Kenya Energy Transition & Investment Plan (ETIP) 2023-2050

1. MOEP with support of SEforALL and UN Country Team is working to build an Energy Transition and Investment Plan (ETIP)

2. The plan will help Kenya frame an energy transition agenda that will attract investment, while at the same time ensuring a just transition and fully supporting Kenya’s rapid economic growth trajectory

3. The plan will be presented at the COP 28 and subsequent events to engage the global investment and climate finance community Kenya’s Energy Transition and Investment Imperative Internationally, the policy, business and • Secure investment. A slower transition will investor community are embracing net reduce investor appetite as fossil assets are increasingly becoming difficult to finance. A zero emissions net-zero target will position Kenya to secure Kenya is at a turning point and has investment capital and donor support which is now largely directed at low-carbon assets. the opportunity to increase its climate ambition, avoid the economic risks of a • New growth sectors. A slower transition slower energy transition and secure its presents a poor outlook for energy exports benefits as international oil and demand falls. A net-zero target will create new economic Kenya also has immense green growth opportunities for Kenya in global energy opportunities that include carbon and technology markets. markets, green hydrogen, green • Energy independence. A carefully manufacturing and localization of low managed transition will secure Kenya’s carbon technologies energy independence as domestic demand grows and imports increase. 1 Objectives of the Energy Transition Plan

01. Improve understanding Convey a clear and impactful perspective on decarbonization, through an assessment of decarbonization technologies impact, effectiveness and feasibility

02. Identify consequences Assess a comprehensive range of decarbonization strategies and their potential implications, including means, benefits, and costs associated with each strategy.

03. Recognize uncertainties and risks Address a less straightforward decision with potential trade-offs, and related mitigation options, highlighting uncertainties to comprehend across 4 main dimensions: technology, infrastructure, policy and market. 2 How the Energy Transition and Investment Plan was built An optimized pathway that delivers a tangible implementation and investment plan The Energy Transition and Investment Plan… Applies cost-effectiveness analysis to identify 0 …to lay out how to achieve GDP and population the clean tech options across all major demand- growth in a low-emission way… supply sectors… Energy demand (Power @) ( Industry •) • ♦ ♦ • ♦ : ~ ♦ • ♦ ♦ ♦ Transport ♦ (Hydrogen @) ( • ♦ ♦ ♦ ♦ • • ♦ ♦ ♦ • • ~ • ♦ ( Buildings and other energy •• ♦ • $ I ♦ • GDP growth …assessing the implications of rapid innovation 0 …and testing alternative scenarios to explore in clean tech for optimized adoption rates and more rapid climate action… technology mix per segment… Emissions, per scenario Technology penetration over time, per segment 2020 Net zero year …to output the total GHG emissions and fuel 0 … as well as a tangible implementation and demand of the optimized pathway… investment plan, compared with investment needs under business-as-usual Emissions, per sector 2020 Net zero year -·--- -- 2020 Net zero year 3 We have explored alternative net zero years to achieve an orderly transition Detailed next = • = • Slower Faster Pathway Delayed transition Orderly transition Accelerated transition description Focus on sustaining the Focus on Early and fast existing industries of decarbonization decarbonization across Kenya, implementing levers with the lowest sectors aligned with only least cost abatement costs leading countries technologies and (priority levers), followed internationally achieving Net Zero as by segments that late as possible are hard-to-abate (optimizing for economic gain, and staying within sustainable fiscal and cost limits) Leading objectives oe Considerations Delayed transition is Optimizing for (long- Uptake of technologies often disruptive and term) economic gain before these are can in the long-term and environmental economically viable, result in asset stranding, impact adopting larger whilst leading to higher technology and security cumulative emissions Enabling gradual of supply risks, as well transition and adoption as asset stranding due Unsustainable price rates to allow for to forced retirement flare-ups for consumers matching natural as legacy products switching points and become scarce or repurposing of oil and uncompetitive, whilst gas consumption from focus on existing domestic use to export revenue streams can limit the uptake of future green value pools 4 Kenya’s energy transition & investment path KEY MESSAGES KENYA’S ENERGY EMISSIONS BASELINE AND FUTURE PATHWAYS Without further action, Kenya’s emissions from energy sector could rise from around 20 Mt CO2e in 2021 to around 130 Mt in 2050. Under Business As Usual (BAU), the bulk of emissions growth will come from transport and industries, driven by population growth, GDP per capita growth , energy access and economic growth. Alternative Net Zero energy pathways consider five country-level objectives or guiding principles: environmental sustainability, energy system costs, economic impact, social implications, and security of supply AN ORDERLY TRANSITION FOR THE ENERGY SECTOR Kenya could achieve Net Zero carbon emissions by 2050, through deployment of low- carbon solutions across all key sectors that use energy. An orderly transition is needed for balancing the key public policy objectives Six main decarbonization technologies will anchor an Orderly Transition. Together, renewables, low-carbon hydrogen, battery electric vehicles and clean cookstoves cover majority of abatement. The Net-zero 2050 relies, in addition to emission reductions as outlined here, on LULUCF interventions as proposed under the Kenya LTS. SOCIOECONOMIC IMPACTS AND FINANCING NEEDS Kenya would need around USD 600 bn in capital investment (USD 165 bn more than under BAU), with the majority of investment going to the power and transport sectors. Delivering this investment could drive new economic activity in the energy sector and beyond, potentially supporting an additional 500 thousand net new jobs by 2050 and beyond. Capital markets will provide the largest funding pool, but tapping these sources will require some de-risking interventions. THE PATH FORWARD There is a set of clear next steps to drive the implementation of a pathway, underpinned by strong governance, a clear timeline and cadence of interaction, and supportive policies. Kenya can further accelerate its economic development by capturing a number of green growth opportunities 5 Economic growth will drive significant energy emissions growth, even under current policies Projected growth - 90 Population, million people - GDP per capita, thousand USD 85 6 Population and income projected to grow substantially to 2050 and beyond: 80 80 75 69 4.9 5 • Population expected to grow 1.7X, at 70 63 4.1 1.5% CAGR1 57 60 52 3.4 4 • GDP per capita expected to grow 4.4X, 50 2.9 at 4% CAGR1 3 40 2.4 30 2 2.0 20 1 10 0 0 2020 2025 2030 2035 2040 2045 2050 Projected CO2 emissions growth, MtCO2 – Only energy CO2 emissions included ■ Cocblgl l:iullcln9t ■ Transport ■ lndu!Uy ■ Power & Hy,:togen 120 BAU 120 Clln'IMt policies 100 100 Ill '° jjJ '° 40 40 20 20 2Qli .- 20$5 2040 2045 ~ 0 2020 = 2000 = 2040 204$ 2nSO Demand growth drives ~5X growth in Low-carbon technologies limit emissions CO2 emissions to 2050 growth to ~4X by 2050: • Road transport: car travel grows 15X • Emissions reduced by ~80% • Residential electricity grows 4X renewables in power mix, and 100% EV • Substantial expansion of manufacturing car sales by 2050 base • Remaining emissions driven by rise of gas in the power; continued use of diesel trucks in transport and limited industry decarbonization 1 Compound Annual Growth Rate Source: GDP - IIASA SSP database, Population - World Bank, SEforALL analysis 6 Kenya’s pathway design is dependent upon the weight attributed to different objectives Guiding principles A. Environmental sustainability B. Energy system costs Reduce carbon emissions to reach Net Zero Minimize energy costs to the Kenya population and minimize the overall carbon budget for and energy-dependent domestic sectors Kenya to align with international investor expectations C. Economic impact D. Employment impact Optimize for macroeconomic benefit, Solve for job retention and future job creation supporting economic activity in the energy potential from decarbonizing Kenya’s economy sector and wider economy E. Energy security and trade balance Ensure system security through self-sufficiency, system stability, and low-risk access to supplies 7 1 86 Net Zero by 2050 will require emissions from energy systems to peak around 2035 and begin a rapid decline C02 emissions by sector, MtCO2e, 2020 - 2050 ■ Cooking/ buildings ■ Transport ■ Industry ■ Power & Hydrogen - 37 36 - 33 30 - 26 20 2020 25 30 35 40 45 2050 Source: SEforALL analysis Key outcomes • Both industry and transport sector emissions peak between 2035 and 2040 • Power sector CO2 emissions fluctuate, as demand growth offsets the declining CO2 intensity of the grid • By 2050 emissions from the energy sector are about 20 MtCO2e with LULUCF* interventions of afforestation and reduction in deforestation as proposed under Kenya’s Long term low emissions development strategy (LTS) to provide the carbon sinks for net-zero emissions. • Beyond 2050, further decarbonization levers in heavy industries and trucks could bring the energy sector emissions close to zero in all sectors, with negative emissions technologies (carbon capture and storage) in industry offsetting residual emissions in power sector. *Land use, Land use change and forestry 9 Six decarbonization technologies will anchor an Orderly Transition pathway; with renewables, electrification and clean cooking all driving substantial abatement TECHNOLOGY Electrification, Carbon Low carbon Battery Clean Negative- Energy capture and hydrogen electric cooking emission efficiency & storage technologies technologies1 solutions renewables CONTRIBUTION Replace fossil Decarbonise Substitute Replace Replace Implement fuels through industrial fossil fuels internal traditional technology- electrification; and/or high as a heat combustion biomass driven power temperature source and/ engines and oil- solutions such provided by heating or feedstock with electric derivatives as BECCS2 solar, wind, processes with green batteries, (e.g., LPG geothermal by capturing and blue primarily for and kerosene) hydro, RE energy and hydrogen passenger with imports, process- and cars, 2/3 improved potentially related CO2 hydrogen wheelers and biomass nuclear, streams (e.g., derivatives light trucks and electric storage, energy in steel BFBO, (e.g., cookstoves in efficiency and cement or ammonia, budlings bioenergy/ chemicals) synfuels) in biofuels (both Industry and for cooking and Transport potentially for transport) CONTRIBUTION TO CO2 ABATEMENT UNDER NET ZERO VS BAU IN 2050 AND BEYOND 24% - Source: SEforALL analysis 1 9% 15% 22% Abatement for clean cooking accounts for estimated associated deforestation emissions 28% 2% 2 Bioenergy with Carbon Capture and Storage. Although nature-based solutions also deliver negative emissions, using nature- based solutions to offset energy sector emissions would reduce the scope to monetize these solutions in international carbon markets 10 Energy Transition will convey benefits across a full range of public policy objectives •A. Investment • I B. New growth sectors USD 38 bn USD 650 billion Selected investment opportunities in clean Global market for clean technologies by 2030, energy infrastructure to 2035, with $500 billion with opportunity to create new domestic of overall investment opportunities by 2050 and industries in, e.g., solar PV manufacturing, beyond aluminium smelting, electric 2-wheeler assembly, and Green Hydrogen C. Energy security and trade balance e D. Employment impact ~94% 500 thousand Reduction in domestic oil and gas consumption Net additional jobs, of which 50% is directly vs BAU, reducing fossil imports stimulated by Net Zero drive energy investments in solar PV, and EV charging / hydrogen fuelling stations •E. Environmental sustainability • I F. Affordability 2.7 GtCO2 <0.6% of GDP Emissions avoided under Net Zero path vs BAU As average additional spending each year1 over the next 40 years required to decarbonize the economy to Net Zero vs BAU (total incremental spending is 1 GtCO2 USD 90 bn) Total carbon budget of the Net Zero pathway for the energy sector over the next 40 years

