through the MRV Cell, will provide all necessary information and training material that enables every NEE to conduct the monitoring process as required by the NAMA MRV system. 114 SECTION TITLE

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ANNEXES

NAMA Summary

Overall Goal/Purpose of the NAMA: Increase access to clean energy technologies (i.e. PV lanterns and improved cookstoves) in a sustainable manner while leading to transformational change—particularly in the household energy sector in rural Kenya. Objectives, Technical Interventions and Physical Outcomes of the NAMA: Objective 1: Enable the private sector to participate in the manufacturing and distribution of the clean energy technologies in Kenya. Intervention 1: Establish 28 Energy Productivity Zones in Kenya, each with its own PV- based electricity power plant.

■ Outcome A: 28 EPZs are established in Kenya and operationalized

■ Outcome B: 500 kWp of Solar PV- based power plant implemented Objective 2: Create an enabling market environment that encourages distribution of the clean energy technologies through an appropriate financing model. Intervention 2: Distribute clean energy technologies, enabled through consumer finance.

■ Outcome C: 1 million solar PV lanterns distributed

■ Outcome C: 1 million improved cookstoves distributed

Note: Since the activities for Outcome C are identical for both technologies (i.e. lanterns and cookstoves), the Log Frame Analysis tackles this as a single Outcome NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA ANNEXES THROUGH INNOVATIVE MARKET BASED SOLUTIONS 117

Outputs, Activities and Measures

Step 0: Preparatory Phase Activities 0.1 Appointment of a National Technical Consultant To be undertaken by the MOEP before the start of the NAMA 0.2 Environmental Impact Assessment of the NAMA To be determined before the interventions if required for specific financing start of NAMA application (e.g. GCF)

Outcome A: 28 EPZs are established in Kenya and operationalized Output A.1: The National Coordinating Entity (NCA) and NAMA Implementing Entity (NIE) are implemented and operating 0.1 The National Technical Consultant is Financial Measure (Salaries and operationalized Operating Costs) Activities A.1.1 NCA is defined, staffed and operationalized within Financial Measure (Salaries and the MOEP Operating Costs) A.1.2 NCA Staff are trained on relevant issues related to Capacity development their role and responsibility under in the NAMA Measure (Institutional) A.1.3 NIE is defined, staffed and operationalized Financial Measure (Salaries and including the MRV Cell Operating Costs)

A.1.4 NIE Staff are trained on relevant issues related to Capacity development their role and responsibility under in the NAMA Measure (Institutional) Output A.2: Implementation Plan Approved A.2.1 External consultant appointed to undertake Financial Measure (Cost of the feasibility study Consultancy) A.2.1 Implementation plan approved for pre-determined Capacity development locations of 28 EPZs based on the feasibility study Measure (Systematic) Output A.3: Awareness Creation for Private Sector Participants A.3.1 A National Business Consultant is appointed and Financial Measure (Salaries and operationalized Operating Costs) A.3.2 Marketing and Awareness Creation through radio, Financial Measure (Year 1 only) newspaper advertisements and use of other forms of local media A.3.3 Outreach to Private Sector Participants by the Capacity development National Business Consultant including the Measure (Institutional) development and communication of an Eligibility Criteria and the 3 types of EPZ Business Models Output A.4: Financing Facility Operationalized A.4.1 Selection of financial institution (one or more Capacity development as appropriate) as the Financial Trustee (FT) and Measure (Institutional) agreement between the parties executed 118 ANNEXES

A.4.2 The Financing Facility is established and Financial Measure (Donor operational under the FT, including setting up of finance) the Revolving Loan Fund (Facility consists of grants and loans as highlighted for individual activities below) Output A.5: 28 EPZs (EPZ Business Model 1—the physical infrastructure consisting of 8 EPZ-L and 20 EPZ-S) are constructed and made operational A.5.1 Approvals granted to private sector participating Capacity development in the EPZ Business Model Measure (Systematic) A.5.2 Loans made available to Private Sector for Financial Measure (Financial establishing EPZ (physical infrastructure) facility - Loans) A.5.3 Annual training programme initiated Capacity development Measure (Institutional) Output A.6: 8 EPZs (EPZ Business Model 2—the manufacturing facilities) are established and made operational A.6.1 Approvals granted to private sector participating Capacity development in the EPZ Business Model Measure (Systematic) A.6.2 Loans made available to Private Sector for Financial Measure (Financial establishing EPZ (manufacturing facilities) facility - Loans) A.6.3 Annual training programme initiated Capacity development Measure (Institutional) Outcome B: 500 kWp of Solar PV based power plant implemented Output B.1: Solar PV Power Plant of appropriate size based on the type of EPZs installed and made operational totalling 500 kWp for 28 EPZs (i.e. 50 kWp each for 8. EPZ-L and 5kWp each for 20. EPZ-S) B.1.1 Approvals granted for setting up standardized Capacity development Solar PV Power plants in lieu with activity A.5.1 Measure (Systematic) B.1.2 Grants made available to Private Sector for the Financial Measure (Financial installation, operation and maintenance of the facility - Grants) Solar PV Power plant B.1.3 Annual training programme initiated in lieu with Capacity development A.5.3 Measure (Institutional)

