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Fact Check – Power Load shedding in 2018

There is a lot of talk whether the load shedding has ended in 2018. The Government claims that the quantum of load shedding has substantially reduced on a year on year basis and over the last five years period. However, with an objective analysis, it can be ascertained if the quantum of load shedding has declined or not. Since the monthly electricity generation numbers are available on NEPRA’s website – Resources Future has run a quick reality check.

Load shedding status: 2013 – 2016:

The government believes that they have reduced the load shedding since 2013 which was more than 12 hours of load shedding in rural areas and 8 hours in urban areas. However, it is interesting to note the actual surplus/deficit numbers reported by the NEPRA for last five years. The actual reported numbers are as follows:

Surplus/Deficit in Demand and Supply – NTDC system

Year Generation Capability (MW) Peak Demand in NTDC System (MW) Surplus/Deficit (MW)
2013 14,600 18,827 (4,227)
2014 16,170 20,576 (4,406)
2015 16,500 21,701 (5,201)
2016 17,261 22,559 (5,298)

Source: NEPRA, State of the Industry Report 2016

Going by with above numbers, the total power generation deficit has increased from 4,227 MW to 5,298 MW. This means that the overall quantum of load shedding must have increased from prior years since overall deficit in the system has shown an increasing trend. Going by the above reported statistics, the actual load shedding may not have declined up till 2016.

Load shedding status in 2017

The above numbers till 2016 implies that there must have been little improvement in actual load shedding numbers. But what about the last two years –2017 and 2018. The consolidated numbers of actual electricity generation are not available yet from the regulator and other reporting agencies. However, Resources Future has ascertained the actual electricity generation figures for the last two years based on the NEPRA’s monthly fuel price adjustment data. The consolidated 2017 numbers are as follows:

Fuel Generation 2017 – GWh %
Hydel                                           31,786 30%
Furnace Oil                                           31,933 30%
Gas                                           31,057 29%
Diesel                                             1,648 2%
Coal                                                 961 1%
Others                                             9,684 9%
Total                                        107,069 100%

 

For 2016, NEPRA reported a comparable figure of 100,114 GWh of actual electricity generation. Compared to 2016, the 2017 numbers show a 7% increase in electricity generation – not enough to eliminate load shedding completely. This implies that on year on year basis, after accounting for an increase in peak demand, the actual surplus/deficit must have remained a north of 5,700 MW and above – and almost at the same levels as of 2013 – contradicting the reduced load shedding claims of the Ministry of Energy (Water and Power Division).

Load shedding status in 2018:

To analyze the load shedding claims in 2018, the monthly fuel price adjustment numbers have been consolidated. Till date, from July 2017 to February 2018 generation numbers are tabulated below as compared to monthly numbers from the same period of FY2017.

Gwh Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18
Hydel          3,847.6      4,196.5      4,142.6      2,438.4         2,212.5     1,231.5          606.3      1,356.6
Coal              368.1          405.1          551.2          687.4            961.8         909.5      1,144.4      1,102.0
HSD              335.6          336.0            60.3                 –                   –           51.5                 –              0.8
RFO          3,198.5      3,123.0      2,328.5      2,547.5            648.5     2,251.5      1,630.5          581.4
Gas          2,145.2      2,186.0      1,882.0      1,683.0         1,778.0     1,767.6      1,657.3      1,672.9
RLNG          1,514.5      1,369.0      1,326.0      1,492.0            865.0         395.1      1,802.0      1,340.1
Nuclear              641.6          432.2          777.6          837.6            634.2         728.1          821.0          609.2
Import                54.3            44.7            49.2            48.6               40.6           38.8            38.0            34.5
Mixed                26.7              7.8            56.7            56.8               56.1           65.4            72.4            61.1
Wind              232.8            82.6          141.7            76.8               71.1         188.8            73.1            84.9
Baggasse                75.3            69.0          110.3            65.6               55.5           86.4            86.9            81.0
Solar                56.6            52.0            61.9            62.0               42.2           48.8            54.8            54.7
Total        12,496.6    12,303.9    11,487.9      9,995.6         7,365.5     7,762.8      7,986.6      6,979.1

 

