fast start climate change programme, kenya, (2011)

Danida, Royal Danish Embassy (Kenya)

‘Fast Start’ Climate Change Programme, Kenya, (2011)

April 4, 2011

Danida ‘Fast Start’ Climate Change Programme (2011), Kenya April 4, 2011

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Cover Page

Country : Kenya

Programme : Danida ‘Fast start’ Climate Change Programme (2011)

Implementing agencies

: 1) Africa Enterprise Challenge Fund (AECF) (part of BSPS II)

2) Kenya Association of Manufacturers (KAM)

3) Community Development Trust Fund (CDTF) (part of NRMP)

Starting Date : From May 2011

Duration : 32 months until December 2013 (funds disbursed from Danida during May to December 2011)

Budget : DKK 50.0 Million (KSH 740 Million) for 2011.

(Possible additional DKK 50.0 Million for 2012 ‘fast start’ programme)

Programme Content :

The Danida ’fast start’ climate programme (2011) addresses challenges of climate change in Kenya. The emphasis is on the private sector and on community development. The development objective for the programme is: Communities and the private sector in Kenya use technology innovation to reduce vulnerability to climate change and contribute to a low carbon development path.

The immediate objectives for the three components are:

Component 1: REACT - REACT will catalyse private sector investment and innovation in low cost, clean energy and adaptation climate change technologies through bringing innovative climate change products and services to rural people in Kenya.

Component 2: Energy Efficiency - Increase the efficiency in energy and resource use in the manufacturing sector in Kenya.

Component 3: CEF/CDTF – Community-driven initiatives reduce threats and conflicts related to natural resource use and climate change risk.

The programme is harmonised and integrated with other bilateral programmes funded by Danida and climate change programmes by other development partners. The Danida ‘fast start’ climate change programme is aligned with Government of Kenya policies and strategies including the National Climate Change Response Strategy.

Signatures

Date Royal Danish Embassy, Kenya

Date (Implementing Partner..)


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List of Contents

Cover Page .......................................................................................................................................................................................... i

List of Contents................................................................................................................................................................................ ii

Abbreviations .................................................................................................................................................................................. iv

Executive Summary ...................................................................................................................................................................... vi

1. National Climate Change Context ................................................................................................................................... 1

1.1 Climate Change in Kenya ........................................................................................................................................ 1

1.2 Climate Change Policy, Strategies and Institutions....................................................................................... 2

1.3 Danida Country Programme in Kenya ............................................................................................................... 2

1.4 Danida ‘fast start’ climate programme ............................................................................................................... 2

2. Description of the Danida ‘Fast Start’ Climate Programme in Kenya ............................................................. 4

2.1 The ‘fast start’ climate programme design ....................................................................................................... 4

2.2 Development Objective ............................................................................................................................................ 5

2.3 Component 1: REACT ................................................................................................................................................ 6

2.3.1 Context ................................................................................................................................................................... 6

2.3.2 Outputs and activity description................................................................................................................. 6

2.3.3 Inputs ..................................................................................................................................................................... 7

2.3.4 Implementation Arrangements ................................................................................................................... 8

2.4 Component 2: Energy Efficiency ........................................................................................................................... 8

2.4.1 Context ................................................................................................................................................................... 8

2.4.2 Other support to CEEC .................................................................................................................................... 9

2.4.3 Opportunities ................................................................................................................................................... 10

2.4.4 Challenges faced by CEEC ........................................................................................................................... 10

2.4.5 Outputs and activity description.............................................................................................................. 11

2.4.6 Inputs .................................................................................................................................................................. 12

2.4.7 Implementation arrangements................................................................................................................. 13

2.5 Component 3: CEF / CDTF ................................................................................................................................... 13

2.5.1 The Community Environment Facility (CEF) in the NRMP ........................................................... 13

2.5.2 Outputs and activity description.............................................................................................................. 14

2.5.3 Inputs .................................................................................................................................................................. 14

2.5.4 Implementation arrangements................................................................................................................. 15

2.6 Synergies between components ........................................................................................................................ 16

2.7 Cross-cutting issues ................................................................................................................................................ 17


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3. Budget .................................................................................................................................................................................... 19

4. Management and Organisation .................................................................................................................................... 21

4.1 Programme level management and organization ...................................................................................... 21

4.2 Component level management ........................................................................................................................... 21

4.2.1 REACT-Kenya: Management and Organisation ................................................................................. 21

4.2.2 Energy Efficiency: Management and Organisation .......................................................................... 22

4.2.3 CEF of CDTF: Management and Organisation ..................................................................................... 23

5. Financial Management .................................................................................................................................................... 24

5.1 Budgeting and flow of funds ................................................................................................................................ 24

5.2 Accounting .................................................................................................................................................................. 25

5.3 Auditing ........................................................................................................................................................................ 26

5.4 Procurement .............................................................................................................................................................. 26

6. Monitoring, reporting, reviews and evaluation .................................................................................................... 27

6.1 Monitoring & Evaluation ....................................................................................................................................... 27

6.1.1 REACT M&E ...................................................................................................................................................... 27

6.1.2 Energy Efficiency M&E ................................................................................................................................. 28

6.1.3 CEF/CDTF M&E ............................................................................................................................................... 28

6.2 Reporting & Communication Strategy ............................................................................................................ 28

6.3 Reviews ........................................................................................................................................................................ 29

7. Key Assumptions and Risks........................................................................................................................................... 30

7.1 The key assumptions .............................................................................................................................................. 30

7.2 The main risks ........................................................................................................................................................... 31

8. Implementation Plan ........................................................................................................................................................ 34

8.1 Implementation plan .............................................................................................................................................. 34

8.2 Options for 2012 ‘fast start’ climate programme ....................................................................................... 34

Annexes ........................................................................................................................................................................................... 35

Annex 1: Logical Framework Analysis – Danida ‘Fast start’ climate programme, Kenya (2011) ......... 36

Annex 2: Externally funded climate change programmes in Kenya.................................................................. 42

Annex 3: Assessment of the options for the ‘fast start’ climate programme ................................................. 46

Annex 4: Climate change Regulatory and Institutional overview ...................................................................... 54

Annex 5: References .............................................................................................................................................................. 61


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Abbreviations

AAP : Africa Adaptation Programme

ABD : Agricultural Business Development

ABD : Agricultural Business Development

AECF : African Enterprise Challenge Fund

AEG : Aid Effectiveness Group

Afd : Agence Française de Développement

AfDB : African Development Bank

AGRA : Alliance for a Green Revolution in Africa

ALRMP : Arid Lands natural Resource Management Project (ALRMP)

AMG : Aid Management Guidelines

ASAL : Arid and Semi-Arid Lands

B2B : Business to Business

BAF : Business Advocacy Fund

BMO : Business Membership Organizations

BSPS II : Business Sector Programme Support (2nd phase)

CABURESA : Capacity Building for Renewable Energy SMEs in Africa

CCCU : Climate Change Coordination Unit

CDM : Clean Development Mechanism

CDTF : Community Development Trust Fund

CEEC : Centre for Energy Efficiency and Conservation (KAM)

CEF : Community Environment Facility

CFU : Climate Finance Unit

CIF : Climate Investment Funds

CIPA : Climate Change Investment Programme for Africa

COP : Conference of the Parties

CTIF : Clean Technology Investment Fund

Danida : Danish International Development Assistance

DfID : Department for International Development

DKK : Danish Kroner

DNA : Designated National Authority

EAC : East African Community

EC : European Commission

EE : Energy Efficiency

EEP : Energy & Environment Partnership

EMCA : Environmental Management and Coordination Act

EPS : Environmental Programme Support

EU : European Union

FCPF : Forest Carbon Partnership Facility

FM : Fund Manager

GC : Governing Council (of AECF)

GDP : Gross National Product

GHG : Green-House Gases

GoK : Government of Kenya

IC : Investment Committee (of AECF)

ICPAC : IGAD Climate Prediction and Applications Centre (ICPAC)

IFAD : International Fund for Agricultural Development

IISD : Institute for Sustainable Development

ILWAC : Integrated Land and Water Management for Adaptation to Climate Variability and Change (Danida trust fund)


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KACCAL : Kenya: Adaptation to Climate Change in Arid Lands

KAM : Kenya Association of Manufacturers

KCCWG : Kenya Climate Change Working Group

KEPSA : Kenya Private Sector Alliance

KFS : Kenya Forest Service

KJAS : Kenya Joint Assistance Strategy

KMD : Kenya Meteorological Department

KPLC : Kenya Power and Lighting Company

KSH : Kenya Shillings

LFA : Logical Framework Analysis

M&E : Monitoring and Evaluation

MEMR : Ministry of Environment and Mineral Resources

MESPT : Micro Enterprise Support Programme Trust

MFA : Ministry of Foreign Affairs (of Denmark)

MoE : Ministry of Energy

MoU : Memorandum of Understanding

MVR : Monitoring, Verification and Reporting

NAMA : National Appropriate Mitigation Action

NCCC : National Climate Change Committee

NCCRS : National Climate Change Response Strategy

NCSA : National Capacity needs Self Assessment

NDF : Nordic Development Fund

NEMA : National Environmental Management Authority

NEP : National Environmental Policy

NRMP : Natural Resource Management Programme

ODA : Official Development Assistance

OPM : Office of the Prime Minister

PCN : Project Concept Notes

PS : Permanent Secretary

PSC : Programme Steering Committee

RAM : Review Aidé Mémoire

RDE : Royal Danish Embassy

RE : Renewable Energy

RE&EE : Renewable Energy and Energy Efficiency

REACT : Renewable Energy and Adaptation to Climate Technologies

REDD : Reduced Emissions from Deforestation and Forest Degradation

REDD-P : REDD Readiness Proposal

SCCF : Special Climate Change Fund

SME : Small and Medium Enterprises

SREP : Scaling-up Renewable Energy Programme

StARCK : Strengthening Adaptation and Resilience to Climate Change in Kenya

TMEA : Trade Mark East Africa

TNA : Technology Needs Assessment

UNDP : United Nations Development Programme

UNEP : United Nations Environment Programme

URC : UNEP Risoe Collaborating Centre

USD : United States Dollars

WFP : World Food Programme


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Executive Summary

The Danida ‘fast start’ Climate Programme in Kenya (2011)

The global ‘fast start’ climate change finance initiative targets the challenges of addressing climate change in developing countries. Denmark’s bilateral ‘fast start’ climate change finance includes programmes in Indonesia, Maldives and Kenya. The programme in Indonesia is on forest conservation and in Maldives it is on coastal zone protection. In Kenya the focus is on private sector and community based organizations.

The Danida ‘fast start’ climate programme in Kenya will catalyse private sector innovation and business opportunities in water and other natural resources management areas for reducing the risk of climate change (climate change adaptation) and development of energy efficiency and renewable energy options contributing to a low carbon development path (climate change mitigation). The ‘fast start’ climate programme will reach both community level development options involving innovations that can be scaled up, and more high-end already developed business models that can have systemic impacts on addressing climate change through private sector development.

Implementation of the Danida ‘Fast Start’ climate programme

The ‘fast start’ climate programme began late 2010 with grant support of DKK 10.0 Million (KSH 150 Million) to five one-year projects until December 2011. The 2011 Danida ‘fast start’ climate grant for Kenya amounts to DKK 50.0 Million (KSH 740 Million) from May 2011 implemented until December 2013.

The ‘fast start’ climate grant is additional to the existing and planned Danida official development assistance to Kenya. The ‘fast start’ climate programme for 2011 is integrated in the existing and planned development cooperation between the two countries and will make use of existing implementation modalities in the Business Sector Programme Support (BSPS II) and Natural Resource Management (NRM) Programme.

The ‘fast start’ climate programme (2011) has three components:

Support to innovation and market development in the Renewable Energy and Adaptation Climate Technologies (REACT) programme. An additional grant to the AECF challenge fund for implementation of the REACT Kenya programme addresses climate change adaptation, renewable energy and financial services in support of these. It will expand the grant provided to REACT Kenya by BSPS II for climate change innovation in Kenya. The support will increase the Danida support to REACT by 25%.

Energy efficiency with Kenyan Association of Manufacturers (KAM). Support to the Centre for Energy Efficiency and Conservation (CEEC) in KAM to scale-up its core business of providing comprehensive energy audits and investment grade audits in manufacturing Small and Medium sized Enterprises (SME) and larger scale companies. The support will be linked to and add value to the planned support from Agence Française de Développement (AFD) to establish a credit line for renewable energy and energy efficiency investments. It will also be linked to agro-business value chain activities in BSPS II.

Trust for community driven projects addressing priority needs within environmentally important ecosystems with CEF/CDTF. An additional grant to the Community Environmental Facility


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(CEF)/Community Development Trust Fund (CDTF) component in the NRM programme. The grant will be for the 2011 call for community based development projects addressing climate change risks (adaptation) and renewable energy (mitigation), and with a scope of involving the private sector and income generating activities. The Danida ‘fast start’ support will increase the total number of CEF projects funded by about 10 % or additional 10 projects. Technical staff will be supported on renewable energy/mitigation and climate change adaptation for inclusion of climate change and low carbon development in all CEF funded projects.

Harmonization and alignment

The Danida ‘fast start’ climate programme is integrated in the existing Danida country programme in Kenya to promote development effectiveness and cost-efficient impacts. The ‘fast start’ climate change activities are coordinated with the climate change activities of other development partners in Kenya. The ‘fast start’ climate programme is aligned to the National Climate Change Response Strategy (NCCRS) and the follow up action plan. There are no specific private sector targets or priorities in the NCCRS action plan, but the private sector is recognized as a critical partner for low carbon development and for economic growth to increase resilience to climate change risks.

Implementation plan

Agreements will be made between KAM and the RDE, the agreement for REACT will be integrated into the agreement between AGRA and the RDE for the BSPS II support to REACT, and an addendum to the existing agreement with CDTF will be made. Funding will be provided in two tranches with the first after May 2011 and the second in December 2011 after fulfillment of agreed targets by November 1st 2011. Danida has to allocate the 2011 ‘fast start’ climate funding by end of 2011, but the possibility exists that a similar Danida ‘fast start’ climate grant for Kenya is available in 2012.


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Components of the Danida ‘fast start’ climate, Kenya (2011)

Components Rationale Inputs and Activities Results and Impacts Implementation

1. Renewable Energy and Adaptation Climate Technologies (REACT-Kenya) supported

Private sector market development in Kenya for renewable energy and adaptation to climate technologies. Within BSPS II innovation component. Both Mitigation (renewable energy) and adaptation included in REACT.

DKK 15.0 Million for:

5 additional projects in Kenya identified in 2nd competition in 2011.

Up to 50% co-financing by REACT-Kenya.

Management fee (currently 20%).

Contribute to overall REACT targets. On average five additional projects will reach 25,000 households, 7,500 rural SMEs in poor rural areas will have access to low cost, clean energy and 50,000 smallholder farmers will have access to climate resilient products and services.

Included in the BSPS II MoU between AGRA/AECF and RDE. BSPS II provides DKK 60 Million.

2. Energy and comprehensive resource audits and other Energy Efficiency (EE) measures implemented by KAM

Expanding the capacity of KAM to meet demand for energy audits and investment grade audits in the manufacturing sector. Develop business cases, information and support for improved EE. Piloting comprehensive resource audits as an expansion of present approaches.


Support to large scale-up of existing capacity of energy audits (Information on EE and communication strategy)

Contribution to AFD revolving fund for pre-feasibility and feasibility studies.

Additional 50 Energy Audits and 25 Investment Grade Audits annually for two and a half year.

Leading towards more investments in EE. Focus on SMEs. Piloting comprehensive resource audits, e.g. water use and waste, and EE of buildings.

MoU between KAM and RDE. Direct links to BSPS II, especially related to agro-business. Inclusion of KAM as a new implementation partner in addition to BSPS II partners is justified by the additional ‘fast start’ climate change funding. Linkage to AFD supported TA located in KAM and the AFD EE and RE credit line with focus on agro-business.

3. Additional community projects implemented by the trust fund for community based development (CEF/CDTF)

Community based adaptation to climate change and contribution to reduced emissions. Development of community based approaches that can be scaled-up. Mainly adaptation and some mitigation.


Support to additional 10 community based climate change adaptation and mitigation projects from the current or possibly a new call in 2011. Own contribution by communities in cash or kind: 10%.

Increase in total EC and Danida CEF budget by about 10% sufficient for additional 10 CEF projects. The additional support will reach up to 3,000 end-users. Inclusion of private sector as service providers and in a potential scaling up of though community owned nature based enterprises.

Addendum to the NRM programme component 3.1 where Danida provides DKK 85.0 Million to CDTF of which 68.5 Million is for project grants.


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1. National Climate Change Context

1.1 Climate Change in Kenya 1

Kenya like other sub-Saharan African countries faces the uncertainty and potential risks of climate change. Kenya is vulnerable due to the dependence on the economy of the agricultural sector. Impacts will also occur in the coastal zone, on infrastructure, energy supply and human health. A large part of Kenya is arid and semi-arid lands (ASAL) where even smaller variations in climate may have potential large impacts though the population density is relatively lower. Growth in the economy and the population will over the next decades increase demand for land and natural resources and also increase the vulnerability to climate change.