1. Includes CAPEX, O&M costs and fuel costs Source: SEforALL analysis 11 12 A set of technology interventions will be needed to achieve energy transition for a Net Zero f •. ~ 1 J.,. .Ii Iii• I

1. Through re-use, Vapor Recovery Unit (VRU) or Leak detection and repair for fugitives (LDAR) £ä 13 CHAPTER TWO ETIP - Socioeconomic Impacts and Financing Needs More than $600 billion cumulative capital investment is needed, with power and transport accounting for around 90% of this total Total annual capital investment required by sector1, NZE, USD bn ■ Cooking/ buildings ■ Transport ■ Industry ■ Power & Hydrogen 594 Sector shares (2025 - 60) _,_ 2025 30 35 40 45 50 (Beyond 2050) Key insights • Overall investment in energy technologies grows around 7x between 2025 and 2050, driven by income and population growth as well as a shift to more capital-intensive low-carbon technologies • Throughout the period, transport accounts for the largest share of investment, at around 60%. The very high share of capital investment in transport is driven by the costs of private cars and other vehicles, with ownership growing significantly as incomes grow • Power and hydrogen accounts for a significant share at around 30% of investment • Industry and clean cooking account for a smaller share of investment, at around 10% of total

1. This chart shows investment at 5-year intervals ; values do not sum to cumulative investment Source: SEforALL analysis 14 Around USD 165 bn additional capital investment is needed for the Energy Transition Change in cumulative investment NZE vs BAU by sector, 2020-2050 & beyond, USD bn ■ Cooking/ buildings ■ Transport ■ Industry ■ Power & Hydrogen Build -up of incremental investment by 2050 and beyond 9.5 102 20 - 37 8 595 7.4 5.7 4.9 3.2 1.9 0.7 BAU Power & Industry Transport Cooking/ NZE Hydrogen buildings 2025 30 35 40 45 50 Beyond 2050 1 61% 12% 22% 5% 20% 80% Source: SEforALL analysis Key insights • Total energy technology capex is around USD 430 bn in the BAU scenario; total capex rises by a further USD 165 bn in the NZE scenario, to around USD 600 bn. • The majority of this capex growth is driven by additional investment in the power sector (USD 100 bn additional capex) and transport sector (USD 35 bn). Additional investment in the industry and buildings sectors makes a smaller contribution to the additional capex needs. • The majority of the additional capex needs arises from 2040 as growth in energy demand and the shift to lower-carbon energy technologies are highest in this later period as they are mainstreamed. 15 Energy Transition would require around USD 90bn in cumulative additional spending over BAU ■ Fuel costs ■ O&M ■ CAPEX Change in cumulative spending NZE vs BAU, Change in cumulative spending NZE vs BAU, 2020 - 2050 and beyond, USD bn 2020 - 2050 and beyond, sectorial view, USO bn 60 --- ■ +91 (+10%) BAU NZE -66 Power Hydrogen Industry Transport Cooking/ buildings Key insights • Total capex and O&M are around USD 166bn and USD 85 bn higher than under BAU, respectively; while fuel costs are around USD 160 bn lower • The majority of the additional capex spending occurs in the power and transport sectors, with some additional capex spending in the industry and buildings sectors • The majority of the fall in fuel costs occurs in the transport and power sectors. In the power sector spending is around USD 60 bn higher than under BAU; while in the transport sector the fuel cost savings outweigh the increased capex, with spending in this sector around USD 65 bn less than under BAU

