Is holding a celebration for a child upon reaching the age of seven, in which he prays two cycles of supererogatory prayer (sunnah) to encourage him to pray, considered a good innovation (sunnah hasanah) or a reprehensible innovation (bid'ah)?

There is no harm in celebrating to encourage children to pray, as long as its sunnah status is not believed, and it is confirmed that it does not recur like Eid celebrations. Furthermore, inviting a child to pray two rak'ahs is not an innovation (bid'ah); rather, it is an application of the Sunnah regarding commanding children to pray at the age of seven, based on the Prophet's (peace be upon him) saying: "Command your children to pray when they are seven years old, and beat them for it when they are ten, and separate them in their beds." Making acts of obedience beloved to people and assisting them in performing them is Islamically مطلوب (desired/required). Ibn Taymiyyah encouraged facilitating good deeds and encouraging them by every possible means, whether through money or praise.