The ‘Economics of climate change, Kenya’ study (2009) funded by Danida and DFID concluded that climate change will lead to additional and potentially very large economic costs that could be equivalent to a loss of almost 3% of Gross Domestic Product (GDP) each year by 2030. The study estimated that the immediate costs of climate variability on infrastructure, agriculture and loss of ecosystems services as well as adaptation for future climate change would be USD 500 Million annually from 2012 increasing to an upper level of USD 1.0 to 2.0 Billion annually by 2030. These estimates are uncertain and does not reveal how much damage is avoided for every additional million USD invested.

The economic growth in Kenya will be linked to higher emissions albeit starting out from a relative low level of emissions from energy use. The study on the economics of climate change assessed that the emissions could double between 2030 to 2050. According to the study, there are options for a low-carbon development path and emissions could be 22% less than projected by 2020 mostly with options that would have no or low additional costs.

Comparative analysis of country level emissions and carbon intensity

Kenya Tanzania South Africa EU (27)

Yearly Emissions Rank 88 74 19 2

2000: CO2, CH4, N2O, PFCs, HFCs, SF6 MtCO2 35,80 50,00 383,60 4.918,10

(excludes land use change) % of World Total 0,11% 0,15% 1,15% 14,80%Per Capita Rank 168 157 53 40

Tons CO2 Per Person 1,1 1,5 8,7 10,2

Cumulative Emissions Rank 98 123 14 2

1950-2000: CO2 (energy) MtCO2 291,90 99,90 10.951 202.204% of World Total 0,03% 0,01% 1,21% 22,36%

Per Capita Rank 154 171 48 24Tons CO2 Per Person 8,2 2,6 233,5 412,6

Rank 124 131 29 68Tons CO2/Tons Oil Eq. 0,69 0,26 2,68 2,26

Rank 86 98 8 --g CO2/kWh. 312,6 249,1 872,6 353,9

GHG Intensity of Economy Rank 133 170 17 101

2005: CO2 (excludes land use change) Tons CO2 Eq./Mill. $Intl 228,4 128,9 845,4 311,4

Source: http://cait.wri.org

Carbon Intensity of Electricity Production

Carbon Intensity of Energy Use

Emissions for land use changes have not been assessed but these could be significant in Kenya compared to the emissions for use of fossil fuels.

1 For more information on climate change impact in Kenya, see, for example, the ‘National Climate Change Response Strategy’ (2010) and the ‘Climate Change Screening of Denmark’s development cooperation with Kenya’ (2007).


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1.2 Climate Change Policy, Strategies and Institutions

Kenya has prepared a National Climate Change Response Strategy (NCCRS) (2010) with support from Danida. To implement the NCCRS a Climate Change Secretariat has been established in the Ministry of Environment and Mineral Resources (MEMR). The Secretariat is in the process of preparing an action plan for implementation of the NCCRS.

A Climate Change Bill has been drafted and may be promulgated as a Climate Change Act. There is not yet a specific Climate Change Policy for Kenya but the draft National Environmental Policy (2009) includes climate change issues. The Office of the Prime Minister (OPM) has a Climate Change Coordination Unit (CCCU) responsible for inter-ministerial coordination.

For further details on climate change institutions and regulation in Kenya, please refer to Annex 4 (p. 54).

1.3 Danida Country Programme in Kenya

Denmark’s development cooperation with Kenya includes support to the health sector, governance, natural resource management (NRM) and business sector programme support (BSPS II). The NRM is a new phase from 2010 and the BSPS II will also be in a new phase from 2011. Both programmes have included issues of climate change adaptation and renewable energy, and the NRM also provides support for climate change coordination by the GoK.

A climate screening of Denmark’s development cooperation with Kenya was carried out in 2007. It led to support to the climate change coordination unit in OPM and also the support to the development of the NCCRS in the former Environmental Programme Support (EPS).

The Kenya Joint Assistance Strategy (KJAS) is the overall framework for donor harmonisation and alignment. A sector focus requirement resulted in Danida phasing out of the agriculture and water sector programmes support during 2009 and 2010.

The development partners have pledged and initiated a large portfolio of climate change related programmes and projects in Kenya to respond to a demand in Kenya and in the home countries to prioritise climate change adaptation and mitigation. An overview of the various climate change initiatives funded by development partners is included in Annex 2 (p.42).

1.4 Danida ‘fast start’ climate programme

The Danish supported bilateral ‘fast start’ finance includes bilateral programmes in Indonesia, Maldives and Kenya. The programme in Indonesia is forest conservation and in Maldives coastal zone protection. In Kenya focus is on private sector and non-profit organizations.

The ‘fast start’ programme will complement existing and planned development cooperation between Kenya and Denmark and use existing implementation modalities in the BSPS II and NRM programme. The ‘fast start’ climate grant is additional to the existing and planned Danish official development assistance to Kenya in 2011 and 2012. The Danida fast start climate programme in Kenya will not provide direct support to the public sector for climate change coordination or facilitation of adaptation and mitigation. This is already feasible with NRM programme.

The ‘fast start’ climate grant for 2011 is DKK 50.0 million (KSH 740 Million). It is possible that a similar grant will be provided in 2012. For 2010 Denmark provided DKK 10.0 Million (KSH 150 Million) in ‘fast start’ climate grant to Kenya for five one year projects. The decision on the 2010 ‘fast start’ projects was made in December 2010 and the projects are therefore implemented during 2011.


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Additional funding for the 2010 ‘fast start’ climate projects is therefore not relevant to consider before a possible 2012 ‘fast start’ climate funding.

Subject to a further pledge of Danish ‘fast start’ climate finance and proven outcomes of the 2010 and 2011 ‘fast start’ climate programmes and the potential 2012 ‘fast start’ climate programme, additional climate change financing may be provided by Danida from 2013 and beyond in Kenya.

The ‘fast start’ climate finance

Developing countries require additional finance over and above own resources and Official Development Assistance (ODA) in order to reduce the impacts of climate change through adaptation and also to contribute to mitigation through reduced emissions. The additional financing has been pledged by the industrialized countries initially at the COP15 Copenhagen Accord (2009) and confirmed in the COP16 Cancun Agreement (2010):

Fast-start finance - the collective commitment by developed countries to provide new and additional resources, including forestry and investments through international institutions, approaching USD 30 billion for the period 2010-2012, with a balanced allocation between adaptation and mitigation; funding for adaptation will be prioritized for the most vulnerable developing countries, such as the least developed countries, small island developing States and Africa.

The intention is to raise USD 30 billion for the period 2010-2012 and then USD 100 Billion globally in annual long term funding from 2020.2 Denmark has pledged DKK 1.2 Billion (USD 220 Million) for global ‘fast start’ finance to climate change until 2012. It equals 0.7% of the anticipated ‘fast start’ finance commitment globally. The funding from Denmark includes both multilateral initiatives as well as bilateral programmes. The multilateral funding includes for example the Climate Investment Funds (CIF) managed by the World Bank. The ‘fast start’ climate finance from Denmark is from the overall ODA frame, but it is additional funding for the Kenya country programme.

2 See, for example www.faststartfinance.org and http://www.wri.org/publication/summary-of-developed-country-fast-start-climate-finance-pledges for further information on fast start climate finance.

http://www.faststartfinance.org/

http://www.wri.org/publication/summary-of-developed-country-fast-start-climate-finance-pledges

http://www.wri.org/publication/summary-of-developed-country-fast-start-climate-finance-pledges


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2. Description of the Danida ‘Fast Start’ Climate Programme in Kenya

2.1 The ‘fast start’ climate programme design

The selection of options for the ‘fast start’ climate programme was made after an assessment taking into account the development objectives of Danish ODA and the more specific aim and conditions of the ‘fast start’ climate programme. The guidance provided by the Ministry of Foreign Affairs (MFA) for the design of the ‘fast start’ climate programme in Kenya was:

Development impacts on poverty including social and economic development as for ODA; Emphasis on the private sector and community based development; Limited number of new interventions (preferable less than three); Development outputs that are linked to existing programmes in the country programme, and The support should be able to stand alone after the one year grant support. A range of alternative options were considered during the formulation process, but were not found to fulfill all the criteria for an effective implementation of the fast start 2011 climate programme. These assessments are included in Annex 3 (p.46).

There will be more learning and clarification over the next 6 to 12 months, i.e.: a) following inception of BSPS II; b) outcome of the call for proposals of CEF/CDTF, c) outcome of the first round of competition for REACT, d) clarification on conditions for support to the Micro Enterprise Support Programme Trust (MESPT) under BSPS II, e) decision and launch of other donor support, e.g. StARCK (DFID) and AFD, and f) outcome of the 2010 ‘fast start’ climate project grants by the end of 2011. In principle, this provides additional opportunities for support from 2012, provided further Danida ‘fast start’ funding is forthcoming.

The BSPS II and NRM programmes both address climate change issues. It will therefore be effective to align the fast start climate programme directly to the implementation arrangements and management structures of these two programmes. The ‘fast start’ climate support is not designed as a stand-alone programme but it will be aligned with the existing programmes. This will enhance development effectiveness and focus the Danida supported interventions. A justification for this approach is furthermore that funds are to be disbursed in 2011 and that funding for separate management of a stand-alone programme may not be sustainable.

The Danida ‘fast start’ climate programme will contribute to addressing pertinent climate change challenges involving the private sector and community based projects. This include both adaptation measures, e.g. access to and efficient use a scarce resources like water, and contribution to a low carbon development path option for Kenya. This all relates to ‘green economic growth’ that is profitable for private sector business and contributing to a sustainable development for Kenya.

The justification for the ‘fast start’ climate programme content is, moreover, the harmonization with other climate change activities in the NRM programme and planned activities by other development partners. The Danida ‘fast start’ climate programme will also be aligned to the action plan for implementation of the NCCRS. Danida through the RDE is well positioned as an actor to ensure support to coordination of all Danida supported climate change activities in Kenya.

The ‘fast start’ climate programme will consist of three components, each with an immediate objective, linked to existing programmes (see figure on the next page).


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Danida ‘fast start’ climate programme components and their linkage to BSPS II and NRMP

2.2 Development Objective

The development objective for the ‘fast start’ climate change programme is:

Communities and private sector in Kenya use technology innovation to reduce vulnerability to climate change and contribute to a low carbon development path.

The immediate objectives for the three components are:

Component 1: REACT - REACT will catalyse private sector investment and innovation in low cost, clean energy and adaptation climate change technologies through bringing innovative climate change products and services to rural people in Kenya.

Component 2: Energy Efficiency - Increase the efficiency in energy and resource use in the manufacturing sector in Kenya.

Component 3: CEF/CDTF – Community-driven initiatives reduce threats and conflicts related to natural resource use and climate change risk.

The logical framework is included in Annex 1 (p.36).


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2.3 Component 1: REACT

2.3.1 Context

This component of the ‘fast start’ climate programme will catalyse private sector investment and innovation in low cost, clean energy3 and climate change technologies through bringing innovative climate change products and services to rural people in Kenya.

It will be done through providing support to REACT Kenya. This will be in addition to the financial support REACT Kenya receives from BSPS II and DFID regional funding, and possibly also from DFID Kenya. The support from Danish ‘fast start’ climate programme funds will follow the objectives, outputs, activities and implementation modalities as set out in the REACT programme as well as criteria for project eligibility and selection. The following provides a brief explanation of the crucial elements of the REACT programme.

REACT is one of several programmes implemented by the multi-donor supported AECF supporting innovative private sector projects, demonstrating the commercial viability of new business models and technologies that are ready to be taken to the market and which are proposed by established firms. One of the key features of the AECF is that it differs from the traditional venture capital fund approach of ‘picking winners’ but rather seeks to ‘start races’ by, for example, supporting more than one project within a given business area.

The objective of REACT goes beyond the achievement of the goals set for individual projects. Supported projects are supposed to contribute towards the wider goal of market transformation, i.e. to create systemic impact. REACT seeks to obtain systemic impact through a number of methodologies, including: When possible providing support to more that one company within a given sector; dissemination of lessons learned from successful marketing and service innovations; working with enabling business climate issues where relevant, e.g. through the Business Advocacy Fund (BAF) supported by BSPS II, and through other companies entering a market as they observe that there are profitable investment opportunities created by the original REACT intervention.

2.3.2 Outputs and activity description

The REACT programme has the following outputs:

Output 1.1: Clean energy products and services providing lower cost and more reliable energy supply to rural businesses and households in off-grid areas;

Output 1.2: Non-financial products and services that help smallholder farmers adapt to climate change;

Output 1.3: Financial service providers facilitate greater investment in lower cost, clean energy and climate resilient technologies and help the poor access them;

Output 1.4: Communication helping to spread successful business models.

The present REACT is covering the five East African Community (EAC) countries (Kenya, Tanzania, Uganda, Rwanda and Burundi) but it will have specific windows for Kenya (supported by Danida from BSPS II and possibly by DFID Kenya) and Tanzania (supported by DFID Tanzania). For practical reasons, each competition is run across all five EAC countries. The first REACT competition was open until the end of January 2011, and the next one is expected to be carried out during the second half of

3 ‘Clean energy’ is defined as renewable energy, meaning technologies using renewable sources such as solar, wind, biomass, biogas, geothermal, micro-and small-hydro, including energy efficiency measures that improve the proportion of useful heat or power derived from renewable sources.


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2011. REACT competitions will also be carried out twice annually over the next years, depending on availability of funds. There were 348 submissions in the first competition ending in January 2011, out of which more than 40% were for projects in Kenya.

Applicants submit Project Concept Notes (PCNs) according to a REACT format. The eligibility criteria required for the PCNs are: (i) The applicant is a private sector for-profit company; (ii) The project takes place in one or more of the five EAC countries; (iii) The projects must fit under one or more of the following three areas: ‘Renewable Energy’, ‘Adaptive Climate Technologies’ or ‘Financial Services’ for the first two categories; (iv) Request for AECF support must be between USD 250,000 and USD 1.5 million; (v) The applicant must at least match the funds requested from the AECF from their own or third party resources (minimum 50% own financing); (vi) The applicant must demonstrate that the project has positive environmental impacts, and (vii) The applicant must demonstrate that the project would not go ahead (at all, at the same speed or at the same scale) without AECF funding. If the above criteria are not met the PCN is not classified as eligible and the project is not considered for REACT funding. 26% of the submissions in the January 2011 competion were not eligible.

Having passed the eligibility threshold, selection criteria for concept notes are: (i) Development impact of the project (35%); (ii) Capacity of the company (20%); (iii) Commercial viability/business case (20%), (iv) Innovation (15%), and environmental sustainability (10%). In order to increase the quality of supported projects, the internal weighting between the selection criteria can be adjusted in subsequent competitions, based on the experience from the first REACT competition. The weights of criteria could be shifted, if for example adaptation projects should be relatively more promoted than renewable energy projects. Of the total number of submissions in the first round of competion, about 6% were marked as climate adaptation projects and 38% with combinations of RE, financial services or adaptation. A larger focus on marketing climate adapttion projects in the coming rounds of competions could be justified.

2.3.3 Inputs

The following inputs will be provided:

Funds for second REACT competition during last half of 2011. The funds can only be used for the REACT-Kenya window, i.e. the funds will only be utilised to support REACT projects implemented in Kenya.

Management fee. The management fee is 20%, being divided between between the Alliance for a Green Revolution in Africa (AGRA) (3%) and the AECF Fund Manager (17%). The management fee is subject to negotiation when the total AECF portfolio has reached USD 100 million. The threshold was passed with the approval of the Danish contribution to the REACT programme under BSPS II. As part of the first three years review of the AECF expected to be completed by May 2011, the size of the management fee is a subject for discussion. The management fee may not change but what services are delivered by the Fund Manager (FM) may be revisited.

Outputs DKK Million

Funds for REACT competition 12.5

Management fee 2.5

TOTAL 15.0


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2.3.4 Implementation Arrangements

REACT is implemented through AECF, which has all procedures and systems in place as well as experience from running several competions for other AECF windows. It is expected that the absorptive capacity in the private sector will be larger than the funds made available for the REACT Kenya window. This assumption seems to be correct judging the results of the initial analysis of applications of the first round of competition.

The AECF markets its programmes in recipient countries as well as in relevant donor contries. An international marketing company, being part of the Fund Manager consortium, is responsible for marketing activities. Marketing of REACT is being carried out in all the five recipient countries. Based on the experience from the first round of competition, additional marketing may be needed in Kenya, particularly when it comes to promotion of e.g. adaptation projects , if there should be a better balance between projects and the REACT outputs.

A special effort to market REACT before the next competition will also be carried out in Denmark, enabling Danish companies within especially the renewable energy sector and clean technology to apply for funding for projects in Kenya. This is also in line with the BSPS II programme document.

It is envisaged that REACT could trigger Danish companies to make investments in Kenya, and that it would make it more attractive for Danish and Kenyan companies to establish business partnerships. A linkage could be established to the Danida Business Partnerships programme that could be a forerunner for a REACT application.

2.4 Component 2: Energy Efficiency

2.4.1 Context

The aim of supporting the CEEC at KAM is to increase the efficiency in energy and resource use in the manufacturing sector in Kenya.

The increasing energy costs and unreliable energy supply is an increasing burden and concern for the private sector in Kenya. This can be addressed by two major avenues: i) to increase supply through e.g. investing in renewable energy, or ii) to reduce demand through introducing energy efficiency measures. The CEEC at KAM deals directly with the second approach which is, also in the case of Kenya, a neglected but highly effective intervention.