1. Electricity and hydrogen are not allocated to end-uses Source: SEforALL analysis 16 The additional investment for energy transition could also support around 500 thousand additional jobs beyond 2050 across the economy Net additional jobs from key energy sector investment in NZE vs. BAU, by sector, ‘000 jobs Impact type1: ■ Direct ■ Indirect ■ Induced )()( Share of total incremental jobs 52 539 2 123 364 Power Transport Other3 Additional net jobs 68% 23% 10% Key insights • As with economic activity, transport sector investment supports the majority of the additional jobs. The investment directly supports around 100,000 jobs in the construction (25%) and maintenance (75%) of electric vehicle charging and hydrogen fueling infrastructure, as well as 5,000 indirect and 12,000 induced jobs in the supply chain and wider economy. • Power sector investment also supports a significant number of additional jobs. The investment directly supports 178,000 jobs in the construction of renewable generation assets as well as 57,000 indirect and 130,000 induced jobs.

1. Direct impact refers to contribution of the first level of (immediate) suppliers of the specific sector, has not been included as investments in target subsector do not significantly increase the output. Indirect effect refers to contribution of suppliers of suppliers of the specific sector; while induced refers to contribution of spending by employees employed directly and indirectly by sector and its suppliers

2. Equivalent to 1% of Kenya’s active population (40% active out of 94 million people)

3. Includes Hydrogen, buildings and industry sectors Note: Positive value refers to job creation, while negative value refers to job loss Source: SEforALL analysis 17  9č ,9/,č -/" E 6 -/ /*č •I '1 ;'1,, 1"1 -~;~ ,.,.......,_ _. 18 £x CHAPTER THREE Overview of Approach How to understand the Kenya ETIP scenarios What this net zero energy transition scenario is • A scenario for achievement of a feasible path to a 2050 net zero target for energy related emissions. The energy scenario model identifies the least cost energy technology mix given assumptions on technology costs, performance and availability. It relies on the LULUCF interventions of Kenya LTS to achieve negative emissions and net-zero by 2050 • Demonstration that achieving an energy transition energy is compatible with rapid economic growth and maintaining an affordable and secure energy mix. The scenarios involve limited additional spending over business as usual. If alternative technological solutions become available, these could further lower the costs of achieving net zero. • An indication of the types of solutions that will support Kenya to achieve these economic and climate objectives. The scenario represents the major climate solutions in each major sector that uses energy systems. What this net zero energy transition scenario is NOT: • A prescriptive forecast of the most likely outcome. Strong policies are needed to achieve a net zero emissions pathway. • A prescription for how Kenya should achieve net zero emissions. The role and timing of key solutions will vary as new technologies evolve and remain at the discretion of Government of Kenya • A detailed representation of how key public policy objectives and targets will be achieved. The scenario uses a whole energy system model to identify affordable decarbonization pathways, and is broadly aligned to major strategic policies; however, the scenario does not explicitly embed all specific energy sector policies and targets. 19 20 Targets related to Kenya’s energy transition in the power, transport, and buildings sectors •• Yes No Included in Kenya's Current Sector Sub sector Target identified Policies Scenario Comments Source of target Power ® Renewables 100% clean energy by 2030 100 GW renewables by 2040 •• In line with Kenya's current trajectory Policies to promote grid stability required to support the target Government's commitment Kenya Energy Sector Roadmap 2040 of Ministry of Energy, 2022 Transport EV cars @ 5% of cars' new imports are electric by 2025 • Policy & strategy currently under development J • Kenya National Energy Efficiency Fuel efficiency 6.5 L/100km average fuel Policy and strategy currently and Conservation Strategy of consumption for light under development Ministry of Energy, 2020 duty vehicles by 2025 160 g/km average CO2 , • emissions by 2025 Secondhand cars Ban of importing Announced in 2021 Budget 2021 Budget Policy Statement of The secondhand cars by 2026 Policy, but not confirmed in National Treasury and Planning 2022 and 2023 editions Buildings @ Electricity access Clean cooking 100% electrification by 2030 Universal access to modern energy cooking services by 2028 •• In line with Kenya's current trajectory Programs and policies that promote the adoption and affordability of clean cooking Kenya Energy Sector Roadmap 2040 of Ministry of Energy, 2022 Kenya SDG 7 Energy Compact on Clean Cooking required

