South Africa is paying renewable energy producers hundreds of millions of rand for stopping generation, yet the current electricity supply regulations lack provisions for compensating these funds or defining who bears the financial responsibility.
According to the energy regulator Nersa, the system designed to manage the country's transition to a competitive wholesale electricity market completely ignores the issue of compensation for curtailment.
Curtailment is a command to a wind or solar power plant to cease energy production because the system cannot absorb the entire output. Since South Africa's power purchase agreements compensate producers for the energy they were ready to supply, any such command incurs certain costs.
The National Transmission Company of South Africa (NTCSA) reported on July 24 that the claims for compensation for curtailment, which are under review and settlement, have decreased from approximately 2 billion rand in mid-June to 1.5 billion rand, and the company plans to complete payments for approved claims by the end of August, although it did not specify whether this deadline would be met.
Nersa has currently put a draft transitional pricing structure and generation contract out for public comment, which aims to manage the transition to a competitive market. This structure should address payment issues for generators during the transition period, but it lacks provisions for compensation for curtailment.
Charles Khlebela, Head of Communications at Nersa, stated that this structure 'does not establish a separate mechanism for day-ahead electricity pricing and does not prescribe a methodology for reimbursing costs related to curtailment compensation.' He noted that time periods are only considered when developing subsequent agreements, where hedged volumes can be distributed across peak, standard, and off-peak periods and calculated based on day-ahead market prices. This is a hedging mechanism, not a pricing policy.
The Regulatory Framework Lags Behind Development Pace
Khlebela emphasized that 'compensation for curtailment is not addressed in the current transitional pricing structure and generation contract.' Consequently, any methodology for determining or reimbursing compensation related to generation curtailment must be implemented through an appropriate market, trading, system operation, or tariff instrument, rather than being derived from the generation contract provisions.
Simply put, the money is coming in, but the regulatory framework is failing to keep up with the process. Previously, in July, TechCentral reported that unpaid debt had reached 2 billion rand, causing some producers to face income shortfalls of about 9%.
The discussion on the generation contract structure concluded on August 4. Furthermore, Nersa reported that it had received no applications, proposals, or even informal inquiries regarding the reclassification of daytime hours from standard to off-peak. This mechanism is being discussed as a way to absorb South Africa's surplus solar energy instead of shutting it down, as reported by News24 last month.
NTCSA and the South African Photovoltaic Industry Association (Sapvia) stated at the end of July that they are collaborating on 'shaping daytime demand, including wholesale market mechanisms and price signals that incentivize daytime electricity consumption.' In simpler terms, the goal is to give consumers a reason to use energy when the sun is shining brightest so that solar farms do not have to curtail.
A working plan exists for only about five weeks, and expecting a tariff application submission in such a short timeframe is unlikely; however, this means the idea of pricing remains a subject of discussion between the operator and the industry body, without tariff approval from the regulator.
When asked about this, Nersa pointed to changes it has already approved. Khlebela reported that in August 2024, Nersa received an official proposal from Eskom via a retail tariff application to amend the distribution of time usage periods. Eskom proposed reducing the morning peak period from three hours to two, while simultaneously increasing the evening peak period from two to three hours (from 17:00 to 20:00). Additionally, Eskom proposed introducing standard hours on Sunday evenings, from 17:00 to 19:00 in winter and from 18:00 to 20:00 in summer.
Nersa approved these adjustments in February 2025, according to Khlebela, 'to better align with system requirements and customer needs.' However, this decision only changed the boundaries of the peak periods; it did not reclassify midday, which is still tariffed at the standard rate in Eskom's time-of-use tariffs—a change currently being discussed by Sapvia and NTCSA.
Reasons for Debt Growth
Sapvia noted that the number of commands to curtail solar generation has increased from approximately 100 per month at the beginning of this year to over 1000 per month, representing an increase of more than tenfold and overwhelming NTCSA's claims processing.
NTCSA now pays 100% of the estimated claim amount upfront, using operational data directly from the system operator's SCADA systems, and then conducts verification. According to NTCSA, it administers power purchase agreements for 117 projects totaling 10.1 GW and pays independent power producers approximately 45 billion rand annually.
The main reason lies in coal power. Eskom's coal plants cannot quickly ramp up or down capacity, forcing them to remain running at a minimally stable level during midday to guarantee power for morning and evening peaks when solar energy is unavailable. Hydro and pumped storage are adjusted first. Curtailing renewable producers is the last balancing tool available to the system operator.
Sapvia CEO Retabile Melamu stated in July that faster payment 'treats the symptom,' while a structural solution requires 'scale storage, market signals encouraging daytime consumption, and a grid designed around the actual energy balance.'