The Vision 2030 assumes a high annual growth in GDP. It has been demonstrated in practice that the linear linkage between growth in GDP and energy consumption can be broken. The key to disentangle GDP and energy consumption growth is to utilise the available energy more efficiently. Within the private sector there exists a substantial range of low hanging fruits that can easily be picked in terms of energy saving investments. This requires first and foremost the application of technical expertise (typically energy audits) within companies to identify the best investments in terms of the shortest payback periods. Other investments will be larger and in some cases also require borrowed financial resources. Awareness raising towards private companies on the triple benefits of increased energy efficiency (increased profit, less pressure on climate change and reduction in the energy supply-demand gap) is needed in order to have a wider impact.

The CEEC among others carry out comprehensive energy audits for medium and large scale enterprises as well as for SMEs; investment grade audits, in particular for medium and large scale enterprises; train and examine energy auditors enabling them to be certified according to the an


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international standard;4 promote its services towards the manufacturing sector, and provides an annual energy management award aimed at encouraging a culture of energy savings.

KAM has since 2006 had an inter agency agreement with the Ministry of Energy (MoE) through which it is obliged to carry out an energy efficiency programme following an agreed workplan. Based on the annual work plan, measurable outputs and satisfactory performance, the MoE, from regular budgetary resources, fund these activities. The first three year interagency agreement was extended by three years in 2009 as the performance by CEEC was rated satisfactory. The MoE provides KSH 30 million per year to fund this public-private partnership. As part of the performance contract KAM is obliged also to make this service availble to non-KAM members. The interagency agreement with MoE is made on the assumption that KAM will source aditional funds for the activities of CEEC.

The grant from MoE is used for subsidising the comprehensive energy audits with 75%, with the recipient company paying the remaining 25% of the energy audit costs. Investment grade audits are fully subsidised. While this level of subsidy might be feasible for companies within the lower end of the company size scale, there is room for a higher company payment when dealing with medium and large scale companies. To have a higher impact of the matching grant allocation, the CEEC will need to amend the present subsidy scheme to allow for a higher company payment.

2.4.2 Other support to CEEC

Advanced discussions are in progress between KAM and the AFD on a programme to support Renewable Energy and Energy Efficiency (RE&EE) in Kenya, Uganda and Tanzania. The regional AFD programme will provide a 2 years grant scheme to be placed in KAM. This scheme will provide funds for carrying out pre-feasibility and feasibility studies for bankable RE&EE projects in all three participating countries, a technical assistance contract for management of the scheme, for training of personnel in participating banks, and for providing quality assurance of studies carried out. The grant will also provide KAM with a management fee A credit line of EUR 30 Million, to be used for RE&EE projects in Kenya, will be provided through two banks. The credit will be given on a concessional basis (longer repayment periods and lower interest than prevailing in the market) to investors. Repayment periods will be up to 10 years for RE projects, and 3-5 years for EE projects. A similar credit line is made available in Uganda and Tanzania.

The focus of the AFD programme is on preparing bankable projcts for RE&EE investments, which can be funded by from the credit line. The grant scheme will not provide support to the energy audit scheme carried out by CEEC. However, an expanded energy audit scheme in CEEC will complement the RE&EE programme as the availability of a dedicated credit line for among others EE investments will provide the opportunity for companies to finance EE investments identified through the CEEC audit scheme.

In those cases where the pre-feasibility and feasibility studies do not lead to an investment, the costs of the studies will be provided as a grant to the company. Where investments are approved by a financial institution, the investing company will have to repay the cost of the studies into a revolving fund, to be used for new pre- and feasibility studies. Usually, the investor will include the pre-project costs into the total project costs, enabling the investor to utilise the credit line to finance these costs.

4 The certification of energy auditors is done according to the standards of the Association of American Engineers: http://www.aeecenter.org

http://www.aeecenter.org/


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2.4.3 Opportunities

In addition to having a significant impact on reducing use of energy and other resources, the support to the CEEC at KAM provides other opportunities:

Being a demand side measure, an EE intervention complements the supply side RE measures being supported through REACT-Kenya;

As KAM also has an involvement in BSPS II, there are opportunities to forge closer links between the BSPS II and the fast start climate programme;

The CEEC at KAM has the experience to scale up the activities at the centre, provided it receives additional financial support. To have an impact, it is necessary through promotion and marketing activities to significantly expand the outreach of CEEC to companies which have the potential to introduce EE measures as well as to introduce new services, e.g. in the form of comprehensive resource audits;

In the new structure of KAM the CEEC will be part of the ‘KAM Consulting Services’. The Danida ‘fast start’ support is an opportunity to create a larger volume of business, to market KAM services to non-KAM members and to develop new EE related services to members, and

It provides an opportunity for the RDE to collaborate and coordinate with the AFD, one of the leading development partners in the Kenyan energy sector.

2.4.4 Challenges faced by CEEC

The concept of energy audits are most feasible for the medium and large scale companies, as they can see the potential for cost savings, and some of them, especially export companies, can utilise the ‘greening’ of their production in their marketing strategies. It has been the experience that small scale enterprises are not so receptive to the concept of increasing EE, even though there is a potential for cost savings. The number of audits being carried out by CEEC during a one year period has not been as high as the potential due to a limited budget. Targeted promotion of the benefits of EE investments towards especially small scale companies should be significanly increased with a larger budget for energy audits.

One of the methods to spread the concept of increased EE is to demonstrate to other companies sucessful implementation of recommendations of energy audits through business cases. Considering the clustering of the manufacturing sector around the larger cities in Kenya, with Nairobi being the largest, ample opportunities exists for organising exchange company visists.

KAM is at an advanced stage of deciding to build a new office building on the plot owned by them in a prime location in Nairobi. This presents an opportunity for KAM to build a low or energy neutral office building, which can set the building standards for public as well as private office buildings in Kenya. This can also be seen in the light of the energy audits of public sector buildings that are being carried out by CEEC. Due to the location in Nairobi, it presents a chance for a wide demonstration to both businesses and the wider public of the benefit of building according to higher energy efficiency standards. During the second half of 2011 this could include that specialised international architectual and engeenering expertise are brought into the building design process by KAM. This expertise could also be used by KAM to train its group of auditors in energy efficiency of buildings, enabling KAM to expand its services to both the public sector as well as to enterprises within this field.

KAM has initiated an impact assessment of the EE programme carried out during 2007 and 2008 in order to obtain information for the management so that the programme can be further improved. Implementation of recommendations of energy audits can be hampered, both by lack of financial resources in the company for EE investments and due to lack of technical know-how and knowledge of


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the consequences for the company, if larger new investments needs to be implemented. While the AFD supported credit line for RE&EE investments can address the first issue, there is in some cases a need for providing technical know-how to companies for follow-up on audits.

The fact that energy is a scarce and expensive resource provides an incentive for companies to save on the use. Other inputs for production are also increasingly becoming scarce resources. Especially water is already a scarce resource in Kenya in certain periods and locations, a situation that is projected to worsen with increasing population pressure and negative climate change impact. An efficient use of water is thus increasingly on the agenda.

The use of by-products and waste in an economical way also presents an income opportunity for companies. These issues are not covered by the conventional energy audits (neither the comprehensive energy audits nor the investment grade audits) carried out by the CEEC. To carry out comprehensive resource audits on pilot basis presents an opportunity for CEEC to test a new business area as well as to have a larger impact in companies.

KAM has, through the CEEC, managed the energy audit and investment grade audit scheme for a number of years. At present there are three staff members in the CEEC. A substantially expanded energy audit scheme will require additional staff resources in the CEEC in order manage the programme and to have an impact. In order for KAM to carry out high level quality assurance of energy audits prepared by contracted energy auditors, the requirement for KAM is to have thoroughly experienced professional staff who have experience preparing energy audits.


The following describe the outputs to be produced and the associated outline description of activities:

Output 2.1: A substantial increased number of comprehensive energy audits and investment grade audits.

Output 2.2: Effective promotion towards both KAM and non-KAM members of the benefit of introducing EE measures.

Output 2.3: Demonstration to other companies of the benefit of energy efficiency investments.

Output 2.4: Facility for providing non-financial assistance to companies for implementation of recommendations of energy audits established.

Output 2.5: Comprehensive resource audits piloted with a number of companies.

Output 2.6: CEEC capacity increased to carry out audits.

The rationale for providing support to CEEC in KAM is to enable it to boost its outreach and to have a measurable impact on reduction in the use of energy and other scarce resources. Therefore the annual targets in terms of the total number of audits carried out by CEEC will be increased substantially. This will require a dedicated focus in KAM on providing this service to both members and non-members. The fast start climate programme funding will support additional 50 comprehensive energy audits and 25 investment grade audits on an annual basis. The present total target from the MoE funding is 30 annual energy and investment grade audits.

To reach this number of audits, a core activity will be targeted promotion of the services provided by CEEC. This will among others be carried out though annual national media campaigns combined by regional promotional activities in Nairobi, Mombassa and in Western Kenya. Links will also be made with other programmes supporting the private sector, in particular the BSPS II. The marketing will be targeted towards both medium and large scale, but especially smaller companies. As a special promotional measure exchange visits to other companies are organised.


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As an expansion of the energy audits being carried out of public buildings, KAM will pilot energy audits of commercial facilities and buildings as a potential new service. This might, e.g. also include utilising international technical expertise to train energy auditors in energy efficiency in buildings and to use this technical expertise in the design process of the new KAM office building. The support will also be used by KAM to pilot comprehensive resource audits, covering energy, water, other relevant resources as well as economical use of by-products and waste. Based on the results, this will provide a potential business area for KAM.

For KAM to be able to substantially expand the CEEC activities it is needed that the capacity of CEEC is increased, among others through more professional staff. One of the roles of the CEEC staff is to carry out quality assurance of the energy audits prepared by the certified energy auditors. It is expected that the technical assistance team, funded from the AFD grant and located in KAM, will play a role in upgrading the capabilities of the CEEC staff to carry out quality assurance activities.

2.4.6 Inputs

The following inputs will be provided:

Matchning grant for comprehensive energy audits and investment grade audits;

Funds for promotion of the energy efficiency programme of KAM, including energy audit activities, company exchange programmes as well as for promoting comprehensive resource audits;

Matching grant support to provision of technical knowhow to companies for implementation of recommended energy and resource efficiency investments, including for bringing international or regional expertise on energy efficiency in buildings into KAM programmes;

Matching grant for piloting comprehensive resource audits;

A grant to the AFD established revolving fund in KAM for supporting pre-feasibility and feasibility studies of RE&EE investments in Kenya;

Support KAM to cover costs of additional CEEC professional staff necessary to expand the coverage of the audit scheme.

Outputs DKK Million

Matching grant – Audits *) 7.0

Promotion 1.0

Technical knowhow for implementation and EE in buildings

1.0

Piloting cleaner technology resource audits of industries and buildings

3.5

Revolving fund (AFD) 1.0

CEEC additional professional staff 1.5

TOTAL 15.0

*) Assuming that an additional 50 comprehensive audits and 25 investment grade audits are carried out on an annual basis. Starting from April 2011, ending December 2013.


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2.4.7 Implementation arrangements

The operation of the matching grant schemes for undertaking comprehensive energy audits, investment grade audits, providing technical knowhow to companies for implementation and for piloting comprehensive resource audits will follow the same procedures. In all cases KAM will contract the auditor/technical expertise directly, based on the roster of certified auditors/technical experts, and in agreement with the company. Before the audit is submitted to the company for comments, the draft audit report will undergo quality assurance from the CEEC. The auditor/technical expert will be paid by KAM upon approval of the audit by the company. The contribution by the company will be paid directly to KAM. The subsidy for energy audits is currently 75% but it might be reduced o for example 50% for larger enterprises. An energy audit is required before carrying out an IGA, which is currently 100% subsidised.

A close coordination will be made between the CEEC and the technical assistance team located in KAM for the AFD supported regional RE&EE programme. This will be beneficial for KAM in especially two respects: It will increase the possibilities for companies undergoing audits by CEEC to obtain investment finance and the quality of audits carried out can be increased.

2.5 Component 3: CEF / CDTF

2.5.1 The Community Environment Facility (CEF) in the NRMP

The CEF/CDTF provides support to community based projects on sustainable natural resource management. This includes topics such as soil and water conservation, RE, water and sanitation, waste management, and nature based enterprises.

The CEF is jointly supported by the EC and the Danida (NRM) programme. Support to CEF/CDTF is included in component 3.1 of the NRM programme.5 It is a continuation of a collaboration with CDTF from the EPS. Danida and Sida provided support to CEF/CDTF in the EPS from 2007 to 2010. It is noted in the component document that “Deliberate efforts will be made to select projects that address climate change issues and promote alternative renewable rural energy saving technologies” (p.11).

The total grant for the project support of KSH 1.8 Billion (about DKK 122 Million) will be allocated and implemented until 2014. The grant for projects is contributed about equally between EC and Danida. The Danida NRM grant for CDTF is DKK 85 Million of which DKK 68.3 Million is for project grants.

About 85 projects are expected to be funded with the available funding from the EC and Danida. The own contribution in cash or in-kind by the communities is 10 %. The grant size for individual projects is between KSH 7.5 and 31.5 Million per project and KSH 20.0 Million (about DKK 1.25 Million) per project on average.

The eligibility criteria for CEF projects outlines that “They should target the local beneficiary community, represented by group ranches, community wildlife sanctuaries, self help groups, etc. Projects may be implemented directly by the community or with sponsorship/facilitation from other stakeholders such as Local Authorities, Wildlife Associations, Conservation NGOs, Community Based Organizations (CBOs), Private Ranches, Government Agencies, Research Institutions and Private Sector”. The above mentioned partners may also receive some of the funding of the grant including cost recovery for services.

5 http://www.ambnairobi.um.dk/NR/rdonlyres/A4D77D53-357B-428B-BF0D-6DA4096D067B/0/FinalSubCompNo31071209.pdf

http://www.ambnairobi.um.dk/NR/rdonlyres/A4D77D53-357B-428B-BF0D-6DA4096D067B/0/FinalSubCompNo31071209.pdf

http://www.ambnairobi.um.dk/NR/rdonlyres/A4D77D53-357B-428B-BF0D-6DA4096D067B/0/FinalSubCompNo31071209.pdf


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The target in the NRM component 3.1 is at least 40 community driven projects funded by Danida with an average size around KSH 20.0 Million.6 The key outcome indicators for the NRM component 3.1 are (p.21):

i) Direct improvement of living conditions for 180,000 people through [at least] 40 poverty oriented and locally-based environment projects;

ii)Indirect improvement of living conditions for 540,000 people through [at least] 40 poverty oriented and locally-based environment projects;

iii) Minimum 25,000 families (150,000 people) have started activities in environmentally improved agricultural production and alternative sources of energy before the end of 2014.

The ‘fast start’ climate funding will increase the targets pro rata equal to the additional funding provided.


The outputs supported are:

Output 3.1: Promote energy saving technologies that enhance sustainable utilization of natural resources

Output 3.2: Support community initiatives that will enhance adaptation to and reduction of the climate change effects on local livelihoods

Output 3.3: Screening, monitoring and communication of good practice and scaling up

The ‘fast start’ climate funding for 2011 makes it possible to add further projects to the already agreed support in the NRMP. A share of about 15 % of the increased budget or about KSH 20.0 Million will be available for additional technical assistance or staff in CDTF on RE and climate change adaptation. The technical assistance shall provide support to climate change and RE projects but also be used towards a general mainstreaming of climate change risk management, adaptation and mitigation in all CEF projects.

Should a second call be the selected option for implementation of the ‘fast start’ climate programme, provision can be made to involve private sector enterprises and develop business opportunities. In the first call there is not particular emphasis on private sector involvement as the supported activities must be non-profit.

The support is provided to community based climate change adaptation and mitigation projects. These can have an innovative approach based on management and use of natural resources including water and RE and preferably involve enterprises in the communities.

2.5.3 Inputs

The ‘fast start’ climate finance of DKK 15.0 Million (about KSH 220 Million) will increase the CEF grant for climate change by almost 20% of the Danida grant for CEF projects in the NRM programme. It is assumed that each project on average will have a budget of DKK 1.25 Million.

6 The NRM component 3.1 has a target of ‘at least 30 projects’. The target is increased to 40 in the CDP4 Financial Agreement for Danida support to CEF. The EC will fund the other share expected to be a total of 85 CEF projects before additional Danida ‘fast start’ funding.


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Outputs DKK Million

Grants for about 10 RE and climate change projects

12.5

Technical support for climate mainstreaming and monitoring

2.5

TOTAL 15.0

Funding is made to technical support (CDTF staff or consultants) to enhance CEF/CDTF skills to provide support for addressing climate change risks (adaptation) and opportunity for climate technology including renewable energy in all CEF projects. Due to the delay in the organizational reform of CDTF it is currently not possible to hire new staff. CDTF has also access to the Short Term pool of Technical Assistance support in the NRM Programme, which could provide support to develop tools for more efficient monitoring and documentation.

2.5.4 Implementation arrangements

The additional support from the ‘fast start’ climate programme will be included in the budget for current call for proposals (January – March 2011).