1. “President William Ruto Sworn In, Reaffirms Kenya’s Commitment To Transition To 100% Clean Energy By 2030”, CleanTechnica, consulted on June 27, 2023 Note: A target is considered as a policy if it is being actioned by the Government via an incentive or a regulation, and is in line with current trajectory and key priorities w Key Message • Various Targets identified have not been translated into Policy of)....o The Energy Transition and Investment Model covers all major production and end-use segments based SEforALL Energy Model is based on OSeMOSYS (open-source model generator) and is expanded for all sectors and energy systems technologies; full model handover and training to Ministry of Energy is planned e €i) ~ G) j l Q lli = l ! l 5 1 e . tl i co ~ 0 0 c I1 1 e @ J 1ii 11 ' ~ ~l 1 . it J§ iii al "Iii 1 I! t Ii f 1 i) J • • • • T ' :c l j It 1 j l j 8 JI/ .,, 1i ~e .al • 1 a ll f ,_ e :J~ ti ..... •fl 19 1I ' ' l !t @ Ii 1r i) et e, (j ! ! "' 1 1 •' • •f. l l IIl • f "l ~l jJ 0• .2 i II • 21 To reach a net zero target, relative to the baseline, the most cost-effective clean tech options for each segment are evaluated We look at the different technology Determine what switch to clean tech options for each segment is feasible (when and at what rate) Example of residential cooking Main factors impacting adoption rates Business case How the total cost of ownership of a Totdl'lllnJI .,.,. --we technology compares to alternatives Open fint cook- using biomau Techno-economic feasibility ufuel When we expect technologies be ready for Ol-d..,_fl..i. ~ scale / mass adoption (incl. required enabling FoNII fuel (X)()k ttow uaing oil- technology, such as grid connection) derived fuel Willingness to adopt h1+4ovN latu.ciaome-nne tr" b?; ~ How willing people are to adopt a new Improved cook ttove using biomass technology aafuel Regulation E.ltdlklt.w Using c:oiled metal wira or ~ramie Whether rules or regulations limit or support mirterlal and electridty 10 heat the adoption of a technology YeSHls Leading to a tech adoption curve for each sub-segment Example adoption curve for residential cooking ■ Tr>4rtionol biom- ■ '"1irOYOd ~ ■ Olkl,~ Eloelnc: so 30 22 The emission baseline are estimated by considering economic and population growth As a country grows its economy, we Population growth also drives increased expect a higher energy demand activity in some end-use segments Energy demand vs GDP (per capita), PJ Indexed population growth for average low- income country 140 0.14 135 0.12 130 128/ 0..1 0.08 • • •• • •• • • • • ,, . 120 0.06 • 110 0.04 110 0.02 0 0 10000 20000 30000 100 100 I 2020 30 40 50 2060 Taken together, we calculate the impact on activity levels and emission baseline Indexed activity levels for selected segments; -0- Approach taken indexed baseline emissions We first lay out the baseline scenario; a 200 projection of the future if no clean technology switches occur 190 180 This projection is made by understanding for each end-use segment whether (and to 170 what extent) how activity levels change due to 160 economic or population growth 150 For example, demand for cooking increases 1-40 130 -- as people get more affluent and population grows. Based on this relationship, we project future 120 ..... _ ~ activity levels, and extrapolate the emission 110 • baseline with existing clean tech penetration rates 100 ~ 9D 202() 30 50 23 The optimization tools delivers a sector-by-sector net zero pathway ■ Buildings ■ Transport ■ Industry ■ Power and hydrogen Emissions shift Emissions by sector, MtC~ 2020-30 2030-50 350 300 250 200 150 100 ••• Net zero scenario -- - -- 50 0 2020 25 30 35 40 45 2050 Key outputs • The model delivers a sector-by-sector net zero pathway as a result of our optimization, incl. a comparison with the initial baseline • The pathway comes with adoption rate granularity at the technology level: within each sector, and for each sub-segment, we are able to see the levels of adoption for each technology – and its impact on emissions • This also translates into energy demand and supply statistics from the net zero pathway on a fuel-by-fuel basis, visible for each segment • Pathways can be adapted to meet different targets, timescales, and alternative sectoral routes 24 An ETIP allows to measure the impact of the energy transition on a country’s economy across demand and supply dimensions Scope of impact: Demand Supply Dimension Investment GVA/GDP Jobs creation Productivity creation Measure of Additional1 New GVA2 Direct, indirect Additional1 system impact CapEx required contributors and induced jobs cost (sum of CapEx, at a system-level to Kenya’s created through OpEx and fuel costs) to allow for an economy, e.g., the deployment required at a system- orderly energy X% additional of low-carbon level to allow for an transition contribution technologies, orderly transition from the energy including up- and (usually 1% of the sector resulting reskilling, e.g., in country’s GDP) from expansion the case of Oil & of Kenya’s green Gas power capacity Change in economic activity Change in productivity

1. Vs. business-as-usual trajectory

2. Gross Value Added; the sum of GVA across all sectors of the economy results in the country’s GDP 25 The pathway also allows us to identify the financing need of the transition Incremental cost from baseline to Net Incremental investments from 2021-60 zero, Bn USD to reach Net zero, Bn USD OPEX ■ CAPEX +$410Bn~--~ 1,933 -33 441 1,525 21 75 554 -8 -121 Power Transport Industry Buildings Infra- CAPEX OPEX 1 Total CAPEX OPEX 1 Total structure system •••• costs Baseline Net Zero 2050 Key outputs • The pathway also allows us to identify the financing need of the transition. • This includes the incremental capital expenditures required to achieve a pathway (from e.g. higher costs of new green tech investments or from early retirements of existing brownfield assets). • In addition, the pathway provides a view on the operational expenditure savings that can be achieved using green tech alternatives (which often are more efficient) • Taken together, this also provides a total energy system cost view 26 The net zero pathway are used as input for a high-level 5 ,; 5t I!,!"t 2 t~ lt j E:;; -., C t I f~ implementation roadmap The pathway provides a timeline for adoption of clean technologies, which can subsequently be translated into a high-level implementation roadmap. This is achieved by combining required adoption rates (e.g. % penetration of electric vehicles in a given year), with enabling measures that are required to achieve this timeline (e.g. deployment of EV charging infrastructure). 27 A full stakeholder consultation was carried out in preparing the ETIP Consultation meetings held Non-government Data collection Government stakeholder stakeholder meetings consultation consultation Housing and Urban NCAP Consultative Power Sector LCPDP Industry Development Meeting Green growth opportunities. Ministry of Key stakeholders: Environment, KNBS & Clean cooking Energy Counties, Industry; National Treasury and Alliance Energy; Environment; Planning Counties;National Treasury & Planning CSOs, ambassadors, international Ministry of Transport, Technical Working partners and leaders Transport Metropolitan Dept Group from the Kenyan private sector and philanthropists. 28 ~ 29 CHAPTER FOUR Energy Transition – Key sectoral insights Industry As Kenya’s GDP increases, its manufacturing output is expected to match that of countries with similar income levels Y~r In which Kenya In expected • Global 111nge - Kilnya l0I to n,aeh GDP per capibl level :u: GVApercapita Other industry: Manufacturing GDP per capita, USD 6,000 • • • 4,000 • ~ • • a. l!I • ••• i •• 0 !3 • • • • 2~000 . ...• ,--------------- ,_, , t"'t ..., :: '' ! : ' .,. ' ! ~ ... .., Cl 4' ::, ' '' : I .. 0 e ~-u~ I : • ,..!_ • 0 S,000 10,000 15,000 20,000 30,000 35,000 GOP per capita, USO 30 ,. 1,000 900 •• •• llOO 100 . . ,.' • •• . 2060 .I!Q. 600 .. 3 ~ SOO • • .,... . Q. • • 0 "'::, 400 • • • ao, 20S) • ••• • 300 200 ••, .... • • 15 ~ 2G40 • 100 0 0 ......,.. ' "tt//,i' • • 4 2,000 2020 4,000 • • GDP par cap1111, USD • •6,000• e.ooo 10,000 The Net Zero pathway allows for Kenya to develop a significant manufacturing base Iron and steel production, Mtpa Non-metallic minerals production, Mtpa ' 6 10 4 '° liO ..., lO 20 1 0 11 10 0 2ml) :IS 30 3S ..., 4S so 9->"2llSO 0 so ...... 2DSO :2020 :IS .IQ ls; '° <IS Chemicals, $bn GVA Other industry, $bn GVA u * ., LO 10 2.$ 2,0 '° ...,sa u; l0 1.0 20 QS 0 • u .., so ..,..,.:zotO 10 ...,...._ 2IIIO :IS lO '° 2S :IO .u All <IS so Source: SEforALL analysis, IEA World Energy Balances, World Bank population and GDP data, UN population forecast, SSP2 GDP forecasts 31 Low-emissions technologies and clean fuel sources will allow Kenya to decarbonise a rising industrial production Industry Fuel Consumption, PJ +So/op.a. 2020 25 30 35 40 45 2050 ■ Electricity ■ Hydrogen ~ Biomass CCS ~ Gas CCS ~ Biofuels ■ Gas ■ Oil ■ Fossil fuel mix Source: SEforALL analysis Key outcomes • Decarbonisation of industry drives a shift in the fuel mix, with strong roles for electricity, hydrogen, and a small role for biomass Underlying drivers of the pathway • Heat pumps replace fossil heating at low temperatures in other industry, driving up the use of electricity though with high efficiency • A large part of the electricity consumption is used in industrial facilities to power appliances • Hydrogen demand is driven by its use in the steel sector, which uses Hydrogen-based direct reduced iron • CCS emerges as the least-cost solution to decarbonise the cement sector as well as other high temperature heating in chemicals and other industries • Bioethanol for cooking Alternative solutions • There is high confidence that electrification will be key decarbonisation solution for low temperature heat processes • Hydrogen or innovative electric technologies such as electric cement kilns are alternative solutions to decarbonise high temperature heat 32 Transport Road Transport – Model inputs have been calibrated to IEA Web data and cross checked with data from official statistics Example for Kenya: 2020 baseline N: I ef taftdsa. -m.dvoltlcln --dwm1 T.....a,-rwhWta Trwll••-• Bn ,1cm 1 FN1111t1Alfty, PJ/Bn ,1cm I ,_...,,,. PJ coa...i•-. MtC02 ~ 1t c.n lt IJll,twcb - HNVYl>\,dco