Gwh Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17
Hydel          3,948.0      4,249.6      4,249.6      2,762.0         2,842.5     1,642.7          511.8      1,493.5
Coal                  5.4            10.4            10.4            10.2                   –             2.5              8.6              4.6
HSD                65.5          142.2          142.2          172.6                   –           60.6          362.1              6.0
RFO          3,186.7      3,054.4      3,054.4      2,630.7         1,345.0     2,673.3      3,297.0      1,677.5
Gas          3,041.4      2,620.9      2,620.9      2,459.5         2,211.7     2,152.0      1,866.8      2,334.6
RLNG                     –                 –                 –                 –                   –                –                 –                 –
Nuclear              434.6          432.2          432.2          437.4            338.5         441.7          580.6          581.1
Import                45.8            44.7            44.7            41.3               35.0           32.1            34.6            33.8
Mixed                  8.1              7.8              7.8              6.0               14.6           27.8            32.5            36.1
Wind              129.9            82.6            82.6            71.6               46.7           54.1          106.6            81.0
Baggasse                68.8            69.0            69.0            18.7               56.0           69.8            73.3            80.5
Solar                57.6            52.0            52.0            56.4               45.3           43.2            39.9            54.2
Total        10,991.8    10,765.8    10,765.8      8,666.4         6,935.4     7,199.7      6,913.6      6,382.9

 

In absolute terms, there is an increase in electricity generation from 68,621 GWh in FY2017 to 76,378 Gwh in FY2018 – an 11.3% increase. If the same 11.3% increase continues, the country would be able to make 119,167 Gwh at the end of FY2018 – highest in its history. However, does that mean that it will be able to reduce the absolute quantum of load shedding? Again, just as it happened in FY2017, the 11% increase is electricity generation in FY2018 is not large enough to ameliorate the load shedding gap completely – as this still leaves a gap of more than 4,000 MW of average electricity generation to be fulfilled.

Net electricity generation addition:

In a snapshot, the total increases in electricity generation in the last five years has been as follows:

Year Electricity Generation (Gwh)
2013 88,835
2014 95,441
2015 97,881
2016 100,114
2017 107,619
2018 E 119,167

 

The CAGR increase in generation is 6.05% – not large enough to eliminate the load shedding, assuming the demand also grows by 5-7% per annum.

What may have gone wrong:

All the power sector projects that the government expected will be online before their term has unfortunately not been completed fully. For instance, the much awaited Neelum Jhelum power plan of 969 MW was expected online much before but so far only generates 60 MW. The three RLNG power plants of 3,600 MW are still in the testing phase and has not come online fully. Second, the circular debt has surfaced up again – albeit in a bigger proportion today. The large outstanding circular debt of Rs. 1,000 billion as of April 2018 (including PHPL) has constrained fuel supplies and has impeded continuous electricity generation. Last, the generation addition projects continue to face evacuation issues. While generating electricity has been the focus, the transmission bottlenecks has not allowed the electricity to be evacuated to distribution networks – causing the load shedding to stay as a permanent feature of Pakistan’s power sector.

Pakistan Electricity Generation – 2017

Pakistan has been steadily increasing its generation output. Total electricity generation has registered an increase of 6.7% year on year with net electricity generation in the NTDC system reaching up to 107,069 GWh in FY2017 as compared to 100,253 Gwh in FY2016.

Month on month, the total electricity generation in Pakistan peaks in the summer months when hydel power along with the furnace oil ramps up the total production. The maximum electricity generation in the country was witnessed in June of 2017 (11,461 Gwh) whereas minimum electricity generation was experienced in February 2017 (February 2017). On average, the country produced 8,922 Gwh of electricity per month throughout the year. With population of around 220 million, this means that an average Pakistani consumes 486 Kwh/capita electricity which is a fairly low number as compared to the world standards – 12,600 Kwh/capita for the USA and 10,100 Kwh/capita for UAE.

The total electricity generation for FY2017 is outlined as below:

[image src=”http://localhost/resource/wp-content/uploads/2018/05/pakistan-electricity-generation.png” width=”100%” height=”” align=”” stretch=”0″ border=”0″ margin_top=”” margin_bottom=”” link_image=”” link=”” target=”” hover=”” alt=”The total electricity generation for FY2017 ” caption=”The total electricity generation for FY2017 ” greyscale=”0″ animate=””] [one_second]

The fuel wise electricity generation is outlined as below with hydel, natural gas and furnace oil all contributing almost equally to the total electricity generation share (30%). With CPEC on horizon, however, it is expected that the share of coal will gradually increase, displacing furnace oil generation in the future.