A call for proposals for the joint EC and Danida grant was launched on January 17, 2011.7 In the call particular emphasis was placed on climate change mitigation and climate change adaptation. Danida has requested that at least 30% is for climate change adaptation and RE. 8 If there are fewer than 25 potential climate change projects identified after the screening from the first call, then a second call might be initiated. This is already a provision for the NRM Programme, should the expected share for climate change projects be below 30%. The submission of proposals in a potential second call should preferably be web based and simplified, i.e. following agreed procurement rules less rigorous than the EU requirements for the current call. It may be possible to target a second call towards climate change technologies at the community level with private sector involvement.

There were 3,787 concepts for projects submitted to CEF/CDTF by March 7, 2011. The administrative screening was completed by March 30, and about 25% were not found eligible. A technical assessment will be carried out including marking and ranking of the concept proposals. A short list of top ranked projects will be prepared by July 2011. About 120-130 projects will be shortlisted (85 projects plus additional 10 from the fast start programme plus a margin of 20-30 %). Field verifications will be carried and non-eligible proposals will be deleted. An invitation to develop full proposals for the remaining proposals is expected by July 2011. The full proposals are due by August 22, 2011. Contracts will be signed after end of October 2011. The supported projects will operate for three years until end of 2014.

The following figure shows the distribution of projects to be funded from EC and Danida resources respectively, including the distribution of the Danida funded projects between the NRM programme and fast start climate programme funds.

7 http://www.cdtfkenya.org/news/2011/CEFII_CfP.html

8 The NRM component 3.1 includes a target of at least 10 RE and Climate change projects equal to a minimum of 30% of the Danida NRM grant for CEF projects.

http://www.cdtfkenya.org/news/2011/CEFII_CfP.html


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The expected 95 CEF projects according to funding source and RE and climate objective

The ‘fast start’ climate funds will be for the Danida supported RE and climate adaptation in the CEF call for proposals. A practical implication of the additional ‘fast start’ climate grant is that the cut-off point for support will be shifted from 85 to 95 projects in the ongoing call. These additional projects may not necessarily be climate change related. A selection of about 10 projects within the available budget will be tagged as Danida ‘fast start’ climate support. CEF/CDTF will report to Danida on the climate change projects for the specific ‘fast start’ climate grant but also for climate change projects funded by the NRM Programme, i.e. the climate portfolio within the CEF project portfolio.

The quality of proposals from the recent CEF call has not yet been assessed. It is preferred to identify optional projects with the large pool of projects submitted. After the administrative screening there are still more than 2,800 project concepts remaining. It may be possible to elevate the climate change contents in projects that are well marked but didn’t mention climate change adaptation specifically.

The objectives, targets and implementation procedures for ‘fast start’ climate programme supported CEF/CDTF projects will follow those of the NRM Programme component 3.1.

2.6 Synergies between components

As the fast start climate programme is not a stand-alone programme, but to a high degree incorporated into the NRM and BSPS II there are a range of opportunities for securing synergies in practice with other Danida supported activities as well as between fast start climate programme components.

KAM is – under a sub-contract to MESPT – implementing manufacturing value chain activities in BSPS II. The BSPS II programme in MESPT focusses especially on the agro-business sector, in which there are a range of companies, which are candidates for both energy and comprehensive resource audits. Links will be made between the CEEC and the candidate agro-business companies through MESPT. Likewise, KAM will establish links to both REACT and the BAF for marketing the CEEC services to a wider audience. For KAM to reach its targets for undertaking additional energy audits and for effectively piloting comprehensive resource audits in manufacturing enterprises, it is needed that


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close contact is established and maintained between KAM/CEEC and in particular the Agri-Business Development activities undertaken by MESPT, but also the AECT/REACT.

One of the methods for REACT to reach its developmental goals is to assist supported enterprises in overcoming specific business environment issues. Two important avenues for this are for REACT to be in contact with and use: (i) BAF II, supported under BSPS II and (ii) where relevant to use the capacity of KAM as a business advocacy organisation.

REACT provides support to private sector investments in renewable energy and adaptive climate technologies, and has an aim to also reach out to households and farmers in rural areas. In this respect it might be beneficial for investing companies to have access to and work with organised groups and CBOs around Kenya. The CTDF, through its mandate, provide support to community development involving CBOs, and as such provide an avenue for private companies to reach out to the communities that are difficult to reach otherwise.

The CEF/CDTF is a integrated part of the NRM programme, which provides possibilities for establishing synergies with other NRM programme components and sub-components, including decentralised environmental management with NEMA and the ASAL programme in the Ministry of Northern Kenya and Other Arid Lands.

2.7 Cross-cutting issues

The design of the ‘fast start’ climate programme has followed an adjusted version of the Danida Aid Management Guidelines (AMG). The NRM Programme and BSPS II include Environmental Screening Notes and Gender Rolling Plans that also will apply for the ‘fast start’ climate programme although these were prepared earlier.

Gender:

The AECF will in their advertising campaign for REACT underline the interest in receiving proposals from female entrepreneurs, and gender positive aspects will be given extra points in the application ranking system.

All CEF/CDTF proposals must demonstrate that gender equality have been considered in the project design, implementation and monitoring.

Gender pointers in the Annual Work Plan and Budgets of the three components will control a strong gender mainstreaming commitment and process.

Disaggregating, thorough tracking of development on gender and reporting Monitoring and Evaluation (M&E) indicators and data by gender, where possible.

Environment:

Environmental screening procedures will be applied by AECF/REACT for each candidate project to especially address environmental sensitive issues.

Guidelines will be in place in AECF to ensure that support will only be given to projects that are fully compliant with environmental legal requirements and meet international sustainability standards. An Environmental Impact Assessment will be made for applicant projects, if necessary.

In AECF, the Investment Committee will call upon specialist environmental expertise to inform decision making, if this is deemed necessary. At present this expertise is available in the AECF secretariat, and is being used in the various project screening processes.


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Democratisation:

The transparent, merit based procedures for project selection in the CDTF and AECF directly contribute to building a democratic society.

IN CEF/CDTF project proposals must demonstrate how they are implemented in a transparent manner and how implementation committees will be accountable and engage project beneficiaries in different stages of implementation.

Human rights:

The rule-based procedures applied by the CTDF and the AECF support the respect for legal entitlements in the country.

Addressing HIV/AIDS:

Implementing companies, both through REACT and CEEC/KAM, will be encouraged and supported to develop HIV/AIDS policies for their organisations, if not available and implemented already.

The AECF will distribute information leaflets on HIV/AIDS, which supported entrepreneurs can hand out to their workers.

It must be demonstrated in the CEF/CDTF project proposals how prevention of HIV/AIDS and improved sexual and reproductive health are considered.


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3. Budget

With the objective of providing an incentive for high performance, the ‘fast start’ climate programme budget will be transferred in two tranches during 2011 to the recipient institutions. The first payment can be made available from May 2011 or as soon agreements between the RDE and each of the recipient institutions are signed.

Subject to reaching the agreed milestones per 1st of November 2011, the second tranche will be paid before end of December 2011, following the procedures for release of funds as described in the Financial Management section. The agreed milestones will be specified in the agreements.

Fast Start

Component 1st Transfer

May 2011 (DKK Million)

2nd Transfer December 2011

(DKK Million)

Milestone for 2nd transfer (by November 1st, 2011)

1. REACT 5.0 10.0 A second round of AECF-REACT competition will have been launched, 100 companies register for the competition and 50 companies submit complete and eligible PCN for the second round of competition.

2. Energy Efficiency

5.0 10.0 10 additional energy audits and 5 additional investment grade audits initiated (contracts signed) and 50% of these are completed.

3. CEF-CDTF 1.0 14.0 10 additional RE and Climate Change projects approved by the CDTF Board.

‘Unallocated’ 0.0 5.0 Allocated to ‘fast start’ 2011 components with good progress and/or for scaling up of ‘fast start’ 2010 projects.

Total 11.0 39.0 Total = DKK 50.0 Million

In case the agreed milestones have not been met by an institution, the RDE can reallocate the funds for the same purpose as the unallocated funds, i.e. for the second tranche to another component or for scaling up of the 2010 ‘fast start’ projects. The unallocated funds are for the following specified uses:

A scaling-up and/or further development of the support under the 2010 ‘fast start’ climate grant. The unallocated funds can be used for climate change activities supporting and/or underpinning the NRM programme, especially within the Arid and Semi Arid Region with the private sector or as PP support. Additional support to the 2010 Grant Projects will be based on the results of the ongoing monitoring and evaluation of these projects. Support will in all cases be based on a viable/profitable business models and satisfactory delivery under the 2010 ‘fast start’ climate support.


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Adding to one of the three 2011 ‘fast start’ climate programme components – subject to performance of each of the three components, the unallocated budget can be reallocated to one or more of the three components. For example, an expansion of the budget for the 2nd REACT competition expected to be initiated in July 2011 or to CEF/CDTF. The Lifelink (Grundfos) project is a project with possibilities for expansion of new sites with financing as a REACT project.

Initial grant for ‘fast start’ 2012 allocation – to component(s) that will be a priority in the ‘fast start’ 2012 grant. This can include scaling-up of other projects supported by the 2010 ‘and 2011 fast start’ climate programme. Lastly for feasibility/identification work related to the formulation of the 2012 programme.

The availability of ‘fast start’ climate grant for 2012 is expected to be known by the RDE by November 2011, when the assessment of the above milestones is made and the unallocated budget is specified.


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4. Management and Organisation

4.1 Programme level management and organization

As the fast start climate programme is not a stand-alone programme, it will not have its own overall management structure with a Programme Steering Committee (PSC). Instead it will be mainstreamed into the existing management structures of BSPS II and the NRM programme. The BSPS II PSC consists of the Kenya Private Sector Alliance (KEPSA) as the chair, the Permanent Secretary (PS) Finance and Danish Ambassador. The NRM Programme PSC consists of the PS Finance and the Danish ambassador.

4.2 Component level management

The management at the component level of the ‘fast start’ climate programme is the following:

AECF for the REACT Component. The same management procedures as outlined in the BSPS II will be applied. The support to REACT from the fast start climate programme will be incorporated in an agreement between AGRA and RDE, covering both BSPS II and ‘fast start’ climate programme;

KAM for the Energy Efficiency Component. The procedures will be laid out in a Memorandum of Understanding (MoU) between KAM and RDE;

CDTF for additional funding to the CEF Component. The management procedures will be the same as in the NRM programme component 3.1. for CEF/CDTF. An addendum to the existing agreement on NRM component 3.1 will be prepared.

4.2.1 REACT-Kenya: Management and Organisation

The support being provided from the fast start climate programme to REACT-Kenya will be managed within the AECF organisational framework similar to other funding windows of AECF. AECF is housed within the legal structures of AGRA. However, the AECF has its own governance structure as well as branding.

The role of the Governing Council (GC) of AECF is to govern the AECF according to the principles set-out for its operation, and is the highest decision making body of the AECF. Danida will, together with other donors providing more than USD 5 million to AECF, have a seat in the GC. The size of the BSPS II support entitles the RDE to appoint a member of the GC. This is yet to be formalised. Present members of the GC are the President of AGRA (Chair), DFID, AusAid, IFAD and the Ministry of Foreign Affairs of the Netherlands. The Secretary to the GC is the Executive Manager for AECF. The Executive Manager for AECF is the Managing Director for AGRA. The AECF Director or the FM attends the meetings of the GC, and is charged with reporting to AGRA and the GC. The GC meets normally every 6 months.

The IC consists of 5 independent persons appointed by the GC, and they have the responsibility to review and decide which of the projects recommended by the FM should be funded by the AECF. In the case of REACT, the IC will appoint a sub-committee consisting of three persons from the IC and two appointed specialists (by the GC) within the areas covered by REACT, in order to secure that it has the necessary expertise within clean energy and climate change adaptation. The sub-committee will exercise the delegated authority of the IC and report to the IC. The FM is the secretary to the IC, and the FM is charged with reporting to the IC at their quarterly meetings.


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The FM has been appointed for a nine years period on the basis of an international competitive tender. The office of the FM is in Nairobi. The present responsibilities of the FM include managing the day-to-day operations of the challenge fund:

Coordinating the activities of the IC;

Development of AECF mechanisms and procedures;

Operational management;

Marketing and pipeline development;

Application and grant allocation management;

Contracting and management of grants;

M&E of project implementation, and

Distillation and dissemination of learning.

AECF has been subject to its first mid-term review during March-May 2011. The two main recommendations from the review are a proposal to restructure the governance structure and to streamline the M&E system.

The governance restructuring proposal is to change the present GC to a Donor Strategic Advisory Board, and to establish a small AECF Board, consisting of prominent private sector representatives from different African countries. The Donor Strategic Advisory Board will appoint one of the private sector representatives to the AECF Board. The AECF Board will be a sub-committee of the AGRA Board. This is aimed at both professionalising the Board and create a larger ownership by AGRA. There has not been made any recommendations to change the more operational structure like the IC.

In terms of M&E, the responsibilities are proposed to be divided between the FM of AECF and AGRA, so that monitoring will be the responsibility of the FM, and evaluation/impact assessments will be the responsibility of AGRA (or a third party, should it be deemed most suitable), in order to ensure more independence between implementation and assessment of results.

The above recommendations are subject to approval by the GC and subsequent implementation from 2011 onwards.

The agreement between AGRA and the RDE covering both BSPS II and the ‘fast start’ climate programme will specify that the principles and procedures for the two sources of funding are identical, i.e. that it is a support to a basket fund, that there is no requirement for separate reporting to the RDE as all donors will accept the general reporting being prepared by AGRA/AECF, and that the general AECF procedures will be followed in all respects. The agreement between AGRA and the RDE will specify the November 2011 milestones for transfer of the second tranche from the fast start climate programme to AGRA/AECF. It will also specify what should be delivered as part of the management fee being paid to the FM.

4.2.2 Energy Efficiency: Management and Organisation

The management of the support to CEEC will be carried out within the normal KAM managerial structure.

The Executive Officer of CEEC will undertake day-to-day management of the support to the EE programme. The CEEC Executive Officer reports to the Chief Executive of KAM. The Chief Executive will be responsible towards the RDE for the provided support.


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The Board of KAM has approved a new organisational stucture that among others include establishement of ‘KAM Consulting Services’, which will gather those member services that KAM members are to pay for and which will have the prospect for being a source of income for the organisation . The aim is to also sell these services to non-KAM members. It is envisaged that CEEC will be part of ‘KAM Consulting Services’. KAM has started the process of identifying a Manager for ‘KAM Consulting Services’.

An MoU will be made between KAM and the RDE, specifying the cooperation modalities, including the responsibilities of the parties, deliverables, monitoring and reporting.

4.2.3 CEF of CDTF: Management and Organisation

The support being provided from the fast start climate programme to CEF will be managed within the CDTF organisational framework. The CDTF is governed by its Board of Trustees. The Board is chaired by the PS of Ministry of Planning and National Development and consists of other government representatives, NGOs, the EC and the RDE.

The day-to-day management of the fast start climate programme support is carried out by the Programme Manager of the CEF. The Programme Manager reports to the Programme Coordinator of CDTF, who will be the responsible towards the RDE for the fast start climate programme support.

A funding agreement for CDTF between the government and the RDE has been entered into for the NRM Programme support. An addendum will be made to this agreement, covering the ‘fast start’ climate programme financial support to the CEF. The addendum will among others specify for which type of projects the funds are to be used (RE and climate adaptation). The reporting from CDTF will be disaggregated, enabling the RDE to identify which additional projects have been supported by the CEF from the ‘fast start’ climate programme.


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5. Financial Management

5.1 Budgeting and flow of funds

The principle for planning, budgeting, accounting, auditing and procurement from the fast start climate programme are that these activities will be aligned with and fully integrated with the partner institutions procedures where possible in order to avoid parallel processes, i.e. the processes and procedures of AGRA/AECF, KAM and CDTF are used.

The current procedures for the three partner institutions are found acceptable. These were assessed during the design and appraisal of the BSPS II and NRM programme. The RDE reserves the right to examine and assess the procedures of any of the three partner institutions at any time in order to secure that these continue to be acceptable.

The Danish supported activities will be integrated into plans of the partner institutions and incorporated into the partner institution’s budget. As far as AGRA/AECF is concerned, there will be earmarking of Danish funds for the Kenya window of REACT, i.e. Danish funding of the REACT programme will only be used to support Kenyan projects. But the Danida funding can be pooled with DFID funding for REACT that is also earmarked for Kenya, but not the regional DFID funds for REACT.

The overall flow of funds and financial reporting lines for the fast start climate programme are shown in the chart below.


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In the case of AGRA/AECF, the work plan and budget will cover the REACT programme including its Kenya window. The work plan and budget for the support to KAM/CEEC will cover all CEEC activities, including raised funds and own contributions. The support to the CEF will be added to the current work programme and budget. Should it be decided that there is a second call for proposals in CEF covering the ‘fast start’ climate programme support, a revised work plan and budget is prepared for this activity.

Work planning and budgeting carried out in all three organisations for the provided support must be consistent with the budget items of the Danish appropriation. The work planning and budgeting carried out at activity level is the task of the management responsible for day-to-day implementation.

All three recipient organisations will produce semi-annual work plans and budgets, as well as semi-annual progress and financial reporting. In addition they will present a progress report by the 1st of November 2011 to the RDE, enabling a decision to be made by the RDE on further funds allocation.