1. Vehicle kilometers Source: IEA WEB, “Updated Transport Data in Kenya 2018” report, “Automotive Sector Profile 2020“ report, and “Characteristics of the in-service vehicle fleet in Kenya 2018“ report Source: Syndicated with Ministry of Transport and other relevant stakeholders 33 As Kenya’s GDP increases, its number of passenger cars is expected to match that of countries with similar income levels • Gf 1>111 - _ Ki Year in which Kenya in expected lll( o '"' .,,,, enya '°' to reach GDP per capita lellel Ol rs per <:11piUI Prt•"'9•r cars fM1r capita, # 1.0 0.9 o.a • • •• • • • •• • • • .... fHHH• • • . HH 0.2 ! ••• • • : 0.1 ,: __________ • • o.o 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 GDP per capita,$ 0,20 • • • • • 0.11/ ,0.15 • • <>. ~ • ie 0.10 ;, l; <n • Jo.QS • • 0.00 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 GDP t- aiplta, $ Source: World bank data, OICA (2015) 34 Population and income growth drive a significant increase in transport demand across all modes Motorcycles demand Bn vehicle km Cars demand, Bn vehicle km 300 300 250 250 200 200 150 150 100 100 50 50 0 0 2020 25 30 35 40 45 50 Beyond 2050 2020 2S 30 35 40 45 50 Beyond 2050 Light trucks demand, Bn vehicle km Heavy trucks demand, Bn vehicle km 35 30 30 25 4%p,a. 25 20 20 15 15 10 10 5 s 0 0 ' - - - - - - - - - -~ 2020 2S 30 35 40 45 50 Beyond 2050 2020 25 30 35 40 45 50 Beyond 2050 Buses demand, Bn vehicle km Rail demand, PJ fuel demand 6 14 5 12 10 4 8 3 6 2 4 1 2 0 0 2020 25 30 35 40 45 50 Beyond 2050 2020 25 30 35 40 45 50 Beyond 2050 35 Aviation demand, PJ fuel demand Shipping demand , PJ fuel demand 20 16 12 15 10 10 8 6 5 4 0 2 202025 30 35 40 45 50 Beyond 2050 0 0 202025 30 35 40 45 SO Beyond 2050 Source: SEforALL analysis, IEA World Energy Balances, World Bank population and GDP data, UN population forecast, SSP2 GDP forecasts, OICA vehicles in use statistics Key scenario assumptions: vehicle capital costs ■ Foail ■ Hyd~99n ■ Electric New motorcycles capital cost ,k$/vehicle New cars capital cost, k$/vehicle 200 200 150 150 100 100 50 50 5.0 8.4 5.2 S.9 5.2 s.s 0 0.6 1.2 0.6 0.8 0.6 0.8 2020 40 Beyond 2050 0 2020 40 Beycnd2050 New light trucks capital cost , k$/vehicle New heavy trucks capital cost , k$/ 200 vehicle 200 1SO 100 150 so 100 0 2020 40 Beycnd2050 so 0 2020 40 Beyond2050 36 New buses capital cost, k$/vehicle 200 150 144.7146.8 11 100 50 0 2020 40 Key scenario assumptions: vehicle fuel intensity evolution ■ Foull ■ Hydrogen ■ Electt!c New motorcycles fuel efficiency, MJ per New cars fuel efficiency, MJ per vehicle vehicle km km 10 10 8 8 6 6 4 4 2 1.4 1..2 1.1 2 0.3 0.4 0.1 0.4 0.1 0.4 0.1 0 2020 40 Beyond2050 0 2020 40 Beyond2050 New light trucks fuel efficiency , MJ per New heavy trucks fuel efficiency, MJ per vehicle Km vehicle Km 10 10.0 10 8 8 6 6 4

2.S 4 2 2 0 2020 40 Beyond2050 2020 40 Beyond2050 37 New buses fuel efficiency, MJ per vehicle Km 9.9 10 8 6 4 2 0 2020 40 Beyond 2050 Electrification, hydrogen fuel cell vehicles and biofuels replace oil-based transport to decarbonise the sector Transport1 fuel demand - NZE, PJ ■ Boclricity ■ Hyd"'9"" ■ Bicfuol ■ Oil 219 294 2020 25 30 35 40 45 2050

