@#&OPS~Doctype~OPS^dynamics@afpidaprcoverpage#doctemplate Report No: PIDIAF0026 Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 26-Nov-2024 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 @#&OPS~Doctype~OPS^dynamics@afpidaprbasicinformation#doctemplate BASIC DATA A. Product Information Main: Improving Power System Resilience for European Power Grid Integration (P176114) Operation ID Product/Financing Instrument P176114 Investment Project Financing (IPF) Beneficiary Country/Countries Geographical Identifier Ukraine Ukraine Practice Area (Lead) Energy & Extractives Borrower(s) Implementing Agency PJSC “Ukrhydroenergo" PJSC “Ukrhydroenergo" Additional Financing Request 1 Estimated Appraisal Date Estimated Board Date 26-Nov-2024 16-Jan-2025 Development Objective Current Development Objective (Approved as part of Restructuring package on 24-Jun-2024) To (i) enhance the flexibility of the Ukrainian power grid through storage investments and market expansion to support synchronization with the European electricity grid and decarbonization of power sector, and (ii) provide immediate and effective response to an eligible emergency. Components Installation of Battery Energy Storage System (BESS) with solar Photovoltaic (PV) plants, establishment of an Energy Management System (EMS), and Supervision Consultancy Technical Assistance for UHE Contingent Emergency Response Component (CERC) @#&OPS~Doctype~OPS^dynamics@afpidaprprojectfinancing#doctemplate COSTS & FINANCING (US$, Millions) SUMMARY Page 1 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 Proposed Last Approved Addition Total Total Operation Cost 250.00 70.00 320.00 Total Financing 250.00 70.00 320.00 Of which IBRD/IDA 177.00 0.00 177.00 FINANCING DETAILS Additional World Bank Group Financing Last Approved Financing Total International Bank for Reconstruction and Development 177.00 0.00 177.00 (IBRD) International Bank for Reconstruction and Development 177.00 0.00 177.00 Non-World Bank Group Financing Counterpart Funding 38.00 0.00 38.00 Borrower/Recipient 38.00 0.00 38.00 Trust Funds 35.00 70.00 105.00 Clean Technology Fund 35.00 70.00 105.00 IDA Resources @#&OPS~Doctype~OPS^dynamics@afpidaprenvsocrisk#doctemplate Page 2 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 B. Introduction and Context 1. The Improving Power System Resilience for European Power Grid Integration Project (UHE project, P176114) aims to enhance the resilience of Ukraine's power system and bolster energy security through the installation of a battery energy storage system (BESS). The project is financed by a loan of US$177 million from the International Bank for Reconstruction and Development (IBRD), along with a loan and grant from the Clean Technology Fund (CTF) amounting to US$34 million and US$1 million, respectively, to Ukrhydroenergo (UHE). The Project Development Objective (PDO) is to (i) enhance the flexibility of the Ukrainian power grid through storage investments and market expansion to support synchronization with the European electricity grid and decarbonization of power sector, and (ii) provide immediate and effective response to an eligible emergency. The World Bank approved the financing for the project on June 30, 2021, and the financing agreements were signed on September 13, 2021, followed by the effectiveness declaration on June 10, 2022. 2. The UHE project has undergone two restructurings to activate the Contingency Emergency Response Component (CERC) to address urgent restoration needs. Following a request from UHE dated October 27, 2022, the World Bank has introduced the CERC through the project's first restructuring1 signed on January 13, 2023, to allocate uncommitted funds from the IBRD loan for the restoration of damaged facilities at hydropower stations under the CERC, in accordance with the prepared Emergency Action Plan. Additionally, on June 11, 2024, the second restructuring was signed, supplementing the PDO with paragraph (b) to ensure an immediate and effective response to a relevant emergency and confirming the financing amount at US$123.4 million allocated to the CERC. Following the addition of the CERC, the project now comprises the three components: (i) Installation of Battery Energy Storage System (BESS) with solar photovoltaic (PV) plants, establishment of an Energy Management System (EMS), and supervision consultancy: (ii) Technical Assistance for UHE, and (iii) CERC. 3. Progress towards meeting the Project Development Objective (PDO) and overall implementation progress have been rated as Moderately Satisfactory (MS) or better over the past 12 months1.  UHE has established a Project Implementation Unit (PIU) and has put in place Financial Management (FM) and disbursement arrangements, including qualified FM staff and a robust IT system. The FM and procurement performance are rated Satisfactory (S) and MS, respectively. The performance of environmental and social (E&S) compliance is also rated S. UHE complies with all legal covenants. As of November 20, 2024, disbursements amounting to US$4.94 million have been made. The detailed status of activities is presented below. 