5.2 Accounting

The three partner’s procedures for financial management are used insofar as they comply with International Financial Reporting Standards. In cases of shortcomings, the partner’s procedures must be strengthened as needed to ensure acceptable fiduciary standards.

This implies that accounts must be kept in accordance with international standards, ensuring that:

The Danish grant is entered into the accounts as income;

Reporting on expenditures is of at least the same level of detail as in the requested grant budget;

All expenditures are documented by vouchers, original invoices and original, signed receipts;

An asset inventory of equipment and other assets financed from the grant is maintained and updated;

Acceptable control procedures are put in place, and accounts are signed by the responsible management, and

The administration adheres to established written procedures.

The implementing partner’s accounting period (the calendar year for AECF and KAM, and July to June for CDTF) will be followed for financial reporting.

The financing agreements will be in DKK, but the accounting as well as financial reporting will be conducted in KSH. Transfers in DKK or other currencies will be converted into KSH at the time of transaction. The Danish appropriation is in DKK, and exchange rate losses cannot be charged by the components to Danida.

Although the fast start climate programme funds are from a separate Danish allocation, the transfer of funds to REACT-Kenya and CDTF/CEF will be to the accounts that are already opened for receiving funds from BSPS II and NRMP respectively. Since this is basket funding, REACT can use one bank account for the REACT-Kenya window, provided the audit report clearly states the sources of Danida funding (BSPS II and ‘fast start’ climate). Funds from DFID and other donors for the REACT-Kenya window can use the same account. This way the RDE will be able to apportion the Danida expenditure by calculating total funding for the year as compared to the Danida funding to get the percentage. The same will be done at the end of the programme to apportion any refunds.As noted above the Danida funding for REACT is pooled with DFID funding, i.e. the source of funding cannot be specified for each of the supported projects.


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KAM will open a separate account for Danida ‘fast start’ climate funding. If KAM decides to open a DKK (or USD/EUR) account, all transfers should be done into this account (in the chosen currency) so that all the accounting and reporting is in one currency and the audit report should reflect the same. This way any unspent funds will be refunded by KAM in the chosen currency.

The MoU between the partners and the RDE will specify the conditions under which funds will be transferred and allocated.

The transfer of funds to each of the three implementing institutions will be done on the basis of a written request from the management of the relevant institution to the RDE. The first transfer will cover foreseen expenditures from 1st of May 2011 to end of year 2011. The second transfer in December 2011 will cover the agreed expenditures for the remaining implementation period from January 2012. The request for the second transfer must be submitted to the RDE before 1st of December 2011, enabling the transfer to be effected before the end of December 2011. The transfer requests must include information on the amount and the bank account into which the money is to be deposited. A copy of the bank statement with a reconciliation of the bank account must be attached to the request for the second transfer. A receipt should be submitted by the respective implementing partner to the RDE as soon as funds have been received.

Interest accrued from bank holdings must be returned to the RDE on an annual basis, immediately following the end of the foregoing fiscal period, for onward transfer to the Danish Ministry of Finance.

The accounting documents and records must be kept for five years after the completion of fast start climate programme. The documents and records shall be made available for control purposes to the Danish Auditor General and/or to the Ministry of Foreign Affairs (MFA) or their representatives, upon request.

5.3 Auditing

The accounts must be audited annually in accordance with International Standards of Auditing. The final annual audit report, including a financial statement for the period audited and a memorandum of examination must be forwarded by each of the three implementing partners to the RDE no later than six months following the end of the accounting period. The allocation to AGRA/AECF and CDTF/CEF from the fast start climate programme must be audited as part of the audits carried out for the other support provided by Danida and other donors. The support to KAM/CEEC must be audited separately by the KAM auditor. The audit report must show the Danida ‘fast start’ climate programme and other Danida contributions as income and expenditures have been made for at least the same amount.

The annual audit must encompass – but not be limited to – inspection of accounting records, including examination of supporting documentation of the transactions, confirmation of cash and bank holdings, checking of bank reconciliation, direct confirmation of accounts receivables, and verification of physical inventories and fixed assets. The audit will also test compliance with the institution’s accounting manual and examine the procurement function.

The Danish Auditor General reserves the right to audit the provided support or any part of it at any time up to five years after completion of the programme.

5.4 Procurement

Procurement is as a principle carried out through the use of partner procurement systems. AGRA/AECF, KAM and CDTF systems for procurement are in place and of an acceptable standard.


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6. Monitoring, reporting, reviews and evaluation

6.1 Monitoring & Evaluation

6.1.1 REACT M&E

Procedures for monitoring REACT activities are in place through the normal AECF M&E system. Based on the experience by AECF, that company applicants had difficulties in properly addressing the challenges of M&E and indicators in their applications, the system was revised so that it was only thoroughly incorporated after IC project approval.

Before the contracts are signed, the winning applicants as a group participate in a compulsory two days M&E workshop to be introduced to the M&E process, impact indicators and baseline information. Baseline information and indicators are annexed to the respecive contracts with the winning companies.

The AECF M&E system is primarily based on a self-reporting system, i.e. successful companies have to report on project progress and development impact to the AECF. Regular monitoring visits by AECF are also part of the M&E system. The development impact indicators assessed before the project implementation starts are the same indicators used by the companies when they report to the AECF.

The M&E system is currently being adjusted to be compliant with the ‘Donor Committee on Enterprise Development’ standard on measuring and reporting results.9 It is based on a results chain approach that defines the indicators to be monitored at each stage in the impact chain.

Development impact will be assessed through a number of assessments of investments, covering:

The number of low income people that will benefit as a result of the business idea;

By how much each person will benefit in additional cash income or savings, by the end of the project, compared to what the situation would be if the project did not go ahead;

Benefits to other business in the value chain;

Impact on the market system;

Job creation within the business, and

Gender and youth.

Apart from the monitoring exercises in order to report progress against defined indicators, additional impact assessments on specific topics may be commissioned by AECF to assess the impact of REACT. As mentioned previously, the first mid-term review of AECF in March 2011 has recommended amendments to the M&E system in terms of distribution of responsibilities for monitoring and evaluation respectively.

REACT payments to companies are linked to progress milestones ensuring that the project is on course to deliver the results to REACT.

During implementation, the AECF, working with investees, monitor the projects and evaluate the extent to which projects are delivering their intended outputs. When sufficient time has gone, an assessment is made of outcomes and impacts, guided by specialist advisers. The M&E process is used

9 http://www.enterprise-development.org/page/measuring-and-reporting-results

http://www.enterprise-development.org/page/measuring-and-reporting-results


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by the AECF FM to assess if corrective actions are needed. In this process the AECF FM advises the IC on assessing whether deviations from the agreement are a cause for either: (i) further resources to be invested by the business and/or REACT to get the project back on track; ii) result in a suspension of REACT support until the business overcomes obstacles to progress; or iii) cause the REACT to withdraw from the project.

6.1.2 Energy Efficiency M&E

KAM will be responsible for progress monitoring of CEEC supported activities. The M&E activities will be based on data gathering by CEEC as well as on company visits. Quality of energy and resource audits will be monitored through both the quality assurance of draft audit reports being carried out by CEEC staff as well as through a structured and regular feed-back process from the companies in question. KAM will, with the support from AFD, enhance the quality aspects of monitoring. KAM reports quarterly on progress according to the work plan of the support received from the MoE.

KAM has carried out energy audits for a number of years. Based on the 2007 and 2008 audits, KAM has initiated an assessment of these audits with the purpose of assessing to which degree there has been an impact, e.g. in terms of recommended investments being undertaken.

6.1.3 CEF/CDTF M&E

CEF/CDTF will initially apply the existing M&E system to capture and report on the identified ‘fast start’ climate change projects. The ‘fast start’ climate programme is additional to CEF and the results monitoring will be based on a pro-rata contribution to the overall CEF support and the developed case studies. Impact monitoring will be towards the same outcome indicators as in the NRM Programme component 3.1 document (p. 21).

CDTF with the ‘fast start’ climate programme and all other NRM Programme supported projects shall develop a monitoring system using web based tools for documentation and communication. This will both improve the access to information of the CEF projects and also make monitoring more efficient in terms of time and other resources used.10

6.2 Reporting & Communication Strategy

Each of the components should have a communication strategy that includes procedures for reporting and dissemination of the funded projects, outcomes and lessons. For all three components it will be expected that project and business cases are prepared as part of the dissemination of experience within the sectors and to the public and development partners. The results shall be available in the public domain through web sites and material for the media.

10 The RDE is encouraging CEF/CDTF to develop a monitoring system using information technology including web based approaches for all CEF projects including those funding by the Danida NRM and ‘fast start’ climate programmes. A revised M&E system shall enable a more cost-efficient data capture from community levels, for example using electronic data reporting via mobile networks, and simple formats using a combination of text, GPS references, and audio and visual communication. The data analysis can develop relevant information for end-users, impact assessments and participating communities. Available web based tools for sharing of text, maps, photos and videos will be developed, e.g. using Google® maps and Goggle® earth. The aim being to also have an efficient real time dissemination of the progress of the projects. Further specification of an information technology based monitoring system for CEF is yet to be made in a concept paper.


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Reporting for REACT and CEF/CDTF will follow similar procedures for reporting as for the other funding in BSPS II and the NRM Programme respectively. Reporting from KAM will be in the format of semi-annual progress reporting through the BSPS II PSC to the RDE.

REACT-Kenya will rely on AECF’s well-established reporting system. Likewise, the CEF/CDTF reporting on ‘fast start’ climate programme funding will follow the normal CEF/CDTF format and procedures. KAM will, based on the format for reporting agreed in BSPS II, develop a reporting format for the ‘fast start’ climate programme.

RDE may expect to be able to report annually on the ‘fast start’ progress, results and good cases. This will be for 2011 and 2012 also include the 2010 ‘fast start’ climate funded projects. It will furthermore, be an option for the RDE to include progress related to any other climate change activity in the Danida programmes in Kenya in addition to ‘fast start’ climate change programme, e.g. in the NRM Programme climate change sub-component, the BSPS II support to CTIF and REACT, and the agribusiness development (ABD) in MESPT. The result is a comprehensive status and results on climate change of the Danida collaboration with Kenya not only confined to the ‘fast start’ climate programme.

6.3 Reviews

The presentation of the ‘fast start’ climate programme to the Danida included a request for a post-appraisal review in the second semester of 2011. This should be integrated in the planned BSPS II inception review. According to the RDE there are no NRM programme reviews scheduled for 2011. But there is an option for a review of parts of the NRM programme following the revision of the ASAL component of the NRM programme. If feasible all reviews could be implemented concurrently.

Future reviews of the BSPS II and NRM programme will include an activity in the scope of work on climate change in general and the ‘fast start’ climate programme in particular.

The NRM programme reviews will include the additional funding to CEF/CDTF and the 2010 ‘fast start’ climate programme. The NRM Review Aidé Mémoire (RAM) shall include a brief addendum on the ‘fast start’ climate programme. A technical mid-term review of the NRM programme is scheduled for 2012.

There will be an inception review of BSPS II in 2011 and a mid-term review in 2013. The BSPS II inception and mid-term review shall include the additional support from the ‘fast start’ climate programme to REACT and the support to KAM.

Danida should participate in technical reviews of climate change support in Kenya if initiated by other development partners, e.g. AFD or DFID. Options for joint review should be applied, for example for REACT.

An evaluation of Denmark’s and other development partner’s support to climate change and ‘fast start’ climate finance, including to Kenya, may be undertaken after 2012.


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7. Key Assumptions and Risks

7.1 The key assumptions

The assumptions for the ’fast start’ climate change programme are:

The ‘fast start’ climate programme level:

The government develops the NCCRS action plan.

Private sector develop ‘climate technology’ as business opportunity.

Environmental and social impacts are sufficiently vetted and monitored in CEF/CDTF and REACT-Kenya supported projects.

The REACT component:

The private sector has the opportunity, capacity and resources to invest.

Policies to improve the environment for private sector investment in clean energy and climate change adaptation in rural areas are implemented.

REACT is well governed and managed.

Policy regime for clean energy does not deteriorate.

Private sector continues to regard clean energy as an attractive market opportunity.

The private sector engaged in supplying inputs to farmers and large scale farmers are motivated to address climate change impacts.

Smallholder farmers are motivated to adapt and willing to pay for adaptation services through better access to finance.

The Government will not crowd out private sector lending.

Kenyan and Micro Finance Institutions are well capitalised and liquid, and have the appetite to lend out to this type of projects.

REACT communication is effective and business models and technologies can be replicated.

REACT advocacy is effective and the Government is receptive to advocacy.

The Energy Efficiency component:

Energy and resource use audits provide financially viable and implementable recommendations.

Demand exists or is created for energy audits.

Companies are willing to pay for part of this service.

SMEs and large scale companies are all receptive to the notion of energy and resource efficient production.

There are good company cases that can be replicated.


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Willingness of companies to share results of energy and resource audits.

There is a demand for technical kowhow on introduction of more resource efficient production processes. Companies are willing to pay for part of this service.

There is a demand for comprehensive resource audits, and companies are willing to pay for this service

KAM able to identify suitable professional expertise.

CEF/CDTF component:

Communities and their partners have capacity to identify climate change adaptation and renewable energy projects and implement these.

The additional support to CEF/CDTF is within a forthcoming MoU between RDE and EC on support to CEF / CDTF.

CDTF has sufficient capacity to monitor and provide guidance to communities.

CDTF has sufficient staff and resources (either staff employed or consultants).

Business oriented proposals are forwarded involving private sector as service providers and future commercialisation.

7.2 The main risks

The risk assessment is summarized in the table (next page). The risks will be assessed as part of the progress reporting and programme reviews.


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Risk assessment and mitigation

Risks Probability Impact Mitigation

1. The transition into the new constitution causes delay in implementation. The changes in the organization of the public sector especially until 2012 may result in some reduced capabilities. This may not be as significant for or influence the private sector as much as the public sector.

Medium

Low

Adjust the activities to take into account the transformations in local and national government.

2. Delays in implementation with annual grants. The risk is that implementation of grants will be delayed and not sustainable.

Medium

High

The spread into more than one component and integration into the existing programmes will reduce the risks of stand-alone failures. Flexibility and short term performance indicators are included. Opportunity to shift funds from one to another component or new outputs can indirectly be a motivation to perform.

3. Conflict with RDE disbursement frame for Kenya in 2011. The additional funding from ‘fast start’ climate programme can crowd out planned disbursement options under both NRM Programme and BSPS II for 2011 (CDTF and REACT).

High

Medium

Reallocation among programme components in the Danida country frame. Avoid delays in implementation of NRM programme and BSPS II as a result of the additional ‘fast start’ climate finance.

4. Limited impacts on poverty reduction from private sector intervention. REACT-Kenya may not be able to deliver the intended pro-poor benefits. KAM may focus on larger and established enterprises only.

Low

Low

The process of screening, evaluating and reaching investment decisions is designed to determine and assure benefits for the poor, and development impact is one of the key selection criteria for investment projects in REACT.

Mitigation of this risk will be done through use of high quality technical expertise by the FM during the REACT rounds of competitions and in the IC during decision making on individual investments.

The EE component in KAM will have an emphasis on small and medium sized enterprises.

5. Limited systemic impact from REACT Low Low A better understanding of the systemic impacts from private sector interventions. Systemic impact happens, e.g. through a) replication of successful business models or b) policy change. The profit motive for companies is an incentive for entering a new and profitable market, addressing the first issue. The risk will be mitigated through the FM working with decision-


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Risks Probability Impact Mitigation makers directly and with other initiatives that focus on policy development and institutional capacity to improve knowledge about the role of the private sector (e.g. BAF II) in reaching poverty alleviation in the context of climate change.

6. Quality and quantity of REACT business options for Kenya low. After the first round of competition a good picture of the absorptive capacity within the Kenyan private sector for REACT projects is known.

Low

Medium

Emphasis on marketing of REACT in Kenya before next round of competition. Based on the outcome of the first competition a revision of the selection criteria and further marketing is expected to result in more business options for funding. AECF has pledged a second REACT round of competition from July 2011.

7. Low demand for energy and resource audits in the manufacturing sector. Until now CEEC has carried out more than 200 energy audits, a number which is low compared to the number of companies in the Kenyan manufacturing sector.

Low

Medium

There are two main reasons for a low demand: a) lack of funding for the audit scheme, and b) a low level of promotion of the scheme. Support to a wide promotion and marketing of CEEC activities, business cases, and to scaling-up of the audit scheme.

8. Lack of implementation of recommendations in audit reports. While there is a clear incentive for companies to invest in energy savings measures that have a short pay-back period, constraints exist when larger investments are required. Main reasons are lack of financial resources and technical knowhow.

Low

Medium

Provision of matching grants for covering the costs of bringing in technical expertise, and building relationships with the AFD funded credit line for RE&EE investments.

9. Political interference in CDTF project selection. The selection of projects to be supported by CEF / CDTF is in the year leading up to the 2012 general and local elections. Since the CDTF governance structure is dominated by GoK, the support could be directed to areas and projects selected by other criteria than those officially guiding how CEF/CDTF should manage funds from Danida and EC.

Medium

High

Transparency and objective criteria in the project selection process. Close monitoring will be carried out. Detailed results of the selection process will be published on the CDTF web-site, including of the successful and non-successful applicants.