1. The scope considers domestic aviation and shipping, and road transport Source: SEforALL analysis 38 Key outcomes • Economic growth drives 3-4X increase in transport sector energy demand, with growth in all modes • Roll out of hydrogen-powered heavy trucks drives a shift to hydrogen as a fuel • Biofuels replace oil-derived fuels in aviation and shipping • Efficiency of electric and hydrogen vehicles reduces total energy demand around 25% Electric motorcycles fully replace fossil fueled motorcycles by 2050 ■ Electric ■ Liquid Fuel Motorcycle parc technology mix, Thousand vehicles +8%p.a. - --------------------------- 1,040 2020 25 30 35 40 45 2050 Motorcycle sales - NZE, Thousand Vehicles +7%p.a. _,_ -----------------~ 2025 30 35 40 45 2050 Source: SEforALL analysis Key outcomes • As with cars, demand for motorcycle travel increases substantially with incomes • Electric motorcycles take off rapidly and dominate the fleet by 2040 • Fossil fuel-based motorcycles are phased out by 2045 as all motorcycles are electric Underlying drivers of the pathway • Electric motorcycles are already a viable transport mode due to rapid battery cost reductions and small battery size • Electric motorcycles are cost-competitive with internal combustion vehicles by the mid-2020s • By around 2030, EVs account for around 35% of motorcycle sales; and by 2035 they account for 100% of sales. 39 Electric cars dominate the fleet by 2050 ■ Electric ■ Liquid Fuel ■ Hydrogen Car parc technology mix - NZE, Thousand Vehicles • 7,501 $2 ,_ +8%p.a. _., 847 2020 25 30 35 40 45 2050 Car sales technology mix - NZE, Thousand Vehicles 2025 30 35 40 45 2050 Source: SEforALL analysis Key outcomes • Passenger car ownership grows 15x 2020-60 as incomes rise • Initially the vast majority of cars are ICE due to the current EV cost premium and low volumes of EVs in the used vehicle market • By the mid-2030s, used EVs are cost-competitive and are available in the market • By the mid-2030s, annual EV sales increase sharply • By 2050 electric vehicles dominate the fleet Underlying drivers of the pathway • Battery cost reductions drive a shift to electric vehicles in the international auto market • In Kenya, second hand electric vehicles are cost-competitive with internal combustion vehicles by 2030, though market availability is limited • A shift away from used vehicles in the auto market would be needed to accelerate the EV transition 40 A mix of battery electric and hydrogen fuel cell trucks decarbonise the road freight sector Truck parc technology mix - NZE, Thousand Vehicles ■ Electric ■ Hydrogen ■ Liquid Fuel +4%p.a. 2020 25 30 35 40 45 2050 Source: SEforALL analysis Key outcomes • Truck fleet grows around 5x to 2050 as rising incomes and population drive a greater volume of freight • Conventional liquid fuel trucks dominate for the next two decades as the global market for low-carbon trucks remains small and the vehicles carry a significant cost premium • Deployment of electric and hydrogen trucks begins in the mid-2030s, and becomes the major share by 2050 and beyond Underlying drivers of the pathway • Low-carbon trucks continue to carry a significant cost premium and strong policy support will be needed to deliver them at the scale needed • Hydrogen is the preferred solution for long-distance trucking due to greater range, while battery trucks are preferred for shorter distances due to their greater efficiency Alternative solutions • There is high confidence in wide transition to EV and H2-fuel cells for long-distance trucks • The specific mix of battery vs hydrogen vehicles will depend on improvements in battery cost and vehicle range 41 Cooking/Buildings Buildings – Model inputs have been calibrated to IEA Web data and cross checked with data from official statistics Example for Kenya: 2020 baseline _ ___..,_. ---- _.,, _. trr11 I t .,.. qlts:: T d CC d,......,..1,l'lft, M1CO/I r Of _,COlllblt O,J bcdMII T-1- 20.0 ... -- •t If AW fiMtil'l1 0,Jedud.,. O.t,

1. LPG accounts for over 90% of oil-derived fuels Source: IEA WEB, “Kenya household cooking sector study 2019”, “WEO 2017, Special Report, Energy Access Outlook”, “The Kenyan cooking sector opportunities for climate action and sustainable development“, “IOP Conference Series: Materials Science and Engineering Improvement in Energy Efficiency & Heat Loss Minimization during Boiler Operation: A Case Study 2021”, “Efficiency Optimization of biomass boilers 2011“ reports 42 As Kenya’s GDP increases, its base residential electricity is expected to match that of countries with similar income levels • Global range - Year in which Ksnya in ~ d xx K;inya l0I GJ peraiplta w ruch GDP per capita level Base residential electricity, GJ per capita, 35 30 • 25 • • l.20 :, ~ &.,s • • • • • i3 • • 10 ·------------·----·--------- s • !. ·-' : : : . • • •• 5 ~ 0 - · -----·----·----·---------: 0 20.000 40,000 60,000 80.000 100,000 GDP per apita ($} 5.0 •

4.S • • 4.0 • • 3,S • {3.0 8 • • ., • .. • ••• • • i 2.S c3 2.0 • •• •• •• 20!iO . • • •

1.S 1.0 o.s • 2000 -·• • 2060 0.0 0 4,000 • S.000 6,000 7,000 8,000 9,000 10,000 GDP per capita ($) Source: World bank data, OICA (2015) 43 Key scenario assumptions: buildings demand growth Total residential cooking, PJ Total commercial water heating, PJ JCQ Q :ISO .Ill) :ID! m 1IO n.,... ''° 100 100 ~ .... , " IO .lo :I() .. 40 .. IO . . .2050 fitJ 0 ,oio "' IO 'II, 11 40 .. IO -1()11) Residential electricity demand, PJ Commercial electricity demand, PJ JCQ Q 2'iO 2.11) :mo 1IO '°"JUL • "' 111 200 150 ........ .. .. 100 100 "' . .. .. ,., ...,,..._ 11 '°0 4 ~ 40 so 2ll2D 21 :IO lS "° 45 ~:l050 Key scenario assumptions: buildings fuel cost evolution Cookstove capital cost per technology, Water heating capital cost per USD / unit technology, USD /kW ■ EIOdlle ■ Tredi11onel biomn, ■ lmf>'O""d blom..,, ■ Oil ,..,. 100 ...... 9$ ......,.. .. IIO IO ......"" IS . 10 ...... 6S 65 ....,. tO $$ 50 ......,.. 45 ,40 i$ .,. , , .. JO .u 11) Source: World bank, MECS, IEA 15 10 5 0 2020 44 Key scenario assumptions: buildings fuel efficiency evolution Cookstove fuel efficiency per Water heating fuel efficiency per technology, PJ of fuel / PJ of heat technology, 2020-60, PJ of fuel / PJ of ■ ~ c ■ rmp,o.-edbio.n. ■ Biomeot ■ oa heat ~ Sod:ilc!ty ~ - ■ on 6.1; u 1.2 1.2 6.0 ,., s.s u s.cJ ...

