Private renewable energy producers who sell electricity directly to large consumers, such as data centers, and deliver it through the grid, do not receive regulated compensation if the grid operator disconnects them due to excess generation.
Currently, this gap has not led to financial losses: according to the South African Photovoltaic Industry Association (Sapvia), the more than tenfold increase in curtailment notices this year has only affected state-funded projects.
Sapvia reported in July that the number of curtailment orders for Independent Power Producers (IPPs) increased 'from about 100 per month at the beginning of this year to over a thousand per month.'
When a journalist asked how many of these affected projects were private contracts or power purchase agreements, Symphiwe Khuluze, technical and policy manager at Sapvia, told TechCentral: 'As far as we know, all these curtailment notices related to Section 34 projects (state-funded). None applied to private consumption or power purchase generation.'
Gavin Herford, acting CEO of the National Transmission Company of South Africa (NTCSA), stated last week: 'We had a particularly tough time in the winter of 2026 when we observed curtailment up to 3 GW on a single day.'
He made this in the context of Minister of Energy Kgosiyenso Ramakgopo's announcement of a proposed definition for a 4.6 GW battery storage and a 5 GW gas turbine. These batteries are intended to charge from electricity that would otherwise be curtailed.
Two types of producers
State producers are compensated when they are instructed to stop through payments for expected energy for the capacity they could have generated. The justification for the energy regulator's decision regarding the NTCSA's curtailment request in 2025 noted that 'Section 34 IPPs receive payments for expected energy for curtailed energy from NTCSA,' but private generators did not receive this compensation.
Instead, as stated in the document, 'risks and costs associated with lost production due to curtailment are borne in contracts between private generators and their energy consumers.' This decision provided some protection to private producers, but only regarding curtailments caused by grid overload. Under the mechanism proposed by NTCSA and approved by Nersa, 'the consumer's bill will be credited with curtailed energy as if the IPP supplied it.' This approval is valid from April 1, 2025, to March 31, 2028, and the mechanism can only be used for connecting additional generating capacity in the Eastern Cape and Western Cape.
However, 'curtailment caused by surplus supply' is excluded. For such cases, the regulator specifies the compensation method for private producers as 'by buyer or according to a bilateral power purchase agreement (PPA)'—that is, by the buyer or what is stipulated in a bilateral power purchase agreement.
NTCSA stated that curtailment 'is caused either by network constraints limiting energy transmission or periods when total energy supply exceeds demand, especially during low-demand periods, such as midday.' However, the company did not specify how this year's instructions are distributed between these two reasons.
Khuluze noted that IPPs operating under private PPAs 'do not have a contractual mechanism for expected energy payments.' Matthew Cruz, an energy analyst and senior business developer at Jaltech and a member of the board of the South African Independent Power Producers Association, stated: 'For private power purchase deals, it is determined by the supply contract who bears the costs and the applicable compensation framework.'
Even compensated producers felt the pressure. According to NTCSA, the volume of claims under review and settlement was about 2 billion rand in mid-June, and decreased to 1.5 billion rand by July 24, including new claims received after June 14. Processing returned to normal operational levels on August 31.
Cruz added: 'For IPPs, reduced production and delayed compensation put pressure on cash flow while debt repayment and operating expenses continue.'
The question in the contract
Robert Marston, data center director at NTT Data South Africa, reported: 'NTT Data has not been directly affected by grid curtailment this year. However, who bears the financial costs when renewable generation is curtailed depends on the terms agreed upon between the IPP and the data center operator. Depending on the agreement, the costs may fall on either party or be shared between them.'
He emphasized that 'private IPP agreements must account for potential curtailment, as well as changes in tariffs, regulations, and other factors that may affect the commercial viability of the deal. Ultimately, both parties need sufficient protection: data center operators require predictable energy costs, and IPPs need assurance of return on investment.'
If curtailment due to surplus supply reaches private projects, data centers will feel it in their power purchase credits—renewable energy credited against their consumption. Cruz explained: 'If the affected IPP supplies the data center through power purchase, the available renewable energy credit for offsetting its consumption decreases unless the IPP supplier provides replacement generation.' The data center still consumes energy from the grid, but a smaller power purchase credit 'reduces savings and renewable energy coverage.'
Cruz, whose firm deals with battery system financing, believes that local batteries are one possible solution. He noted that 'batteries installed directly on-site improve the data center's or business's consumption profile, allowing it to absorb more renewable energy when available, increasing the amount of renewable energy it can contract for.' Furthermore, they reduce consumption during expensive peak tariff periods and lower bills for peak consumption based on the facility's highest load measured in kiloamperes.
He clearly defined the limits of capability: 'Batteries cannot restore energy curtailed at the generator, but they can increase the value of available energy.'