10. Quality and quantity of the response to the CEF/CDTF call is low. Expanding the CEF/CDTF grant is under the assumptions that additional projects are relevant, of good quality and that CDTF will get additional capacity to carry out the calls. The call for concepts ending March 7, 2011 provides an important indication.

Low

Medium

Promotion of climate change and RE when preparing full proposals of the selected first call project concepts. Additional staff for climate change and RE in CEF/CDTF. Simplifying implementation processes and make management input efficient.


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8. Implementation Plan

8.1 Implementation plan

The ‘fast start’ climate programme is initiated and funding is disbursed from Danida in 2011. The implementation will continue until end of 2013 with the partners holding the funding for implementation in 2012 and 2013.

1) Signed agreements with AGRA (included in BSPS II MoU with RDE), KAM (MoU with RDE) and CDTF (addendum to existing agreement with NRMP) from April to June 2011.

2) Work plan and release of first tranche of finance on request from May 2011, subject to signed agreement.

3) BSPS II inception review and NRM Annual Programme Review and possibly fast start climate programme review to assess the ‘fast start’ climate programme progress and other climate change related activities in the programmes.

4) 1st Progress report. Status on progress on November 1, 2011 for decision on second tranche of payment by December 2011.

5) Use of ‘unallocated’ funds and optional reallocation of other available funding in December 2011

6) Completion report from 2010 ‘fast start’ climate programme in December 2011

7) Agreement of funding for 2012 ‘fast start’ climate programme by January 2012.

8) 2nd Progress report June 2012

9) 3rd Progress report December 2012

10) 4th Progress report June 2013

11) Draft completion report by October 2013

12) Final completion report December 2013.

8.2 Options for 2012 ‘fast start’ climate programme

The Danida ‘fast start’ climate programme for Kenya is provided as a one year grant of DKK 50.0 Million (KSH 750 Million) for 2011 and a likely similar ‘fast start’ climate grant for 2012. The implementation for a 2012 grant is expected to continue until December 2014. It is recommended that the availability of the 2012 grant is confirmed by end of 2011 in order to be able to begin with the implementation early 2012.

After more learning during 2011, the 2012 grant may be provided to fewer components/outputs assuming some preparation for this is done already during 2011. The additional grant for 2012 is an incentive for delivering results among the components/outputs supported from 2011.

The 2012 options in Kenya are as follows:

Inclusion in the third competition of REACT in 2012 to cover identified niches with unmet demands from the first and second call in 2011.

Emerging options, if such are identified and defined as possible projects during 2011. This could be an up-scaling of projects under the 2010 ‘fast start’ climate support, though some of these might also be eligible for support from other sources like CTIF and REACT.

The outputs in the 2011 ‘fast start’ climate programme with KAM and CEF/CDTF will be implemented until December 2013, and it is not foreseen that additional funding is added already from 2012.


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Annexes

Annex 1: Logical Framework Analysis – Danida ‘Fast start’ climate programme, Kenya (2011)

Annex 2: Externally funded climate change programmes in Kenya

Annex 3: Assessment of the options for the ‘fast start’ climate programme

Annex 4: Climate change Regulatory and Institutional overview

Annex 5: References


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Annex 1: Logical Framework Analysis – Danida ‘Fast start’ climate programme, Kenya (2011)

Logical Framework Verifiable indicator and target Means of verification Assumption

Development Objective

Communities and private sector in Kenya uses technology innovation to reduce vulnerability to climate change and contributing to a low carbon development path

Growth in RE and other climate technology related sectors.

Number of new climate technology business models developed.

Consolidated ‘fast start’ climate programme annual progress report compiled by RDE.

Business cases and lessons learned documented.

The government develops the NCCRS action plan.

Private sector develop ‘climate technology’ as business opportunity.

Environmental and social impacts are sufficiently vetted and monitored in CEF/CDTF and REACT-Kenya supported projects.


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Component 1: REACT

Immediate Objective: REACT will catalyse private sector investment and innovation in low cost, clean energy and adaptation climate change technologies through bringing innovative climate change products and services to rural people in Kenya.

By 201311, USD 6 million investment in low cost clean energy and climate change adaptation technologies catalysed by the programme.

Businesses supplying clean energy and adaptation services report a significant improvement in the environment to invest (30% of businesses surveyed)

M&E reports submitted by grantees verified by AECF.

Surveys carried out by AECF in 2013

The private sector has the opportunity, capacity and resources to invest.

Policies to improve the environment for private sector investment in clean energy and climate change adaptation in rural areas are implemented.

REACT is well governed and managed.

Output 1.1:

Clean energy products and services providing lower cost and more reliable energy supply to rural businesses and households in off-grid areas

By 2013, 25,000 rural households served by low cost, clean energy products and services provided by REACT projects.

By 2013, 3,750 rural businesses served by lower cost, clean energy products and services provided by REACT projects

Business case studies developed.

M&E reports submitted by grantees, verified by AECF.

Policy regime for clean energy does not deteriorate.

Private sector continues to regard clean energy as an attractive market opportunity.

Output 1.2:

11 The REACT targets are based on the milestones as set out in the REACT Log-Frame. The assumption in the REACT Log-Frame is that 20 projects will be

implemented. The Danida fast start climate programme allocation will provide for 5 additional projects in Kenya. The mentioned additional targets are for projects supported by the additional fast start climate change programme. As the fast start climate programme 2011 implementation is ending by the end of 2013, the targets as set in the REACT Log-Frame by 2013 has been used to calculate the additional targets to be reached.


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Smallholder farmers benefit from products and services that help them to adapt to climate change.

By 2013, 15,000 small holder farmers benefiting from private sector innovation in supply of seed and other inputs and investment in developing markets for climate resilient agriculture.

By 2013, 10,000 smallholder farmers benefiting from investment by large agribusinesses in afforestation, water capture and storage, and irrigation.

By 2013, 25,000 smallholder farmers with improved access to knowledge of climate change adaptation.


The private sector engaged in supplying inputs to farmers and large scale farmers are motivated to address climate change impacts.

Smallholder farmers are motivated to adapt and willing to pay for adaptation services through better access to finance.

Output 1.3:

Financial service providers facilitate greater investment in lower cost, clean energy and climate change technologies and help the rural poor access them.

By 2013, USD 1.25 Million increased lending by commercial banks and existing micro finance institutions to households and SMEs that wish to invest in renewable energy products and adaptation technologies.

By 2013, 7,500 small holder farmers with protected incomes through climate related insurance services.


The Government will not crowd out private sector lending.

Kenyan and Micro Finance Institutions are well capitalised and liquid, and have the appetite to lend out to this type of projects.

Output 1.4:

Communication helps to spread successful business models and advocacy helps to improve policies increasing the incentive to invest and innovate.

By 2013, 25,000 poor people benefiting from initiatives that replicate business models and technologies supported by REACT through effective communication.

By 2013, at least one policy process influenced by evidence provided by REACT.

By 2013, 50% of REACT projects are commercially viable.

M&E reports submitted by grantees verified by reviews of REACT.

REACT communication is effective and business models and technologies can be replicated.

REACT advocacy is effective and the Government is receptive to advocacy.


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Component 2: Energy Efficiency

Immediate Objective: The efficiency in energy and resource use in the manufacturing sector in Kenya increased.

Implementation by companies of recommendations of energy and resource audits. 50% of recommended short term measures implemented by the end of 2013.

Impact study of audits carried out using both MoE and Danida funding.

Energy and resource use audits provide financially viable and implementable recommendations.

Output 2.1:

A substantial increased number of comprehensive energy audits and investment grade audits.

50 additional comprehensive energy audits and 25 investment grade audits carried out per calender year

M&E report from KAM. Demand exists or is created for energy audits.

Companies are willing to pay for part of this service.

Output 2.2:

Effective promotion towards both KAM and non-KAM members of the benefit of introducing EE measures.

One promotional campaign with national coverage conducted annually, especially targeting SMEs. Three regional (Nairobi, Mombassa and Western Kenya) promtional campaigns carried out per year.

M&E report from KAM.

SMEs and large scale companies are all receptive to the notion of energy and resource efficient production.

Output 2.3:

Demonstration to other companies of the benefit of EE investments.

5 exchange visits carried out annually.

M&E report from KAM.

Business cases.

There are good company cases that can be replicated.

Willingness of companies to share results of energy and resource audits.

Output 2.4:

Facility for providing non-financial assistance to companies for implementation of recommendations of energy audits established.

On an annual basis 10 companies use this matching grant facility.

M&E report from KAM. There is a demand for technical kowhow on introduction of more resource efficient production processes. Companies are willing to pay for part of this service.

Output 2.5:


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Comprehensive resource audits piloted with a number of companies.

10 companies undergo a comprehensive resource audit per calender year.

M&E report from KAM. Companies are willing to pay for this service. There is a demand for comprehensive resource audits.

Output 2.6:

CEEC capacity increased to carry out audits. KAM employs sufficient additional professional staff to manage the energy efficiency scheme.

M&E report from KAM. KAM able to identify suitable professional expertise.


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Component 3: CEF/CDTF

Immediate Objective: Community-driven initiatives reduce threats and conflicts related to natural resource use and climate change risks.

Additional 100 community groups representing about 3,000 beneficiaries (10 additional projects each with 10 groups having an average of 30 members).

Socio-economic baseline data, survey reports and impact studies done for all CEF projects.

M&E reports from CDTF.

Communities and their partners have capacity to implement.

CDTF has capacity to monitor and provide guidance to communities.

Business oriented proposals are forwarded involving private sector as service providers and future commercialisation.

The additional support to CEF/CDTF is within a forthcoming MoU between RDE and EC on support to CEF / CDTF.

Output 3.1:

Promote energy saving technologies that enhance sustainable utilization of natural resources

Minimum 5 additional community projects on innovative community approaches to develop renewable energy and energy savings (minimum 10 in total for all CEF).

Cases on climate change clean energy and climate change mitigation documented.

M&E report from CEF / CDTF

Communities can identify project options and adapt relevant technologies.

Output 3.2:

Support community initiatives that will enhance adaptation to and reduction of the climate change effects on local livelihoods

Minimum 5 additional projects on innovative community approaches to adaptation and reduction of climate change risks (minimum 10 in total for all CEF).

Cases on climate risk reduction and adaptation documented.

M&E report from CEF / CDTF.

Communities can identify climate change adaption project options.

Output 3.3:

Screening, monitoring and communication of good practice and scaling up

Climate change adaptation and mitigation options are screened for all CEF projects and options for actions identified.

Climate change screening and cases from all CEF projects.

M&E report from CEF / CDTF.

Sufficient staff and resources of CDTF (staff employed or consultants)


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Annex 2: Externally funded climate change programmes in Kenya

# Funding Programme Themes and Implementing Organisation Comments

1. AfD / JICA / DfID Climate Change Programme Support. Lead by Afd (France).

Concessional loans (mixed grants and loans). Identification missions in March and September 2010.

Funding from preparation fund in 2010-11 and implementation from 2012. Quick start projects with different partners to be identified.

In 2011 support to OPM and the Climate Change Committee (€ 70.000) and the MEMR Climate Change Secretariat. Financing of national advisers in OPM and Director of Climate Change Secretariat. Support to sector climate mainstreaming with Ministry of Energy and Ministry of Forest and Wildlife. Support to Energy Efficiency in the manufacturing sector though loans and TA.

2. Climate Investment Funds (CIF) *)

Scaling-up Renewable Energy Programme (SREP). World Bank coordinated and funded by a number of countries including Denmark and UK.

Kenya is one of six SREP pilot countries. Emphasis is not decided, but the aim is to support potential investments in geothermal and wind energy.

Lead by World Bank but includes AfDB and IFC. A grant of up to USD 60.0 Million USD (to be confirmed). Design phase began with identification mission in February 2011.

3. Danida

Natural Resource Management (NRM) Programme (2010-2014).

Sub-component in NRM programme on climate change policy and coordination in OPM. Support to other (sub-) components (MEMR, NEMA, CDTF, ABD and ALRMP).

Sub-component on climate change coordination implemented by Climate Change Coordination Unit (CCCU) in OPM. Programme in OPM USD 4.0 Million out of total NRM Programme of USD 70.0 Million.

4. Danida *) Denmark’s ’fast start’ finance for climate change (2011 and 2012)

A global contribution of DKK 1.2 Billion with Kenya as one of the bilateral programmes. Emphasis in Kenya is on private sector and non-profit organisations aiming at innovative approaches to climate change adaptation and mitigation.

A programme for 2011 prepared January to March 2011. The grant to Kenya in 2011 and 2012 is expected to be DKK 100 Million (USD 18 Million) divided into two annual grants.

5. Danida *) Denmark’s ’fast start’ finance for climate change (2010)

Fast start climate finance for 2010. Initiated in December 2010. Five pilot projects approved end of 2010 for implementation in 2011: a) Livelink with Grundfos, b) Holistisk range management (soil carbon

2010 Fast start grant is DKK 10 Million (USD 1.8 Million). Orgut Kenya is contracted as the project manager.


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# Funding Programme Themes and Implementing Organisation Comments assessment), c) Kick-start deep pumps, d) Kick-start savings, and d) school institutional stoves with WFP.

6. Danida

‘Innovation and Piloting Green Energy’ Component in Business Sector Programme Support (BSPS II).

Climate Technology Innovation Fund (CTIF) implemented by Infodev (World Bank). Implementation expected from second Quarter 2011.

The CTIF sub-component to be funded by Danida and DFID. DKK 60.0 Million from BSPS II.

Support to African Enterprise Challenge Fund (AECF) for implementation of the regional (EAC) Renewable Energy & Adaptation Climate Technologies (REACT).

KPMG is the Fund Manager. The first competition closed January 31, 2011. A second competition is expected in second half 2011, with additional competitions during the following years.

DKK 60.0 Million from BSPS II for REACT-Kenya. Dfid provides support earmarked for Kenya, Tanzania and a regional grant.

7. Danida Capacity Building for Renewable Energy SMEs in Africa (CABURESA) implemented by AFREPREN

Regional programme in East Africa including Kenya. Identifying investment opportunities for SMEs in the region in renewable energy. For example, wind and mini-hydro in Kenya with the tea sector.

A follow up on activities related to the Danish Africa Commission (2009). Grant of DKK 10.0 Million to AFREPREN.

http://www.afrepren.org/caburesa/

8. Danida Support to World Bank ‘Agricultural Carbon in Kenya’ project.

Climate ‘smart’ agriculture in Kenya. (Status of activities is unknown)

Funding from Danish Trust Fund ILWAC (Integrated Land and Water Management for Adaptation to Climate Variability and Change). Funding is USD 0.97 Million of the total TF grant of USD 10.0 Million.

9. DfID *) Strengthening Adaptation and Resilience to Climate Change in Kenya (StARCK) – DfID ‘Fast Start’ climate change programme.

The three areas of support are: climate institutions, private sector, and climate debate and voice including support for CSOs.

Climate change programme funding is between GBP 6.7 Million for two years (2011-2013) including grants for private sector (CTIF and REACT), public sector and institutions, and civil society. Approval expected by UK International Climate Fund in April and by Dfid Kenya in May 2011.


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# Funding Programme Themes and Implementing Organisation Comments

10. European Union (EU) - UNDP

Climate Change Capacity Building Programme

Support to public sector capacity development in six countries including Kenya (€ 5 Million for all) and private sector capacity building in five countries (€ 3 Million).

In Kenya support to development of National Appropriate Mitigation Action (NAMA) and the Monitoring, Verification and Reporting (MVR) system.

11. Finland in partnership with Austria

Energy & Environment Partnership (EEP) with Southern and East Africa.

Regional programme for Eastern and Southern Africa including Kenya. Improving access to modern, reliable and affordable energy services. Improve energy security in the Southern and East African Region. Reduce negative environmental extremities as a result of the energy system (for example greenhouse gas emission (GHG) and local pollution)

The budget is € 9.5 Million for 2010 -2012. A first call for projects was done in 2010 with a grant budget of € 2.2 Million. Not known if projects were identified in Kenya.

http://www.eepafrica.org/

12. Forest Carbon Partnership Facility (FCPF).

REDD readiness implementation plan

KFS is the implementing agency. FCPF is a multi-donor facility with World Bank as the trustee.

http://www.forestcarbonpartnership.org/fcp/KE

REDD plan developed with budget of USD 10.4 Million. FCPF will fund USD 3.4 Million. The funding gap of USD 7.0 Million to be from GoK and development partners, e.g. Finland and other forest sector development partners.

13. IFC CIPA (Climate Change Investment Programme for Africa)

CIPA is a regional programme with country level implementation including Kenya. The support is advisory services and investments in renewable energy.

CIPA was launched in Kenya in September 2010. In Kenya CIPA will help mobilize USD 100 Million over five years for renewable energy.

http://www.ifc.org/ifcext/media.nsf/content/SelectedPressRelease?OpenDocument&UNID=31FB1232C0384B04852577A8006C0E83 http://www.ifc.org/ifcext/africa.nsf/Content/Sustainable_Energy_Programme

14. Jica Africa Adaptation Programme (AAP), Kenya programme

Project with MEMR and located in KMD. Long term planning, capacity development and institutions, management of climate risks.

€ 4.2 Million for 2 years. Operational from November 2010 to December 2012. Delayed by one year but not extended.