4. Under Component 1, as the project's first procurement, UHE has hired an individual consultant procurement specialist and a technical consultant to support its PIU. To advance procurement activities, UHE hired a procurement consultant before the financing agreement became effective. With the help of the procurement consultant, in September 2024, UHE hired a consulting firm to develop the Project feasibility study, which is to be elaborated in the 2nd quarter of 2025. At the same time, while developing the feasibility study, UHE plans to hire a Project support consultant to develop bidding documentation for procurement under Component 1: Design, supply, installation and pre-commissioning of battery energy storage system (BESS) for provision of ancillary services in the electricity grid with the energy management systems (EMS), as well as photovoltaic (PV) stations and auxiliary equipment at Kyiv Hydro Power Plant (HPP)/Pumped Storage Hydro Power Plant (PSPP), Kaniv HPP, Kremenchuk HPP and Seredniodniprovska HPP. 1 Implementation Status and Results Report dated May 21, 2024. Page 3 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 5. Component 2 has provided various technical assistance. UHE has launched a gender assessment to identify key factors influencing gender diversity and inclusion. UHE has benefited from various capacity building activities on battery storage operation and maintenance through study trips and training workshops. 6. Component 3, which was added during the first restructuring on November 13, 2022, addresses UHE’s urgent needs for the restoration of damaged facilities. The financing allocated for the CERC is already fully committed for replacement of damaged equipment particularly through: (i) procurement of block transformers for Kyiv, Kaniv, Dnipro 1 HPPs/PSPPs; (ii) procurement of autotransformers for Kaniv, Kremenchuk, and Dniester HPPs; (iii) procurement of turbines and generators for Dnipro 2 HPP; and (iv) procurement of a turbine and generator for Dniester PSPP. Rationale for Additional Financing 7. UHE’s hydro power plants (HPPs) have been severely damaged, with some rendered non -operational. UHE, a Ukrainian state-owned enterprise, administers many major HPPs along the Dnipro and Dniester rivers, including Kyiv HPP, Kyiv PSPP, Kaniv HPP, Kremenchuk HPP, Seredniodnipro HPP, Dnipro HPP No. 1, Dnipro HPP No. 2, Kakhovka HPP, Dniester HPP, and Dniester PSPP. Following intensive military attacks in October 2022, key equipment at major HPPs, including Kyiv, Dnieper, Kremenchuk, and Serednednipro HPPs, was damaged, leading to partial shutdowns of those HPPs. In June 2023, the Kakhovka dam was destroyed, rendering its HPP non- operational. The Dniester PSPP was also damaged during this period. Furthermore, between March and May 2024, the Dnipro and Kremenchuk HPPs were attacked and severely damaged. 8. Due to the fund allocation to CERC for restoring damaged HPPs, the project’s Component 1 faces a financing gap. Originally, Component 1 consisted of four subcomponents with a total estimated cost of US$249 million, of which the IBRD loan was US$177 million, the CTF loan was US$34 million, and UHE’s own funds were US$38 million, as shown in Table 1 “Original Project Cost.� Due to the allocation of US$123.4 million from the IBRD financing and US$25 million from the UHE own funds to CERC, the scope of Component 1 had to be reduced. Specifically, UHE decided to drop subcomponent 1.2 sub-component 1.1 “Installation of: (i) BESS in Selected HPPs to provide ancillary services to the electricity grid; (ii) solar PV plants to supply electricity to the battery storage facilities and provide auxiliary consumption; and (iii) an energy management system�; sub-component 1.2 “Installation at Dniester HPP of a long duration BESS to charge electric vehicles, including electric buses�; sub-component 1.3 “Installation of a PV plant in Dniester HPP to support the charging of electric vehicles�. Since the cost estimate of sub-component 1.1 was made three years ago, the estimate has been updated based on the latest technological. While UHE increased its contribution, the project faces a financing gap of US$70 million. 9. The proposed Additional Financing (AF) aims to address the financing gap under Component 1 to provide battery storage and ancillary services critical to electricity grid stability and maintaining electricity supply in Ukraine. This gap emerged due to the urgent reallocation of US$123 million from the IBRD loan to finance CERC support, necessitating the reduction of the project's scope by eliminating non-urgent subcomponents: 1.2 “E-Mobility BESS� and 1.3 “PV plant for E-Mobility BESS.� The project's Component 1, “BESS with PV plants and EMS for provision of ancillary services,� remains highly relevant and aligns with the Government of Ukraine’s strategic and development priorities, contributing to the stability and sustainability of the Ukrainian power system. The installation of battery storage has become even more urgent given the substantial damage to generation plants that provide ancillary services and balancing. The proposed AF is consistent with Ukraine's Updated Nationally Determined Contribution (NDC) from 2021. Specifically, based on geographical, economic, and social circumstances, Ukraine has committed to achieving Page 4 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 a target of reducing Greenhouse Gas (GHG) emissions by 65 percent by 2030, compared to 1990 levels (including LULUCF), and reaching carbon neutrality by 2060, as outlined in the National Economic Strategy until 2030, approved by the Decree of the Cabinet of Ministers of Ukraine on March 3, 2021. The proposed BESS will contribute to enhancing integration of renewable energy generation and thus reducing GHG emissions. 