4.S ....., 4.0 u ... o.s ... ..., 1,0 u :u, 1.6 ... 1.0 OJ; • Source: World bank, MECS, IEA 0 45 A shift from LPG to clean fuels for cooking and water heating drives decarbonization in energy services in buildings Cooking & Water heating Fuel Consumption in Buildings, PJ ■ Electricity ■ Biomass ■ Oil-derived 554 287 236 2020 25 30 35 40 45 2050 Source: SEforALL analysis Key outcomes • Rising demand is met with cleaner energy, leading to emissions reduction from 2040 • Electricity use reaches ~50% of the energy mix by 2050, while biomass decreases to ~50% • carbon emissions start to decrease from 2040 as ~40% of the building sector becomes electrified, especially cooking • Oil-derived cooking fuel is primarily LPG Underlying drivers of the pathway • Kenya’s building electricity demand growth aligns with countries of similar income levels • Population with electricity access will grow from 77% in 2020 to 100% in 2030 • Emissions from electricity and biomass are not accounted for in the buildings sector: • Biomass emissions are included in the LULUCF sector • Electricity emissions are included in the power sector 46 Cooking is primarily decarbonised through a shift from traditional biomass and LPG to improved biomass and electric cooking Cooking technology mix, million units ■ Electric ■ Improved Biomass ■ Traditional Biomass ■ Oil-derived ■ Bioethanol 20 2020 2025 2030 2035 2040 2045 2050 Source: SEforALL analysis Key outcomes • Traditional biomass remains the dominant cooking fuel today, with LPG and improved biomass playing a smaller role • Traditional biomass is phased out by 2030 in line with SDG7. The phase out is supported by a growing role for both LPG and improved biomass cookstoves • From the 2030s, electric cooking emerges as a key low-carbon solution in urban households • By 2040 electric dominates in urban households, and improved biomass in rural households, phasing out LPG Underlying drivers of the pathway • Policy incentives to reduce the energy cost premium of LPG, sustainable biomass and electric cooking solutions vs traditional biomass Alternative solutions • Overall, it is highly likely that improved biomass (including biofuels) and electric cook stoves will play a key role in decarbonizing the sector • Consumer preferences may drive a different balance of these two technologies 47 Power & Hydrogen Kenya assumptions on population and GDP per capita growth Projected growth ..., - . . . . . . ~ ...... - ~ . . . . ..._._..\di> .... • ....,." .. " ' /0 " • .... A . ' .... • .."" . . ... • • . ' 1,.., - - - - - - - Source: GDP - IIASA SSP database, Population - World Bank, SEforALL analysis "" Key scenario assumptions: power capital costs evolution Power generation capital cost per technology, 2020-2050 and beyond USD Mn /GW sow 45(1) 4000 3500 3000 U(IJ ea.I c.. Cool CXlCS Ga CCS - Nvc!N, H,d,a C"°"""""I So1or PV °"""'"' ~ a:s - wind Source: IEA, IRENA, World Bank, Source: Syndicated with Ministry of Energy, LCPD and other relevant stakeholders. 48 Power demand grows around 20x to 2050, driven by increasing population and GDP/capita Electricity Demand by Sector - NZE, TWh ■ Other ■ Transport ■ Hydrogen ■ Cooking/ buildings ■ Industry +11%p.a. 9 2020 25 30 35 40 45 2050 Source: SEforALL analysis Key outcomes • Demand for power in Kenya grows at 11% p.a. to 2050 • The buildings and industry sectors, which today account for almost all electricity demand, grow strongly to 2050. • Transport emerges as a significant source of demand from around 2040, and by 2050 accounts for over 10% of total demand • Production of green hydrogen also emerges, accounting for over 10% of demand by 2050 Underlying drivers of the pathway • Income growth drives substantial power demand growth, primarily in the buildings and industry sectors • Growth in transport and hydrogen sectors is driven by the net zero target, and the associated electrification of transport and the shift to hydrogen in the transport and industry sectors 49 Solar PV and wind meet the majority of growth in power demand and drive decarbonization of the sector xx.% Share of low carbon technologies 1 Power Generation Mix - NZE, TWh ■ Onshore wind ■ Hydro power ■ Nuclear ■ Oil ■ Solar PV ■ Geothermal ■ Biofuels/hydrogen/LNG/others +10%p.a. 156 100 12 33 -- -- 57 - - 2020 25 30 35 40 45 2050 94% 87% 96% 99% Key outcomes • Power demand grows 20X to 2050 due to robust underlying growth, and electrification of end-use demands • New solar PV, wind and geothermal meet the majority of this increase. • Some growth is met with nuclear and hydro, as far as available resource allows; while most growth is met with new solar, wind and geothermal • By 2040, unabated fossil is phased out, with storage playing the key balancing role 1. Includes solar, wind, geothermal, hydro, biomass, nuclear and CCS technologies

2. Electricity trade and imports not included under this scenario , to be added confirming cost and affordability Source: SEforALL analysis 50 Underlying drivers of the pathway • By the mid-2020s solar PV emerges as is the most cost-competitive power generation technology. However, deep decarbonisation through solar PV will require storage, increasing costs and requiring public support • Pumped hydro storage can be used to support supplement wind and solar energy adoption. • Nuclear can provide cost-effective baseload low-carbon power, but will require significant lead times due to consenting, planning and construction timelines. • Hydro can also provide cost-effective flexible power, but its maximum resource is estimated at 6 GW Alternative solutions • Solar PV is highly likely to play a key role in the generation mix, while onshore wind may play a complementary role. The precise mix of solar and wind will depend on their cost reduction pathway • There could be a greater role for hydrogen and nuclear The growth in generation requires a substantial growth in new capacity, dominated by solar xx.% Share of low carbon technologies 1 Power Generation Mix - NZE, GW ■ Onshore wind ■ Hydro power ■ Nuclear ■ Biofuels/hydrogen/LNG/others ■ Solar PV ■ Geothermal Wa Biomass CCS ■ Oil +13%p.a. 58 9 3 3 2020 25 30 35 40 45 2050 80% 78% 81%

1. Includes solar, wind, geothermal, hydro, biomass, nuclear and CCS technologies Source: SEforALL analysis 51 Key outcomes • Total capacity grows in line with demand • Solar PV accounts for the majority of capacity with over 50 GW and for onshore wind around 18 GW by 2050 • Geothermal, gas CCS, nuclear, hydropower, and hydrogen contribute only a small share of total capacity, but geothermal can be expanded beyond 2050 • This pathway requires new capacity additions of <1 GW in the 2020s, rising to around 2 GW per year in the 2035s and 5 GW per year in the 2040s and 50s • The fast build out of solar capacities would require significant technical, financial and policy support, to simplify and accelerate projects development Underlying drivers of the pathway • Solar and Onshore Wind will constitute a big share of the installed capacity • Battery and pumped hydro storage will provide low - carbon system support Green growth opportunities with energy transition Kenya can further accelerate its economic development by capturing a number of green growth opportunities Prioritized Attractiveness/ ability to compete: - High Medium Low Green Potential Description Attractive- Ability to Rationale growth area opportunity ness compete for Kenya Low-carbon H2 & Take advantage of Kenya’s Low-cost fuels derivatives low-cost 24/7 clean power and stable exports to produce and export green geothermal, hydrogen & derivatives at wind & solar scale energy Power exports Engage in selling Kenya’s Limited low-cost 24/7 clean power to demand from neighboring countries neighboring countries Bioenergy Engage in large-scale Some biomass cultivation & potential, biorefining (energy crops could provide such as chartula and additional rural kamlina) cash crops 52 Low-carbon Raw materials Engage in extraction & Limited technologies extraction & refining of critical minerals; availability & value chain processing processing of composite of critical materials minerals for clean ~ _l_ technologies Localized Increase local production of Likely cleantech hardware required to deliver significant manufacturing domestic decarbonization domestic ambition; e.g., solar PV, demand, high- batteries, Electric Vehicle skilled jobs assembly Advanced Become a testbed and center Leader in geothermal of competence for advanced Africa and top geothermal technologies 10 globally, but limited socio- economic value Low-carbon Energy- Take advantage of Kenya’s Low-cost products & intensive low-cost 24/7 clean power clean power, services manufacturing to attract energy-intensive skilled jobs industries (e.g., aluminium) & economic and export green products diversification regionally and globally Sustainable Increase local production Unclear ability agriculture of sustainably produced to compete and agriculture products, and internationally, alternative move up the value chain of rural job proteins alternative protein production engine Sustainable Lead global trend towards Leadership in tourism sustainable tourism and conservation become a lighthouse for and high-end sustainable and nature- tourism positive tourism, significantly increasing value capture/ creation in the process “Green” data Take advantage of Kenya’s Limited centers low-cost 24/7 clean power local socio- to become a regional/global economic hub for climate-neutral data value creation centers CO2 removal Carbon Use carbon markets to Significant markets catalyze financing for technical domestic decarbonization potential, early 00 and develop a new industry leader, good of carbon credit production infrastructure based on, e.g., reforestation and soil carbon sequestration or Direct Air Capture Blue economy Develop the country’s blue Access to economy, e.g., through blue coastline carbon projects (mangroves, and relevant ocean-based Direct Air biosphere Capture) and seaweed farming 53 Green growth opportunities could deliver significant GDP and jobs boost Green Potential oppor- 2050 GDP impact, 2050 job creation growth area tunity for Kenya USDbn potential, k Low-carbon H2 & derivatives fuels exports ~ Power exports Bioenergy Low-carbon Raw materials technologies extraction & processing & value chain ff!£ _J_ Localized cleantech manufacturing II - Advanced geothermal Low-carbon Energy-intensive products & manufacturing services Sustainable agriculture and alt roteins fun - Sustainable tourism "Green" data centers C02 removal Carbon markets J-o.4 -450 Blue economy Total -525 Key take-aways • A subset of green growth opportunities alone could by 2050 contribute USD ~10bn of GDP and ~0.5M jobs 54 ÎÓ 55 CHAPTER FIVE The path forward Capital raising A combination of private sector capital and de-risking instruments could help finance Kenya’s energy transition Core finance providers Providers of de-risking instruments (e.g., guarantees/insurance, first-loss-capital, etc.) Private sector Do- International institutions mestic public sector Com- mercial House- financial holds Multi- Green Private institu- Corpora- and indi- Public in- lateral Bilateral National finance founda- Actors tions tions viduals stitutions DFIs1 DFIs1 DFIs1 funds tions Economic returns Return focus Environmental impact