You can download the data in the excel file from here

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[/one_second] [one_second]
Fuel Total Generation (Gwh) %
Hydel                                           31,786 30%
Furnace Oil                                           31,933 30%
Gas                                           31,057 29%
Diesel                                             1,648 2%
Coal                                                 961 1%
Others                                             9,684 9%
Total                                        107,069 100%
[/one_second]

Introduction to Pakistan’s Upstream Sector

[dropcap font=”” size=”1″ background=”” color=”” circle=”0″ transparent=”0″]T[/dropcap]he first exploration well in the region that is now Pakistan was drilled in Mianwali, Punjab in 1887. The upstream E&P sector continued to discover fields until the promulgation of Mines and Oilfields and Mineral Development Act, 1948 came into effect. Following this, Pakistan Oilfields (POL) and Pakistan Petroleum Limited (PPL) were incorporated as local companies in 1950 which provided a much-needed stimulus to undertake more E&P activities. Discovery of Sui soon materialized in 1952 which consequently attracted the foreign players in Pakistan’s E&P segment which led to further discoveries in Uch, Kandhkot and Mari during the 1950s. In 1961, Oil and Gas Development Company Limited (OGDCL) was established as the national E&P company of Pakistan and led to the discovery of Qadirpur gas field in 1989. Today, Pakistan remains dependent on few of the large big fields with five of them providing over half of total recoverable reserves.

At present, in 2018, there are thirty-three active E&P companies in the country with foreign firms on equal footing. These operators carry out independent exploration activities as well as through joint ventures with Mari and OGDCL. OGDCL remains the dominant player in the segment with a 61% share in oil production and 23% in gas production.

The E&P upstream sector is subject to regulation by governments globally and Pakistan is no different. However, instead of the regulator, OGRA, regulating the upstream sector, it is the Director General Petroleum Concession’s (DGPC) office that works particularly with reference to the award of exploration and productions licenses and fields, the imposition of drilling specifications, controls over development and decommissioning of fields and, policies and sectoral development.

The Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, was the first basic policy that governed the sector. Other complementary regulations, such as the Pakistan Petroleum (Exploration and Production) Rules, have also been introduced at various points in time. The ministry has also introduced various policies to promote private interest in the sector, with the first of those issued in 1991 and the most recent being the Petroleum Policy 2012. The latest revised policy of 2012 seeks to attract increased investment in the E&P sector in order to tap indigenous hydrocarbon resources by providing competitive incentives to local and foreign companies in the form of higher wellhead gas prices, along with a transparent and non-discriminatory licensing.

For the comfort of investors, exploration and production licenses and execution of Petroleum Concession Agreements and issuance of sovereign guarantees are carried out in the name of the President who is a symbol of Federation. The regime is a sophisticated regime giving investors’ confidence that their agreements are backed by none other than the Federation. For Production Sharing Agreements (PSA), the Government Holdings Private Limited (GHPL) holds title to all territorial waters and all the E&P companies come as sub-contractors to GHPL.

While the regulatory backdrop is improving for the upstream E&P sector, there are areas that could be further improved. For instance, the amount of documentation required at each stage for E&P activity is believed to be much higher than other countries and could be further simplified. An argument to move towards compliance-based regulation is often cited which simplifies the documentation processes and allows international companies to focus on their core activities rather than focusing and complying for the various paper work requirements asked at various stages of E&P activities by the DGPC’s office. Moreover, the strict regulatory control of the government over the sector has resulted in interference (since DGPC’s office is reportable to Secretary Petroleum) which has been the subject of criticism. In the future, simplification in procedures needs to be undertaken in order to attract more foreign investment in the sector.