10. The proposed financing of US$70 million from the Clean Technology Fund Parallel Fund’s (CTFPF) Global Energy Storage Program (GESP) window will fill the financing gap. The Government of Ukraine requested this financing from the CTF Committee, which approved the financing on June 21, 2024. The proposed AF aims to incorporate this approved financing source into the ongoing project. 11. The proposed AF is in compliance with the World Bank's policies and procedures governing “Additional Financing for Investment Project Financing.� ISR ratings for implementation progress (IP) and development objectives (DO) have been consistently rated as Moderately Satisfactory over the most recent 12 months. There has been substantial compliance with key loan covenants, including audit and financial management reporting requirements. C. Proposed Development Objective(s) Original Development Objective • To enhance the flexibility of the Ukrainian power grid through storage investments and market expansion to support synchronization with the European electricity grid and decarbonization of power sector. Current Development Objective • To (i) enhance the flexibility of the Ukrainian power grid through storage investments and market expansion to support synchronization with the European electricity grid and decarbonization of power sector, and (ii) provide immediate and effective response to an eligible emergency. Proposed New Development Objective The PDO of the project will remain unchanged with the AF. D. Project Description The project comprises of three components: 1. Installation of Battery Energy Storage System (BESS) with solar photovoltaic (PV) plants, establishment of an Energy Management System (EMS), and supervision consultancy: 2. Technical Assistance for UHE, and 3. Contingent Emergency Response Component (CERC). Page 5 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 @#&OPS~Doctype~OPS^dynamics@afpidlegalpolicyandscreeningrisk#doctemplate Legal Operational Policies Policies Triggered? Current Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts The proposed AF is aimed to fill in the financial gap and continue implementation of Project Component 1 that will install battery storages and PV generators arrays within current footprint of the UHE facilities (hydro-power plants). The project environmental and social risks are rated collectively as 'Substantial'. The AF activities would have, along with some positive economic and social impacts, a series of environmental impacts and risks related to the following concrete activities: (a) civil works for installing the battery storages and PV generators arrays; (b) hauling of construction materials; (c) soil resource management and erosion control activities. Overall the project will generate the following impacts: (i) dust and noise and emission of pollutants during construction activities; (ii) solid and hazardous wastes; (iii) degradation of soil and grass vegetation and potential impacts on fauna; (iv) oil spills and leaks from the transformers and relevant facilities which may contaminate soil and water resources; (v) occupational health and safety risks; etc. Overall construction related impacts are likely to be short-term, site-specific and can be mitigated by applying internationally recognized best construction practices as well as by implementing the mitigation measures described in the Project ESMP and further specified in the site-specific C-ESMPs (to be developed by Contractors). All military threats and hazards are covered by the Project-level Emergency Preparedness and Response Plan (EPRP) to be implemented throughout the project implementation and applied to AF activities. The Borrower's capacity to deliver a World Bank ESF based project has improved during the course of parent project implementation through number of ESF trainings and gaining practical experience with development and implementation of ES instruments. E. Implementation The implementation arrangements remain unchanged. UHE continues to be the Borrower and the implementing agency for both the IBRD and CTF loans. The Project Operations Manual (POM) remains relevant, with updates reflecting the new financing sources. Page 6 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 @#&OPS~Doctype~OPS^dynamics@afpidisdscontactpoint#doctemplate CONTACT POINT World Bank Koji Nishida Senior Energy Specialist Steven James Mortimer Clarke Energy Specialist Silvia Martinez Romero Lead Energy Specialist Borrower/Client/Recipient PJSC “Ukrhydroenergo" Ivan Zhdanov Director of the II stage of Rehabilitation Project i.zhdanov@uhe.gov.ua Implementing Agencies PJSC “Ukrhydroenergo" Zhanna Gutina Deputy Director of “Reconstruction Stage II� Project Impleme zh.gutina@uhe.gov.ua FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@afpidapproval#doctemplate APPROVAL Task Team Leader(s): Koji Nishida, Steven James Mortimer Clarke, Silvia Martinez Romero Approved By Page 7 The World Bank Improving Power System Resilience for European Power Grid Integration (P176114) – Additional Financing Request 1 Practice Manager/Manager: Stephanie Gil 03-Oct-2024 Country Director: Klavdiia Maksymenko 26-Nov-2024 Page 8