1. Development finance institutions Source: Climate Policy Initiative, expert interviews 56 Private funds could provide the largest funding pool, but some project archetypes might require de-risking to become bankable (1/2) I • • • • •• Sources: Better Guarantees, Better Finance, Blended finance Taskforce (2023); Financing Clean Energy Transitions in Emerging and Developing Economies, IEA (2021); expert interviews 57 58 Private funds could provide the largest funding pool, but some project archetypes might require de-risking to become bankable (2/2) ••• •• •• •• ••• • •• ••• •• ••• ••

1. Includes electric, LPG, and improved biomass (including biofuels) technologies;

2. Includes solar, wind, hydro, geothermal, and hydrogen;

3. Includes gas, gas with CCS, biomass with CCS, and nuclear;

4. Assumption: the same electrolyzers are used for balancing and industry end-uses; Sources: Better Guarantees, Better Finance, Blended finance Taskforce (2023); Financing Clean Energy Transitions in Emerging and Developing Economies, IEA (2021); expert interviews Implementation plan To successfully implement the net-zero ambition in energy sector, a best-practice governance structure, process, and action plan is required Level1 Target setting ® Level2 Energy Transition and Investment Plan (e.g., sectoral targets and plans, expected financing needs, Coordination and and plan for how to mobilize) Enabling Level3 Implementation Waste Power Industry Transport Buildings (incl. water) AFOLU Requirements • Level 1: Target setting. A national Net Zero ambition provides an overall target and vision for the country. The more concrete the end goals are, and the clearer the country is on the required pre-requisites to achieve them, the better private and public actors can act in accordance with them • Level 2: Coordination and Enabling. An integrated Energy Transition and Investment Plan (ETIP) ensures transparency and coordination across the ministries, and sectoral policies are consistent with national objectives. This also includes organizing for success, e.g. through the establishment of an Energy Transition Office that coordinates and drives progress • Level 3: Implementation. Private and public actors responsible for the implementation at the sector level (mandates, price incentives, controls, enablers). This includes sectoral pathways with clear mechanisms to ensure policies are owned by the relevant ministries (but roll up to the overall target). It also includes the development of new technology and fuel platforms for themes that transcend sectors – such as like Carbon Capture and Storage. And it includes holistic impact tracking, from tracking emission impact and clean technology uptake, to optimizing socio-economic (“just transition”) and fiscal impact 59 Challenges to be addressed across sectors to enable an orderly energy transition Sector Challenges Actions required Industry • Cost premium • Regulation and standards: of hydrogen DRI ~ Implement mandatory leak detection and repair process due to shift requirements on gas-fired boilers to reduce methane from coal or gas emissions to hydrogen as a ~ Set strict energy efficiency standards, especially for reducing agent new construction and/or major renovations, requiring • High cost of CCS the use of heat pumps where possible applications in • Price incentives or regulations: cement production ~ Develop framework to enable green premium and high capture (e.g. mandating transparency and temperature heat certification in production processes) processes ~ Develop incentive schemes that mitigates • Immature market unprofitable share of investments in new clean and high capital technologies (such as CCS applications) cost of heat pumps • Enabling programs for low-temperature ~ Where possible, create critical mass for decarbonized heat processes products and act as launching customer (incl. collaborating with manufacturers and distributors to reduce costs and improve supply chain) ~ Develop midterm infrastructure plans (especially around new-value chains) to enable private-sector players to anticipate decarbonization options available Transport • High cost of • Price incentives or regulations sustainable aviation ~ Implement incentive mechanisms to drive uptake fuels and low-carbon of low-carbon fuels in aviation and shipping. Ensure shipping fuels infrastructure is in place to enable low-carbon fuels • • • Deployment of electric vehicles will depend on consumer preferences High capital costs usage near ports and airports ~ Implement incentive mechanisms to ensure consumers shift to electric and fuel-cell vehicles when cost-competitive (e.g. purchasing tax credits, low-emission zones, vehicle trade-in programs, free parking, lower vehicle registration costs) of electric and • Enabling programs: hydrogen vehicles ~ Develop and implement delivery plan for electric • Limited charging vehicle charging infrastructure (incl. grid assessment, and fuelling regulatory framework, home charging incentives, and infrastructure may partnerships with the private sector) slow growth of ~ Where possible promote further efficiency and drive passenger and behavioral shift (e.g., to busses and trains) freight low emission vehicle markets 60 Sector Challenges Actions required Buildings • High energy costs • Price incentives: Provide grants, loans and subsidies of modern and low- to ease the requirements of capital-intensive carbon cooking investments (like electric stoves) solutions (LPG, • Regulation and standards: Set policies to reinforce sustainable biomass, adoption of modern cooking solutions (e.g., electricity) mandating electric stoves in urban new builds) Power and • High volumes • Price incentives or regulations: Create interventions Hydrogen of solar PV and beyond Kenya Vision 2030 to speed up deployment wind will require of especially solar PV and wind (e.g., net metering battery storage for framework, renewable energy projects incentives, balancing of the etc.) • • system, this will have • a cost premium. Gas CCS carries capital cost premium • Enabling programs: Implement incentive mechanism for flexibility (for CCS in industry/power, or batteries in micro-grids) Innovative contracting models: Framework for contracting of projects that play a system balancing function. 61 ,1 MINISTRY OF ENERGY & PETROLEUM REPUBLIC OF ICEMYA I STATE DEPARTMENT FOR ENERGY 9 Kiwi Comp~ Off Red C,- Rd. Nimbi "- -+254 (0) 20 4841000 • lnfofhrlergy,go,q