Pakistan Essential Oil and Gas Reforms

In the last five years, the Government of Pakistan has initiated a major reform program in the hydrocarbon sector. This program is a component of broader reforms being carried out across Pakistan’s economy. In general, the focus of the reforms has been to:

  1. provide more incentives to existing petroleum concession agreements to utilize higher well head gas prices under the Petroleum Policy 2012,
  2. give a more prominent role to the private sector in commercial activities by introducing third party access regime in the transmission and distribution segment;
  3. gradually phase out government’s daily management of commercial enterprises so that it can focus on policy formulation;
  4. introduce newer fuels such as LNG in the fuel mix and create competition wherever feasible for the benefit of the economy as well as consumers; and
  5. more generally, integrate the economy into the global context by deregulating petroleum prices and rationalizing tariffs to reduce subsidy quanta to manageable levels.

Nonetheless, there remains a need for further reforms to achieve long term energy security as well as create an efficient oil and gas sector. The long-term vision for the natural gas sector is one where producers should compete among themselves for large consumer base (including distributors); the gas distribution companies (SSGCL and SNGPL) would offer a transportation service (and not be merchants) based on an efficient regulatory regime; introduction of cross-border pipelines to augment gas supplies and enhance competition, including projects such as Turkmenistan, Afghanistan, Pakistan and India (TAPI) pipeline or Iran Pakistan (IP) gas pipeline; and an independent regulator that promotes and pushes for competitive market conduct (for example, through third-party access to networks) and freely trading off LNG by private parties. The ultimate purpose of the reforms would be to ensure that the benefits of competition, price discovery through market forces and efficiency gains are passed on to consumers in terms of lower price, quality of service, safety, and supply reliability. Regulatory hindrances are removed so that upstream sector is facilitate through more of a compliance-based framework rather than current heavy regime of paper flows back and forth between DGPC’s office and E&P companies. Policy environment is created that would foster financially viable and economically efficient systems for the transportation, dispensation, storage, and marketing of natural gas. In the petroleum downstream sector, the long-term objective is that a competitive price and quality structure evolves where refineries compete among themselves and with product importers under a deregulated price regime; the terminals and main depots operate as regulated common carriers; tankers are phased out and pipelines are introduced as carriers of crude and petroleum products from one location to another and the government effectively enforces compliance with standards and regulations to ensure a level playing field and acts upon anti-competitive behavior, which would involve strengthening of all sector stakeholders such as OGRA, CCP and SECP.

History of Power Sector Policies in Pakistan

[dropcap font=”” size=”1″ background=”” color=”” circle=”0″ transparent=”0″]T[/dropcap]he first Policy of the Government of Pakistan to attract private investment in power generation was introduced in March 1994. The Hub Power Project was processed as an Independent Power Project (IPP) before that date and essentially this policy consolidated all the processing steps, incentives, consents and approvals which were applicable for private investment in power generation in Pakistan in one package. The main aim of this Policy was to overcome the severe shortage in generation capacity at that time; the Policy also attempted to reduce the need for the public sector to finance investments in power sector in view of the budgetary constraints.

The 1994 Policy was one of the earliest attempts by a developing country to open the power sector for private investment. Since the private sector had no experience of operating in developing countries, it was recognized that the Government would need to insulate investors from majority of the risks that were associated with, or could arise from, private investment in Pakistan. The Policy therefore provided a comprehensive Government guarantee, to cover the obligations of all public-sector entities involved in processing and approving, or (after completion and start of commercial operations) working with such projects. These included provisions for remitting dividends/return on equity, servicing foreign currency debt, the timely interconnection of all IPPs with the national grid, purchase of power produced by the IPPs, supply of fuel etc. Also, the Government offered an attractive, fixed price for all power (again, cost plus pricing was the only accepted practice at that time) to be supplied by IPPs.

The Policy was successful in meeting its main goal and added about 3000 MW of new capacity (in addition to Hub) was installed by the year 2000. As a result, the shortfall in generating capacity was overcome. However, the Policy was severely criticized in Pakistan. The main criticism was that it guaranteed a fixed and high price2 for the power produced by IPPs. It was widely speculated that the high prices could not have been agreed and approved without collusion by some of the public-sector counterparts in Pakistan. The Government therefore went through a phase of persecution and prosecution – and issued Letters of Intent to Terminate and in one case an actual Letter of Termination – of many IPPs. While attempts to prosecute the IPPs on charges of corruption in the respective courts of jurisdiction proved futile, this episode soured relations between private investors and financiers, and the Government. As a result, when a new Policy was announced in 20023, the Government first needed to restore the private sector’s confidence for investing in Pakistan. It therefore retained the consents, incentives and concessions (and negotiated up-front tariffs) from the 1994 Policy. The 1994 Policy was also criticized for focusing only on imported energy4. All Projects implemented under this Policy were based on fuel oil or natural gas.