15. Nordic Development Fund (NDF)

Climate Change Facility A global grant mechanism for innovative climate change projects in Africa, Asia and

The total financing for the projects is € 3.183 Million of which the NDF grant is € 1.982


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# Funding Programme Themes and Implementing Organisation Comments Latin America. (Tied to Nordic organisations and companies). Funding to five stand-alone projects in Kenya.

Million. Co-financing is required and the NDF grant for a project is between € 150,000 and 500,000.

16. Nordic Development Fund (NDF)

Climate change grant project grants

Support to off-grid renewable energy in the World Bank Electricity Expansion Project. Implemented by KPLC. Other support from AfD, Jica, KFW, EIB. Total project cost USD 1.4 Billion.

€ 4.0 Million grant from NDF from 2011 for three years

17. SCCF (GEF) World Bank and UNDP

‘Kenya: Adaptation to Climate Change in Arid Lands’ (KACCAL) as part of the Arid Lands natural Resource Management Project (ALRMP)

Ministry of Northern Kenya and Other Arid Lands. Additional climate component on ALRMP.

Special Climate Change Fund (SCCF) (GEF managed) project integrated with the ALRMP project. USD 6.5 Million. The status is unknown as the ALRMP III is currently on hold.

18. Sida Environment and Climate Programme support

In preparation. Scoping completed and design phase expected beginning of 2011.

Emphasis may be in mainstreaming climate change in existing country programme on natural resources and urban planning. Expected five year budget of SEK 100 Million.

19. UNDP Climate Risk Management project

Based at ICPAC / KMD. Implemented by International Institute for Sustainable Development (IISD)

20. UNEP Risoe Centre (URC) on behalf of UNFCCC and GEF

Technology Needs Assessment (TNA) for Climate Change (15 countries globally and 5 countries in Africa).

http://www.tech-action.org/

Implemented by UNEP Risoe collaborating Centre (URC). In Kenya the project coordinating body is NEMA.

No information available from Kenya on project website. No ongoing activity and no person currently assigned to the project in NEMA.

*) Part of the ‘Fast start climate finance 2010-12’ that was agreed at the COP15 in the Copenhagen Accord (2009) and was confirmed at COP16 with the Cancun Agreement (2010).


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Annex 3: Assessment of the options for the ‘fast start’ climate programme

The purpose of the annex is to present the assessment of the long list of options considered for ‘fast start’ climate programme funding.

1. Rationale for ‘fast start’ climate change programme design

The selection of options for the ‘fast start’ climate programme was made after an assessment taking into account the development objectives of Danish Overseas Development Assistance (ODA) and the more specific aim and conditions of the ‘fast start’ climate programme. The guidance provided by Ministry of Foreign Affairs (MFA) during the design of the ‘fast start’ climate programme in Kenya was:

Development impacts on poverty including social and economic development like for ODA Emphasis on the private sector and community based development Practical applications of approaches to address climate change adaptation and mitigation Limited number of new interventions (preferable 2 to 3) Development outputs that are linked to existing programmes in the country programme Simplify the implementation structures and avoid adding further work load to the Embassy The support shall be able to stand alone after the one year grant support

The choice is a balance of sometimes conflicting factors, such as between annual grants and demand for almost instant sustainability. The recommendations are an attempt to reach an optimal balance taking into account the visions of the possibilities of the ‘fast start’ climate finance, the need for efficient implementation modalities, the administrative load for the Embassy, and harmonization with other climate change initiatives. The findings for the design phase of ‘fast start’ climate change programme are:

Implementation through existing NRM Programme and BSPS II focus areas and structures. Options for climate change activities were identified during the scoping phase of the NRMP (2008/2009) and BSPSII (2010). The relevant options are captured in these programmes and have already been subject to an appraisal.

The ‘fast start’ climate programme is not a new programme with new partners or a stand-alone programme. The rationale for the ‘fast start’ climate programme is for it to be aligned with existing Danida supported programmes and use the implementing partners already working with RDE. It is a more effective approach than a new free-standing ‘fast start’ climate change programme.

A single project is not feasible. The one year grant approval and disbursement also makes a single ‘fast start’ climate programme with just one output/partner less feasible. Firstly, there is a risk of delay in the implementation if all ‘eggs are in one basket’. Secondly, it is not likely that a single activity can be developed with sufficient absorptive capacity. The additional work load required for RDE to develop and manage an additional programme in the country programme in Kenya may also be excessive.

New information over the next 6 to 12 months. There is more learning and clarification over the next 6 to 12 months: a) inception of BSPS II and launch of the NRM programme, b) outcome of various calls and competitions (CDTF and REACT), c) clarification on conditions for support to MESPT from BSPS II, d) decision and launch of other donor support, e.g. StARCK (DfID) and AFD, and e) outcome of 2010 ‘fast start’ climate project grants.

The ‘fast start’ climate programme can further bridge the NRM Programme and BSPS II. It adds value to the existing Danish country programme in Kenya and it is also likely be a more efficient implementation, making best use of the RDE capacity. The link between the


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programmes was already initiated in the design of these programmes (mainly though the MESPT link). The choices for the ‘fast start’ climate programme have been to target the space between the NRM Programme and BSPS II.

Donor crowding and harmonization. The choices for the Danida ‘fast start’ climate programme are narrowed because other development partners have already filled the ‘development space’, e.g. in the energy and forest sectors. There is a potential risks that different climate change initiatives by donors are competing for the same opportunities to fund. An effort was made to coordinate with the Dfid climate programme design for private sector and civil society support (StARCK). Coordination is also sought with the planned AFD support to KAM.

Impacts. The recommended support to CEEC at KAM and REACT both address the climate change risks and provide development impacts for the Kenyan economy. Investments in RE and increased EE both reduce carbon emissions as well as create employment and increase the competitiveness of private sector enterprises through cost reductions and new innovations. These interventions can provide systemic impacts that complement direct impacts that are possible with the CEF/CDTF.

2. Consideration concerning the close alternatives

This section includes some of the close alternatives considered for support under the ‘fast start’ programme but not recommended for inclusion in the proposed ‘fast start’ climate support in Kenya.

Climate Technology Innovation Fund (CTIF): One option considered was to provide fast start climate change programme support to the Climate Technology Innovation Fund (CTIF), to be co-funded by BSPS II. While there will be relevant activities to be funded when CTIF is in operation, it is regarded as premature to add additional support to CTIF. It will take another year for CTIF be fully operational. There is yet to be negotiated an agreement between infoDev (World Bank), DFID and RDE on funding and implementation, the work on registration and establishing the CTIF trust is yet to commence, and an international tender for the CTIF Fund Manager will have to be completed before activities can be begin. These start-up activities are likely to take such a period of time that ‘fast start’ climate change support to CTIF in 2011 is not relevant.

Micro Enterprise Support Programme Trust (MESPT): Being implementer of both BSPS II and the NRM programmes, the MESPT provides a relevant option for addressing both climate change and private sector development. In particular the value chain activities in ASAL areas and the piloting and rolling out in a selected number of districts private sector service provision of appropriate NRM technologies would form a relevant intervention point (e.g. irrigation, water harvesting, energy and water use audits of agro-business companies). During 2011, MESPT has funding available for implementation of the NRM activities. Through a MESPT sub-contract with KAM value chain work in the manufacturing sector will be carried out under BSPS II. A total of DKK 125 million has been provided for MESPT from BSPS II and NRM in total.

There will be a funding agreement between RDE and MESPT, which will be performance based. Before funding will be released for activities to be implemented by MESPT, a number of conditions have to be fulfilled. This include formalization of the Founders Committee, reconstitution of the MESPT Board and a due diligence of MESPT, with an in-depth valuation of its portfolio and an audit of its major investments. It is expected that it will take a significant time for these preconditions to be fulfilled. Until the preconditions are met it is not recommended to provide further assistance to MESPT.

Small grants support facility: It was considered to continue a small grant support window similar but five times larger than 2010 ‘fast start’ climate support from Denmark. In the 2010 ‘fast start’ climate programme support, five projects are financed and a fund manager is contracted (Orgut). A similar model for 2011 would require a tender for the fund manager. It would become an additional,


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self standing funding window without a prospective to reach wider development and more systemic impact. It is also a concern that there is a plethora of other funding windows some of which some are supported by the Danida, e.g. REACT, CTIF and CEF/CDTF. It is recommended to work through existing funding windows rather than establishing a new. It is also considered that the selection of support, for example in REACT can add more value to the supported projects.

Civil society and advocacy. It was considered to channel some support to the Sida funded natural resource management facility for civil society that is going to be implemented by PACT – Kenya. This project has not yet been signed by Sida and PACT. Before the first call for proposals has been made, it is difficult to establish what niche the facility will cover and what the demand is. A large part is for advocacy, although Sida would like to see some the Danida ‘private sector experience’ infused in the facility. The Dfid StARCK programme will target civil society advocacy and could be a more relevant partner. There are options to link with CEF/CDTF as several of the NGO partners in their projects will also be funded by the PACT managed civil society facility. There are also options to link with private sector and other non-traditional civil society organizations.


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Fast start climate programme options

Options Main contents Possibilities Constraint Design Finding / conclusion

1. Energy Efficiency and Audits (KAM)

Approach for EE and Audits and matching grant for direct costs. Will be expanded to include broader focus on resource audits and development of investment options.

Option for demand side

EE management.

Identification of clean

technology investment

options. Develop few

pilots as demonstration.

Will be linked with

forthcoming AFD

RE&EE project that also

includes a credit line.

CEEC of KAM not a direct partner of NRM or BSPS II. But KAM is partner in BSPS II, and close working relations between CEEC and other partners in BSPS II will be established.

MoU with KAM.

Recommended option.

2. Renewable Energy and Adaptation to Climate Technologies (REACT) (low carbon, private sector, innovation)

Business up-scaling support targeting climate change adaptation and renewable energy. Not business development services but focus on market development and innovation.

Regional funding window established with DfID. Relevant thematic focus for market development. Systemic development impacts possible.

Support to scaling up of existing business models. Large grants (average grant size is USD 0.5 Million) for already established business ideas.

Addendum to BSPS II component MoU with AECF/AGRA. Same modalities as for BSPS II.

Recommended option.

Support to the 2nd call for proposals later in 2011. Expected good outcome of 2nd call and opportunity to adjust focus and selection criteria after the 1st call.

3. Community based pilot projects (CDTF)

Support to practical community based climate change adaptation and mitigation, e.g. RE and water management.

Support to Climate Change projects emerging in current call for proposals. Adding to existing structures means low management costs.

Scope for technology development and innovation with private

Capacity of CDTF to manage additional projects and a climate change portfolio is stretched. If other development partners add additional funding to CEF/CDTF for climate change, the support should be revisited. To be

Addendum to NRM Programme sub-component 3.1.

The RDE already follows CDTF closely and this oversight will benefit the implementation of the ‘fast start’ climate grant

Recommended option.

Support will initially focus on the present call for proposals, but if this is not found sufficient a second call in 2011 with the possibility to simplify application procedures will be opted for.


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sector in a possible second call for proposals.

demonstrated that there are potential projects beyond the funding already available for the current call.

4. Grundfos Lifelink Supply of community level safe water using solar water pumps. Linked with innovative financing scheme for water use payments and maintenance.

Expansion with more sites to test approach. Innovative approach to water supply and user payments. Corruption proof. Danish brand. Option to apply for REACT grant that can also aim to markets in EAC.

Selection of sites and end-users may be further developed, e.g. end-user demand rather than technology driven. May not fall under other sources of water financing, e.g. water resources trust fund.

Addendum to current support in fast start 2010 grant (DKK 3.0 Million).

Lifelink confirmed that an additional 25 units could be established in 2011.

IFU is a shareholder of lifelink (DKK 6.0 Million; 49% of shareholding)

Recommended to scale up late in 2012 subject to results with 2010 ‘fast start’ climate support. Should be linked to a REACT application.

5. NRM credit line (ABD proposal)

Credit line in commercial bank to secure NRM relevant finance. Risk guarantee. Fund will be returned.

Supporting new investment opportunities for agri-business. Access to credit during periods of weather related crop and market losses.

Difficult to justify for ‘fast start’ climate finance

Other credit line options could be explored. AFD will fund a credit line with emphasis on agribusiness. Longer term view beyond the one year fast start programme.

Addendum to MESPT implemented component in BSPS II. Support via BSPS II not feasible until conditions are met. A component agreement is not yet signed.

Not recommended for ‘fast start’ climate programme.

Should not be an add-on from a climate programme. Need to assess other credit line options already in existence or forthcoming, e.g. the forthcoming AFD RE credit line in Kenya.

6. NRM Audit (Clean Technology Audit) of agribusiness

Follow up on Value Chain study. Efficient use of inputs (water,

Demonstrate gains from efficient use of resources. Green

Relative small activity with pilot that could be included in current

Addendum to MESPT implemented component in BSPS II or

Not recommended for ‘fast start’ climate programme.


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(ABD proposal) energy and resources). Target is about 20 agri-business industries.

growth relevance. Pilots may be funded but otherwise a cost sharing approach. Option to involve KAM and NEMA.

NRM Programme. Some industries may not be willing to share data.

Not yet an agreement with MESPT in BSPS II. Agreement is subject to a number of conditions.

an added activity within current NRM Programme component 3.2. Support via BSPS II is not feasible until conditions are met. A component agreement has not yet been signed.

Option to include this activity in NRM Programme is possible. Also relevant with proposed activity with KAM that has a focus on agri-business.

7. Rehabilitation of irrigation systems (ABD proposals)

Support to rehabilitation of privately owned irrigation schemes.

Irrigation schemes is in need for rehabilitation are identified, e.g. in Malindi. Large scope for climate adaptation through improved water resource management.

The Government may also in the current drought situation be willing to provide funding.

Not yet an agreement with MESPT in BSPS II. Agreement is subject to a number of conditions.

Addendum to MESPT implemented component in BSPS II. Support via BSPS II not feasible until MESPT conditions are met. A component agreement is not yet signed in BSPS II.

Relevant for addressing climate change adaptation.

Not recommended for ‘fast start’ climate programme. Can be integrated in NRM Programme and BSPS II.

8. Climate Technology Innovation Fund (CTIF)

The support will be provided to business development. Technology incubator for new business ideas not yet developed.

Identified need to develop business plans that are mature for financing.

Yet to be established. Addendum to BSPS II. No agreement yet between Infodev (World Bank), DFID and the RDE.

Support in 2011 from fast start climate funds will be too early. Other funding is secured from DFID and BSPS II for the initial one year inception. Can be revisited in 2012.

9. Natural Resource Management Facility for Civil Society

Sida initiated grant for civil society support in natural resources in Kenya. Implemented by PACT.

Option for a temporary window specifically on Climate Change.

Sida emphasized the Danida private sector experience in particular in the agricultural sector.

The facility is not yet operational. May have more emphasis on advocacy. If focus is more on innovation and business development it may overlap with CEF/CDTF.

Requires a specific agreement with Sida for the funding flow in a delegated partnership.

Not recommended for Danida ‘fast start’ climate programme.

More relevant option for DfID STARCK climate programme whose aim is also to include advocacy.


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10. Small grant project support (Danida)

Support to small grant projects identified after call or directly by the RDE.

Building on fast start 2010 experience. Flexible and can provide a fast response.

Stand-alone activity. Can overlap with other approaches, e.g. CEF/CDTF, CTIF and REACT.

The impact of a project based modality with a basic fund managing function may not be effective.

Tendering of management will be required. There will also have to be call for proposals.

Not recommended for Danida ‘fast start’ climate programme.

Will take time to establish and the additional work load will not be justified for just a few years of operations.

11. REDD+ (KFS) (mitigation and NRM)

Reduced emissions from deforestation and degradation. The REDD readiness plan for Kenya has a total budget of USD 10.4 Million and a funding gap of USD 7.0 Million.

Option for the RDE to get a stake in the REDD process in Kenya. Denmark provides support globally for REDD but Denmark is not a partner in the forest sector in Kenya.

Public sector entry point that falls outside the scope of Danida fast start climate programme in Kenya.

Direct contract with KFS or via one of the development partners.

Not recommended for the bilateral ‘fast start’ climate programme.

Relevant only if REDD is a specific priority for Danida programme in Kenya and a stake in the process is a priority.

12. Capital fund for large renewable energy projects (IFU)

Credit guarantee for large scale RE investments such as wind farms and geothermal.

Contribution to low carbon economic development.

Limited direct impact on poverty reduction. But overall contribution to economic development. Uncertainty of timing.

Transfer via IFU.

Uncertain how long time the additional design and implementation is.

Other development partners like AFD and World Bank (SREP) may be involved in similar activities.

Not recommended of ’fast start’ climate programme.

The purpose and impacts will differ from the development impacts expected.

SREP from the Climate Investment Funds already has Danish fast start funding.

13. Kenya Agriculture Carbon

Best practice for climate smart agriculture; soil

Contribution to carbon management in good

The project is delayed due to the postponed

Would require an agreement with World

Not recommended for Danida ‘fast start’


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carbon management. agricultural practice; options for carbon finance.

ALRNMP III. Several other similar initiatives, e.g. FAO conservation agriculture. One soil carbon project funded by 2010 fast start climate funding. No specific private sector focus.

Bank. Could be integrated in NRM Programme. Not clear who in the Government or other organization is the main partners.

funding.

Already receives support from a Danish Trust Fund (ILWAC) ~ USD 0.97 Million.