Outcome C: 1 million solar PV lanterns distributed

Outcome C: 1 million improved cookstoves distributed Output C.1: 28 EPZs (EPZ Business Model 3—the distribution facilities) are established and made operational C.1.1 Approvals granted to private sector Capacity development Measure participating in the EPZ Business Model (Systematic) C.1.2 Loans made available to the Private Sector for Financial Measure (Financial establishing EPZ (distribution facilities) facility - Loans) C.1.3 Annual training programme initiated in line Capacity development Measure with A.6.3 and MRV Cell Staff (A.1.4) (Individual) NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA ANNEXES THROUGH INNOVATIVE MARKET BASED SOLUTIONS 119

Output C.2: 200,000 PV lanterns and 200,000 ICS distributed under the Public Procurement Scheme C.2.1 Financial allocation for public procurement Financial Measure (National under national budget (or an additional Contribution) sources of finance is identified through innovative models such as Strategic CSA) C.2.2 Distribution of clean energy technologies by Capacity development Measure EPZs to pre-defined groups of people (Individual) Output C.3: 800,000 PV lanterns and 800,000 ICS distributed with support from the Consumer Financing model C.3.1 Financial allocation within the Financing Financial Measure (Financial Facility for Consumer Finance through the facility Revolving Loan Fund) Revolving Loan Fund C.3.2 Distribution of clean energy technologies Capacity development Measure through distribution facilities (Individual)

Financial Measures

Outcome A: 28 EPZs are established in Kenya and operationalized Output A.1: The National Coordinating Entity (NCA) and NAMA Implementing Entity (NIE) are implemented and operating Description 0.1 The salaries and operating cost of the US$ 150,000 of finance National Technical Consultant for a period required by of 3 years Activity A.1.1 Salaries and operating Cost of NCA staff for US$ 2,520,000 the technical life span of the NAMA A.1.3 Salaries and operating Cost of NIE staff including MRV Cell for the technical life span of the NAMA Output A.2: Implementation Plan Approved A.2.1 The cost of appointing an external US$ 50,000 consultant to undertake feasibility study Output A.3: Awareness Creation for Private Sector Participants A.3.1 The salaries and operating cost of the US$ 150,000 National Business Consultant for a period of 3 years A.3.2 The cost of marketing and Awareness US$ 54,000 Creation through radio, newspaper ads and use of other forms of local media in Year 1 Output A.4: Financing Facility Operationalized A.4.2 The total financing required for the US$ 13,030,000* Financing Facility for the entire duration of (Refers to loans and grants for the NAMA interventions and the revolving loan fund—Sections A.5.2, A.6.2, B.1.2, C.1.2, C.3.1 below) 120 ANNEXES

Output A.5: 28 EPZs (EPZ Business Model 1—the physical infrastructure consisting of 8 EPZ-L and 20. EPZ-S) are constructed and made operational A.5.2 Loans made available to Private Sector for US$ 1,800,000 establishing EPZ (physical infrastructure) Output A.6: 8 EPZs (EPZ Business Model 2—the manufacturing facilities) are established and made operational A.6.2 Loans made available to Private Sector for US$ 800,000 establishing EPZ (manufacturing facilities) Outcome B: 500 kWp of Solar PV based power plant implemented Output B.1: Solar PV Power Plant of appropriate size based on the type of EPZs installed and made operational totalling 500 kWp for 28 EPZs (i.e. 50 kWp each for 8 nos. EPZ-L and 5kWp each for 20 nos. EPZ-S) B.1.2 Grants made available to Private Sector for US$ 1,250,000 the installation, operation and maintenance of the Solar PV Power plant Outcome C: 1 million units of PV Lanterns and 1 million Units of ICS distributed Output C.1: 28 EPZs (EPZ Business Model 3—the distribution facilities) are established and made operational C.1.2 Loans made available to Private Sector for US$ 780,000 establishing EPZ (distribution facilities) Output C.2: 200,000 PV lanterns and 200,000 ICS distributed under the Public Procurement Scheme C.2.1 Financial allocation for public procurement US$ 8,000,000 under national budget (or additional sources of finance is identified through innovative models such as Strategic CSA) Output C.3: 800,000 PV lanterns and 800,000 ICS distributed with support from Consumer Financing model C.3.1 Financial allocation within the Financing US$ 8,400,000 Facility for Consumer Finance through the Revolving Loan Fund NATIONALLY APPROPRIATE MITIGATION ACTION ON ACCESS TO CLEAN ENERGY IN RURAL KENYA ANNEXES THROUGH INNOVATIVE MARKET BASED SOLUTIONS 121 Empowered lives. Resilient nations.

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