It may be noted that some of the criticism of the 1994 policy is misplaced. While the offered tariff was attractive, and substantially lower prices for power were obtained by many countries5 a few years later; the background conditions were quite different between the projects implemented under Pakistan’s 1994 Policy and the subsequent projects in other countries. First, major technological advances became commercially available by 1995-96 – the efficiency of gas combined cycle plant improved from about 45% to more than 55%. The offtake level guaranteed in Bangladesh for example was around 85% (compared to 60% in Pakistan), which also meant lower generation costs – as fixed costs were distributed over a larger volume of electricity. Finally, and perhaps most importantly, in Bangladesh and Egypt the Government solicited competitive bids from investors based on the price of power from those IPPs. The absence of competition in the 1994 Policy may have contributed to higher prices than what could have been achieved through competitive bidding, but it needs to be noted that at that time private investors had no experience of competitive bidding for power projects in developing countries (and therefore may not have responded actively to Pakistan’s request for investments in power generation).

The main concern about the 1994 Policy was that the Government started persecuting, and tried to prosecute, IPPs essentially on the assumption that high prices meant corruption. It needs to be noted, however, that the 2002 Policy also did not strongly push for competitive bidding or made it mandatory for new IPPs in Pakistan to procure power on competitive basis.

The Policy for Development of Renewable Energy for Power Generation (the RE Policy) was announced by the Government in 2006. It adopted most, if not all the provisions of the 1994 and 2002 policies – government guarantees for power off take, repatriation of dividends and debt servicing, coverage for wind risk, etc., and an attractive tariff which again was based on a cost-plus approach in determining the price of power. At that time, power generation from RE projects was substantially more expensive than thermal or hydro projects. The policy contributed to diversifying the sources of power supply and reduces the country’s vulnerability to changes in international oil prices, and indirectly to support the Government’s commitments and efforts on global warming and climate change. .

RE projects all over the world are impacted by sharp reductions in capital costs – as equipment prices have fallen drastically over the last decade. This is also true in Pakistan: following this decline in equipment prices, NEPRA is reluctant (with some justification) to continue to accept tariffs which it considered prudent and even approved 5-10 years back. It has therefore reduced offered tariffs a number of times.

The reduction in equipment prices has had a salutary impact on the prospects for investments in RE. Since their cost of power production is comparable to that of thermal (and under some assumptions even lower than the fuel cost of the latter), investors do not insist as much on an up-front/cost-plus regime as they did a few years back. Some are even willing to adopt competitive tendering for their projects. The main concerns about the 2006 RE Policy therefore stem from other external developments.

In many ways, the 2013 Power Policy represented a departure from previous policies. While, its main goal/aim was to eliminate the generation shortfall by adding around 10000 MW of new capacity by 2018, the Policy included a few other goals: reduced reliance on imports for power generation, lowering average generation costs to below 10 US cents/kWh, competitive bidding for new capacity especially for RE projects, and reducing power transmission and distribution losses to below 10%. It also stressed the need for enhanced private sector participation in the power sector.

Against this set of objectives, the Policy has achieved its main goal – and power shortages appear to be over or will be in the very near future. But this success is also largely due to public sector (or direct Government) investment in new capacity and increased private sector involvement in power remains somewhat elusive. The recent lowering of generation costs is also due to external factors – decline in oil prices, reduced RE equipment costs, etc.

Finally, the provision for bidding (specifically for RE projects) is yet to be tested, but private investors appear to be willing to adopt this development. This will contribute positively to reduce generation costs. But a lot of time has been taken to prepare the bidding documents etc. for this initiative to be put into practice. These delays can deter investments and contribute toward changing the perceptions of investors – who may start adding premiums in their bid prices to accommodate delays.