Do not link directly with the ongoing programmes. Should be included as part of NRM Programme component 2 when the ALRMP is developed.


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Annex 4: Climate change Regulatory and Institutional overview

1. Main Legal Framework and Policies for addressing climate change

The New Constitution - The new Constitution of Kenya was promulgated in August 2010 after a national referendum. The Constitution will come into full effect in 2012 and makes provisions that will strengthen environment and natural resource management and governance in Kenya. The number of ministries will be reduced from 42 to 24, decentralization will take place to the 47 new counties, and a legal review of main sector acts and policies including environment will be carried out. The Constitution is not specific on climate change but provides that “Every person has a duty to cooperate with State organs and other persons to protect and conserve the environment and ensure ecologically sustainable development and use of natural resources.”

Kenya Vision 2030 (2007) sets out the long term goals for making Kenya a middle income country. The assumption in Vision 2030 is that an annual GDP growth of 10% until 2030 will enable Kenya to become a middle income country. There are three “pillars” of Vision 2030, the economic, the social and the political. In the economic pillar of Vision 2030 a number of economic subsectors have been selected as high priority areas, as these in particular are regarded as being able to generate growth. These subsectors are: Tourism, agriculture, manufacturing, wholesale and retail sale, business process off shoring and financial services. Part of the Vision, requires support to the informal sector in order to increase productivity, jobs, income and public revenue. Further, Kenya will also aim at doubling its share of the regional market to 15% by means of increasing efficiency and competitiveness at the firm level. Vision 2030 states that equity is essential for programmes under all three pillars. This includes that particular attention should be made to investments in the arid and semi arid land (ASAL) districts, communities with a high incidence of poverty, unemployed youth, women, and vulnerable groups.

Environmental Management and Coordination Act (EMCA, Act. No. 8) (1999) - The legal framework for environmental concerns in Kenya is the Environmental Management and Coordination Act (EMCA) of 1999. However, EMCA has limited content relating explicitly to either adaptation to or mitigation of climate change, which can be explained by the fact that EMCA was enacted more than a decade ago. Section 57.2(b) of EMCA makes provision for fiscal incentives as “tax rebates to industries and other establishments that invest in plants, equipment and machinery for pollution control, recycling of waste, water harvesting and conservation, prevention of floods, and for using other energy sources as substitutes for hydrocarbons”.

The National Environment Policy (NEP) (2008) - (Draft, the NEP has not yet been approved by MEMR). NEP recognizes that many of the natural disasters in Kenya are climate related, e.g. floods, drought, occasional landslides, increased disease episodes. It also notes that economic impact of these disasters cut across the key sectors of the economy. It is anticipated in the NEP that with climate change the frequency and intensity of extreme weather events such as floods and droughts might increase. NEP includes staged measures to address climate change, such as a National Climate Change Strategy, awareness of opportunities for adaptation measures through promotion of appropriate technology transfer and capacity building, further development on mitigation projects, and to develop an integrated, improved early warning and response systems for climate and disaster risks with a clear strategy for dissemination of information to the grassroots.

National Climate Change Response Strategy (NCCRS) (2010) – The NCCRS was developed after broad national consultation. It includes an analysis of and priorities on climate change issues such as evidence and impacts, adaptation and mitigation interventions, communication, education and awareness, vulnerability assessments, research, technology development and transfer, policy, legislation and institutional framework. The NCCRS has become a cornerstone for the coordination and prioritization of actions to address climate change.

Private Sector Development Strategy (PSDS) 2006-2010 was prepared on the background of a realization that the private sector accounts for about 80% of the GDP and provides more than 50% of


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wage employment. In addition to the 40,000 formal, large and medium size enterprises that account for around 60% of GDP, there are more that 1.7 million small and medium enterprises mainly in the informal sector, contributing 20% to the GDP. While the majority of the formal sector enterprises are found in Nairobi and Mombassa, the informal sector enterprises are more widely distributed in the rural areas. The size and importance of the private sector in the growth of GDP warranted the preparation of a PSDS strategy. The two major strategies of PSDS are creation of a conducive business environment for the private sector and growth and competitiveness of the private sector, especially Micro, Small and Medium Sized Enterprises. The PSDS has 5 specific goals, namely: (i) improvement of the business environment, (ii) accelerating transformation of public sector institutions, (iii) trade expansion, (iv) improving productivity and (v) supporting entrepreneurship and indigenous enterprise development. The PSDS mentions that the strategy must take into consideration environmental concerns, and that its implementation will include environmental impact assessments and environmental audits. Further, the PSDS states that it should be implemented within the legal and administrative framework of the Environmental Management and Coordination Act.

Kenya Joint Assistance Strategy (KJAS) covering the period 2007 to 2012 was agreed between the government and a group of 17 development partners. While the overall goal of the KJAS is to support the government’s efforts in achieving the Millennium Development Goals, the KJAS focuses on the main challenges facing Kenya today, including but not limited to a substantial decline in corruption, creating infrastructure to serve as a platform for growth in Kenya and the East African region, significantly narrowing the gap between the rich and poor, improving the investment climate and raising the productivity of agriculture.

The KJAS partners are promoting private sector development including support to a better enabling business environment and providing assistance to growth of Micro, Small and Medium sized Enterprises. Programmes within the energy sector are also included in the KJAS. The KJAS also recognizes that Kenya’s future sustained economic growth depends on better environmental management, and that climate change will exacerbate major problems, such as desertification, declining biodiversity and deterioration of wetlands.

2. Climate Change Institutions

2.1 Public Sector

Office of the Prime Minister (OPM) - The Government has established a National Climate Change Committee (NCCC) whose main purpose shall be to provide overall guidance and supervision of all Climate Change activities in Kenya. NCCC will be responsible for all climate change matters that require inter-ministerial coordination. The NCCC will be chaired by the Prime Minister and deputized by the Minister of Environment and Mineral Resources. The Climate Change Coordination Unit (CCCU) was established at the Office of the Prime Ministers in 2008 with support from Danida. The aim is to provide high level political support and inter-ministerial coordination to climate change activities in Kenya. The CCCU will be a secretariat of the NCCC. The NCCC secretariat is supposed to work closely with the NCCRS secretariat of MEMR, the sector ministries, Ministry of Finance, and the Vision 2030 Secretariat at the Ministry of Planning.

Ministry of Environment and Mineral Resources (MEMR) - The recent preparation of the NCCRS was led by MEMR with OPM providing the convening power bringing on board all key sectors. A NCCRS Secretariat to implement the Strategy has been established at MEMR. Staff have been seconded to the secretariat from other departments of MEMR such as KMD, NEMA and the Department of Resource Surveys and Remote Sensing. In the MEMR Strategic Plan (2008 – 2012) climate change is not as well articulated as environmental issues. However, MEMR like all other Ministries has been instructed to revise their strategic plan to re-align it to Vision 2030 thereby including more focus on action towards addressing climate change.


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National Environmental Management Authority (NEMA) - NEMA is a parastatal under MEMR. It is the key government institution overseeing some of the implementation of climate change responses in Kenya. NEMA hosts the Designated National Authority (DNA) responsible for developing and approving climate change mitigation projects under the Kyoto protocol. In 2005, NEMA undertook a Climate Change National Capacity Needs Self-Assessment (NCSA), and adaptation was identified as the chief priority for Kenya in response to climate change based on relevance to other policy and development goals.

Ministry of Finance - A Carbon Finance Unit (CFU) has been formed at the Ministry of Finance. The Unit aims at among other things, to provide guidance on public financing and investment from carbon assets and is looking at establishing a home-grown Emission Trading Scheme. CFU will also promote public private partnership in the implementation of climate change projects.

Ministry of Planning and Vision 2030 - For promoting mainstreaming of climate change in development sectors, a critical role is envisaged for the Ministry of Planning and Vision 2030 as it charged with implementation of Vision 2030 as well as national and sector development plans. Further, the Ministry of Planning is chair of the Board of Trustees of CDTF.

Kenya Meteorological Department - MEMR is now directly in charge of the Kenya Meteorological Department (KMD). The function of KMD is the provision of meteorological and climatologically services to agriculture, forestry, water resources management, civil aviation and the private sector including industry, commerce and public utilities for the better exploitation and utilization of natural resources for national development.

Kenya Forest Service (KFS) - KFS is charged with the management of forests in accordance with the Forest Act of 2005. KFS is also responsible for Reduced Emission from Deforestation and Forest degradation (REDD) and other land use related emission reductions (REDD+). REDD is an internationally proposed climate change mitigation process in the forest sector and a policy framework with the goal of creating an economic value for sequestering and storing carbon in standing forests and soils. It is an incentive system that motivates multiple actors across scales to address the drivers of deforestation and to undertake forest restoration. KFS in 2010 completed the formulation of a REDD Readiness Proposal (REDD-P) for implementation from 2011.

2.2 Private Sector

Kenya Private Sector Alliance (KEPSA), the key private sector organization, was established in 2003 as an apex body for private sector organizations in Kenya. Today, it has more than 60 Business Membership Organizations (BMO) and above 180 companies as members. The overall goal of KEPSA is to provide one voice for the private sector to engage in high level public policy dialogue and influence public policy formulation. KEPSA has a business plan for the period 2010 to 2012, a plan that at a suitable time will be revised to cover a further period, and include strategies for increasing financial sustainability and their membership base. KEPSA is a partner in BSPS II.

There is a significant number of sector specific BMOs each of which promote more specific policy issues of relevance for their members. KEPSA as well as other BMOs were part of the preparatory process of the PSDS, outlining the overall strategies for private sector development in Kenya.

The private sector will respond to climate change in three main directions:

Managing risks to business: The private sector will respond to climate risks through adaptation measures, e.g. short and long term adjustments in response strategies including insurance schemes and investments. This is for example industries depending on continued supply of biomass based raw materials.


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Reducing production costs through more efficient production processes: An increase in the costs of energy, raw material and water driven by the impacts of climate change provides an incentive to reduce the use and to develop more efficient production. This can be a drive towards reduced levels of emissions on a lower carbon development path.

Seeking opportunities for business and finance: The responses to climate change provide private sector opportunities. New business opportunities and technology can be developed, e.g. in renewable energy. Opportunities emerging from carbon finance can also stimulate investments in cleaner technology.

Carbon finance from mitigation can be generally divided into a compliant and voluntary markets. Kenya being a non-annex one country of UNFCCC qualifies to develop projects under the Clean Development Mechanism (CDM). The Mumias Cogeneration project was registered as the first CDM project in Kenya. The co-generation project allows the company to produce 30 MW of power from bagasse to Kenya Power and Lighting Company (KPLC) as clean energy, replacing energy produced by KPLC from fossil fuel.

Two other projects are registered with the Olkaria II and III Geothermal Expansion Project for a production of 276 GW. Kenya has several CDM projects in the pipeline (see table). The Voluntary Carbon Market (VCM) has emerged globally to compliment the compliant market, and includes sectors and approaches not covered by the compliant market.

2.3 Civil society

Kenya Climate Change Working Group (KCCWG) was established in April 2009 and now has 210 members. The KCCWG is the key organization for coordination among a wide range of civil society organizations (CSOs) on climate change. Several NGOs and in particular international NGOs are sourcing finance for Kenya and internationally for climate change related activities in Kenya.

Advocacy and awareness of climate change is also a main activity of the CSOs. Sweden has funded awareness and advocacy on environment and climate change. A forthcoming natural resource management facility for civil society to be funded by Sida and implemented by PACT Kenya may also be able to include climate change.


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Institutional organization of climate change adaptation and mitigation in Kenya

Parent Ministry Organization Mandates and key tasks

Office of Prime Minister (OPM)

National Climate Change Committee

Coordination between Ministries. Guidance on all climate change activities. Forthcoming, establishment of National Climate Change Committee (NCCS)

Ministry of Environment and Mineral resources (MEMR)

NCCRS Secretariat Implementation of the NCCRS. Preparation on action plan. Sectoral coordination of climate change activities

MEMR NEMA (DNA) Approval of carbon mitigation projects under CDM

MEMR Kenya Meteorological Department (KMD)

Climate related research, prediction and dissemination of data analysis. Extreme weather monitoring and early warning systems

Ministry of Forest and Wildlife

Kenya Forest Service REDD Readiness Plan to reduce and avoid emissions from deforestation and degradation.

Ministry of Finance Carbon Finance Unit (CFU)

Climate Change Policy Financing and Investment. Economic and policy analysis, encourage public-private participation in carbon project development

Ministry of Planning and National Development and Vision 2030

Vision 2030 Mainstream climate change in development plans. Monitoring of the implementation of Vision 2030 (mainstreaming)

Non-State Actors

Non-State Actors: Private Sector

Kenya Private Sector Alliance (KEPSA)

Apex body of Business Membership Organisations in Kenya

Non-State Actors: Civil Society

Kenya Climate Change Working Group

A civil society network organization for advocacy in climate change

Source: Adapted from Sida (2010)


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CDM pipeline in Kenya

Number Title Province /

State

Type 1st period

ktCO2e/yr

yrs. Credit to

2020 ktCO2e

Credit buyer

Registered (Status: Registered)

CDM1368 “35 MW Bagasse Based Cogeneration Project” by Mumias

Sugar Company Limited (MSCL)

Western Biomass energy 130 10 1296 Japan (Japan Carbon

Finance)

CDM2448 Olkaria II Geothermal Expansion Project Rift Valley Geothermal 150 7 1509 Spain (IBRD)

CDM4740 Olkaria III Phase 2 Geothermal Expansion Project in Kenya Rift Valley Geothermal 178 7 1924 n.a.

CDM Pipeline (Status: at validation)

CDM3140 Redevelopment of Tana Hydro Power Station Project Central Hydro 42 7 464 Denmark (IBRD)

CDM3373 Optimisation of Kiambere Hydro Power Project Eastern Hydro 38 7 477 Spain (IBRD)

CDM3414 “6 MW Bagasse Based Cogeneration Project” by Muhoroni

Sugar Company Limited

Nyanza Biomass energy 15 10 151 United K. (JP Morgan)

CDM4946 Increasing the Blend in Cement Production at East African

Portland Cement Company Limited

Eastern Cement 106 10 1056 United K. (JP Morgan)

CDM5120 Aberdare Range / Mt. Kenya Small Scale Reforestation Initiative -

Kirimara-Kiriti Small Scale A/R Project

Central Reforestation 8 20 100 Canada (IBRD)

CDM5123 Aberdare Range/ Mt. Kenya Small Scale Reforestation Initiative -

Kamae-Kipipiri Small Scale A/R Project



Gathiuru-Kiamathege Small Scale A/R Project



Kirimara-Kithithina Small Scale A/R Project



Kabaru-Thigu-Mugunda Small Scale A/R Project



Kibaranyeki Small Scale A/R Project



Karuri Small Scale A/R Project


CDM5971 Reforestation, sustainable development and carbon sequestration

project in Kenyan degraded lands

Many Reforestation 49 20 540 n.a.

CDM6404 Lake Turkana 310 MW Wind Power Project Eastern Wind 728 7 6379 n.a.

Failed/terminated registration (status: Cancelled)

CDM2410 Sondu Miriu Hydro Power Project. Nyanza Hydro 211 7 2746 n.a.

CDM3088 Conversion of the Kipevu Open Cycle Gas Turbine to a Combined

Cycle Operation Project

Coast EE supply side 45 7 493 Denmark (IBRD)

Source: UNEP/Risoe (January 2011)


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Annex 5: References

Danida (2010a): “Business Sector Programme Support (BSPS II); Programme Document”, October 2010

Danida (2010b): “Business Sector Programme Support (BSPS II); Component 2: REACT and CTIF”, October 2010

Danida (2009a): “Natural Resource Management (NRM); Programme Document”, December 2009. http://www.ambnairobi.um.dk/NR/rdonlyres/6B24C476-FDDE-4C07-A1CA-51291462445D/0/FinalNRMProgrammeDocument031209.pdf

Danida (2009b): “Natural Resource Management (NRM): Component 3.1 - CEF/CDTF”, December 2009. http://www.ambnairobi.um.dk/NR/rdonlyres/A4D77D53-357B-428B-BF0D-

6DA4096D067B/0/FinalSubCompNo31071209.pdf

Danida (2007): “Climate change screening of Denmark’s development cooperation with Kenya”, October 2007. http://www.ambnairobi.um.dk/NR/rdonlyres/6C2F7CA2-7074-4C41-8ACC-

47156E1916A7/0/KenyaClimateScreeningDanida29NOV20072.pdf

GoK (2010): “National Climate Change Response Strategy”, April 2010. http://www.ambnairobi.um.dk/NR/rdonlyres/426063EF-AF18-4AE0-A1D4-89F2F8179232/0/FINALNCCRS2010.pdf

GoK (2007): “Vision 2030”, http://www.ambnairobi.um.dk/NR/rdonlyres/D69BE413-9B24-40C9-B4CD-1A35EE157611/0/1Vision2030.pdf

SEI (2010): “Economics of climate change, Kenya”. Funded by Danida and Dfid. http://www.ambnairobi.um.dk/NR/rdonlyres/63300D8C-000A-4DD1-AB76-CABEF2634D74/0/EconomicsofClimateChangeinKenyaFinalReportDec2009.pdf

Sida (2010): “Sida support to climate change in Kenya - Concept paper”, November 2010.

fast start climate change programme, kenya, (2011)

Documents