Opaque Curtailment in the Renewable Energy Sector
Opaque Curtailment in the Renewable Energy Sector
Despite the growing financial success of South Africa’s renewable energy sector, the government is instructing independent power-producing companies (IPPs) to stop their energy production.
A recent developments in South Africa’s renewable energy sector is the increasing use of curtailmentinstructions issued to IPPs. The contracts of importance here are Power Purchase Agreements (PPAs), which contain provisions dealing with situations such as curtailment. Terence Creamer, citing energy analyst Chris Yelland, reports that the State is facing a temporary bottleneck of R2 Billion in reimbursing IPPs for electricity they were instructed not to generate.
Background to the Problem
Earlier in 2026, monthly curtailment instructions reportedly increased from around 100 to more than 1 000. The reimbursement applications IPPs have sent in have reportedly taken more than a year to finalise, rather than the expected three or four months.
There is only so much electricity that the transmission system can safely accommodate while maintaining operation. So, in some parts of the grid and at certain times, this does not include all of the new renewable energy power stations generating at full capacity in accordance with their PPAs. Curtailment is a consequence of the technical limitations of an electricity grid.
In other words, there is not always enough transmission capacity to carry all of the electricity being produced. Thus, Eskom (and now their subsidiary, the National Transmission Company South Africa (NTCSA)) must issue curtailment instructions to IPPs. They are instructed not to generate electricity, even when they are perfectly capable, and generally obliged to do so.
That is understandably frustrating from the perspective of an IPP who successfully bid under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), built power stations, and expected to sell renewable electricity to the State for 20 years. How well were these transmission constraints understood when these projects were bid, financed and contracted? Were developers expecting that sufficient transmission capacity would be available by the time their projects reached commercial operation? Did everyone assume the system would simply keep pace?
Perhaps not all truly understood the extent to which curtailment would feature. Yelland notes on the 2026 curtailment issue, that a prominent lender bank in the sector is looking into the practice of curtailment. They are becoming aware of the risks associated with curtailment in the projects they finance as there are possible impacts on debt service cover ratios, margins, and cash flows. So, if they did not know it before, they are learning, and fast.
Curtailment and Contracts
But what do the contracts say about curtailment? We can only speculate. Where generation is curtailed, the PPAs would generally provide a mechanism through which IPPs may submit claims for compensation for the revenue they lose because they were instructed not to generate. The parties are, in effect, seeking to put the IPP in the financial position it would have occupied had the curtailment not occurred.
The calculation is not as simple as determining how much electricity the plant could have produced at full capacity. To claim reimbursement the IPP must establish the amount of usable electricity it would have generated during that period. That is a highly technical estimate which involves parameters such as live weather conditions, plant and circuitry inefficiencies, and power lost in transmission. It is based on real-time data, and IPPs have only 48 hours in which to submit their claims to the NTCSA. Those claims then undergo verification before reimbursement, resulting in a payment delay for IPPs, which Dr Rethabile Melamu noteshits the hardest for B-BBEE equity partners and results in financial strain.
Where is Curtailment Going?
The industry association for South African solar photovoltaic energy producers (SAPVIA) met with the NTCSA last month and the script has been rewritten. The NTCSA has made wide changes that ensure efficiency by rejigging procedure. The technical verification of curtailment reimbursement applications will only be done after the NTCSA has already paid the IPP for the entirety of the estimated claim. They foresee minimal to no adjustments to the reimbursements paid once technical verification has occurred. This will placate the IPPs, but it means the highly technical calculations required will only be properly inspected after a reimbursement is made.
Curtailment is not unusual. Every electricity system in the world curtails generation from time to time to maintain grid stability. There are several reasons why curtailment may be increasing. Some reflect a maturing electricity system. Currently South Africa is experiencing periods in which electricity supply is high enough for several coal-fired power stations to be placed into reserve.
That is how it seems to be going for electricity generation. Chris Yelland describes South Africa’s demand side as a “picture of weakness”. Large industrial electricity consumers are using less electricity than they used to. Energy-intensive users such as smelters are scaling back or shutting down, while electricity prices are encouraging customers to improve energy efficiency and move towards alternatives. The South African economy is becoming less dependent on electricity.
This matters because electricity supply and demand must be balanced. If renewable generation continues to increase while demand weakens, there will be periods in which the system cannot absorb all of the electricity that could be generated. Curtailment is then one of the mechanisms available to the system operator.
The concern is not only whether an IPP eventually receives reimbursement. Delays and uncertainty can affect investor confidence, making it harder for power producers to secure finance for future projects. For South Africa, curtailment can affect the financial assumptions on which renewable-energy projects are built.
Opaque Administration
A further issue is how curtailment and its reimbursements are managed. According to Yelland, IPPs are increasingly critical of the transparency of the curtailment process. They argue that the methodology governing the “merit order, level, frequency and targets for curtailment and reimbursement” is “far from transparent”.
The issue implicates governance. We are no longer simply looking at whether curtailment is technically necessary. We are now also concerned with whether market participants understand how curtailment decisions are made, who bears the financial consequences, and whether those decisions are being made fairly.
NTCSA CEO Monde Bala’s responded by acknowledging that the electricity system is experiencing evolving operational dynamics, but says the NTCSA is working to ensure “fair and equitable treatment of all market participants”. At the same time, it must balance those interests against grid stability, security of supply, affordability for consumers, and South Africa’s medium- to long-term energy planning.
What Will Curtailment Mean?
For one, battery storage may become increasingly important. Electricity that cannot immediately enter an over-capacity grid could be stored and dispatched later, reducing the extent to which power production grinds to a halt because of insufficient transmission capacity. Storage, however, is not a complete answer. It comes at a cost, and its increasing importance is also linked to the country’s current demand-side weaknesses that are contributing to the problem in the first place.
The NTCSA needs to explain who it is instructing to curtail, when, and why. Yelland notes that IPPs hold suspicions that REIPPPP projects from earlier bid windows, whose tariffs in their PPAs are higher, have curtailment reimbursements delayed more than projects from later bidding rounds, whose tariffs are cheaper. Yelland is correct to hold curiosity and skepticism in pinpointing that "Whether or not the data bears this out, the inability to test the proposition is itself a problem."
This also raises a more difficult question about the future of the renewable-energy sector. Why would private companies continue to build generation capacity that is intended to sell power to South Africa, if the system cannot always accommodate that power in accordance with their PPAs? Can we keep building generation capacity as quickly, and as proudly, as we do?
Looking Forward
This brings us back to the question of fairness. Is it fair on the citizenry who are buying electricity from the State, to have public money used to compensate private producers for power that was not ultimately delivered? Conversely, is it fair to require IPPs to absorb the financial consequences of a transmission constraint over which they have no control, after they have invested in generation capacity in reliance on government procurement programs and contracts? How should South Africa balance the immediate technical requirements of a stable grid with the longer-term objective of building a renewable-energy system capable of delivering a just energy transition?
As with so many issues in the just energy transition, there does not appear to be a perfect answer. But as ever, there are some very thought-provoking questions.
Picture Credit. Dreamstime Stock Photo.