Pakistan’s Energy Balances

Pakistan’s Energy Balances: Pakistan’s primary commercial energy supplies are dominated by oil and gas, contributing roughly around 80% of total energy supply mix. The share of each source in primary energy supplies for 2014-15 was: Natural Gas (43%), Oil (36%), LPG (0.6%), Coal (7%), Hydro (11%), Nuclear (2%), Renewables and LNG (1%) and imported electricity (0.1%). The encouraging thing in the last fiscal year was addition of newer fuels in the primary energy mix such as LNG, wind and solar which did not feature significantly in prior energy balances of the country.

The balance recoverable reserves of natural gas as of FY2015 remained 20.26 TCF whereas the production remained a 1.4 TCF, showing R/P ratio of 14.5 years. There is significant rise in demand for natural gas as it has always been the fuel of the choice for consumers as compared to other more expensive fuels available. On average, despite supply constraints, more than 300,000 consumers were added/connected to gas network by the gas companies. Meanwhile, addition of new power plants, industries and commercial and residential networks also contributed to increased demand. It is expected that the demand for the natural gas will increase further in next 5 years’ time owing to growing user base and increase per capita consumption of energy. During FY2015-16, total supply of natural gas was recorded at 3,947 MMCFD whereas average demand remained more than 6,000 MMCFD, recording a 2,000 MMCFD deficit. With increasing demand, the projected deficit is expected to reach by 6,700 MMCFD by FY2030.

The balance recoverable reserves of crude oil as of FY2015 remained 385 million barrels while annual production equaled 35 million barrels. The consumption of petroleum products registered a growth rate of 5.2% with total petroleum product consumption reaching to 23.7 million tons primarily on the back of improved demand in the power sector for furnace oil as well as diesel in the transport sector and MOGAS for two and four-wheeler vehicles. Total production by the refineries remained 11.31 million tons which was by PARCO’s market share in POL products (39%) followed by NRL (19%), PRL (14%), ARL (14%) and BYCO (10%). Country met demand for HSD, MOGAS and FO primarily through imports, which put pressures on the foreign exchange reserves and balance of payments situation of the country (total import payments of oil: $15.4 billion in FY2016).

LPG remained a fuel of the poor but its mix in the country’s primary energy remained insignificant. The size of the LPG market was 1.1 million Mtons per annum which was mainly consumed by domestic (38%), commercial (37%) and industrial (25%) sectors. Gas production fields contributed around 46% of LPG’s total production with refineries (37%) and imports (17%) also contributed to its supply chain.

The estimated coal reserves of the country as of FY2015 remained at about 186 billion tons while indigenous production remained meager at 3.7 million tons. Imported coal was about 5 million tons which is estimated to increase substantially during FY2016 due to operationalization of coal power plants and other CPEC related coal projects.

On the hydel side, Pakistan has a potential of 40,000 MW whereas its total installed hydel capacity is only 7,200 MW (utilization of 18%). Hydel share has declined considerably over the years in Pakistan’s primary energy supplies which has resulted in higher cost replacements (oil and gas). Most of the hydel capacity is owned by WAPDA which is a publicly owned company whereas only a meager capacity is owned by private producers.

Pakistan Atomic Energy Commission (PAEC) undertakes the nuclear projects development and operations in the country. The first nuclear plant (KANUPP) was commissioned in 1971 with a capacity of 137 MW. The second nuclear plant (Chashma) was commissioned in 2000 through a turnkey agreement with a Chinese company. The third plant (Chashma II) was commissioned in 2011 with an installed capacity of 325 MW. Under CPEC, Pakistan is poised to undertake K2 and K3 nuclear projects – with Chinese partners to enhance nuclear electricity generation capability.

Pakistan has a rich renewable resources zone which is both technologically viable and commercially feasible. Pakistan’s eastern wind corridor alone is estimated at 50,000 MW (Gharo, Jhimpir, Keti Bander) alone with the western corridor of Baluchistan also with proven exploitable wind potential. Pakistan also has a high solar irradiance potential which can also ameliorate energy deficit and can also utilize micro hydel, biomass and geothermal potential. Under CPEC, more than 3,000 MW of renewable energy projects will be brought online which is estimated to significantly increase renewable’s share in primary energy supply mix.