NTCSA is paying more to buy nothing …
· Citizen
Independent power producers (IPPs) celebrated when Eskom’s transmission subsidiary started processing the backlog in curtailment claims that has severely impacted their cash flow.
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The utility expected to finalise payments totalling R2 billion by the end of this month.
The backlog arose following a sharp increase in curtailment instructions given to IPPs in April and May, according to the National Transmission Company South Africa (NTCSA).
NTCSA curtailment
Moneyweb has established that not only has the number of curtailment events increased exponentially since at least April, but also the volume of energy curtailed – which may have an impact on its finances that may be passed on to either consumers or taxpayers.
According to the NTCSA, the curtailment referred to in this context is a necessary measure to balance the grid.
Generation curtailment is indeed an internationally accepted practice.
Curtailment
It occurs when the system operator instructs generators like renewable IPPs to limit their generation because there is insufficient network capacity to transport all available generation, or because available generation temporarily exceeds what the system can accommodate while maintaining system security, says electricity pricing expert Deon Conradie.
“This is very important, because the system operator must at all times keep the demand and supply in balance while maintaining system frequency close to 50Hz and keeping the network within its technical and security limits,” he says.
There is little room for variance, or equipment might get damaged and the grid may collapse.
Agreements
In terms of its power purchase agreements with 117 renewable IPPs, the NTCSA must pay for the energy that was available but not used due to the instruction to curtail – so-called deemed energy.
This applies to the IPPs that are part of government’s renewable energy procurement programme. The tariffs are the same as they would have been if there was no curtailment and the energy was in fact generated and supplied to the NTCSA.
In other words, the NTCSA pays even though it doesn’t get anything in return – it pays for nothing.
NTCSA’s renewable generation
According to the NTCSA’s latest Weekly System Status Report, it currently has 7 908MW of renewable generation connected to the grid.
It estimates that a further 9 219MW of rooftop solar is available.
The availability of rooftop solar in particular has increased dramatically since the beginning of the year, when it was still estimated at 7 363MW.
Eskom’s plan to increase demand
Rooftop solar reduces demand for electricity from the grid during daylight hours – which has caused a huge drop in demand during the day when the sun shines, resulting in increased curtailment to maintain the system balance.
Eskom is trying to address this by increasing demand through special pricing agreements for large power users and reduced tariffs during the day to encourage demand, but this is not yet in operation.
According to the NTCSA the need for curtailment is worse during winter, when it must keep more dispatchable generation like coal-fired power stations online to cope with the higher peak at night.
A need to curtail curtailment?
The number of renewable curtailment events increased from seven in April last year to 22 in April this year. That is about three times. The amount of energy curtailed, however increased almost nine times.
This is not peculiar to South Africa and is seen in many international markets as well.
While an increase from last year should be expected as the number of IPPs connected to the grid and people installing rooftop solar grows, it is clear that the NTCSA was also surprised by the sudden jump in curtailment.
“We experienced a sharp rise in the volume and complexity of curtailment related claims during April and May 2026,” it said.
Curtailment to increase
Robert Futter, founder of the energy intelligence service Florion, says it may double or even triple in the next year or two.
Conradie says the important question is not whether curtailment should occur, but:
- Whether it is being undertaken at the lowest reasonable system cost;
- Whether the resulting compensation costs are properly accounted for; and
- Who ultimately bears those costs – NTCSA/Eskom, electricity consumers through future regulated charges; or, if the cost cannot be recovered from the electricity system, the fiscus?
Moneyweb asked the NTCSA: “Is the budget for curtailment compensation still adequate? If not, what adjustments have been made and how will it be funded?”
It replied, saying: “The budget is adequate to cover curtailment payments to IPPs, as it was compiled on the basis that IPPs would be compensated for power generated.”
This creates the impression that the NTCSA uses the same budget for energy purchases and deemed energy – without distinguishing which of the two the money was spent on.
This is problematic, because the energy is purchased on the assumption that the NTCSA will be able to sell it again.
Deemed energy costs in context
Deemed energy cost does not generate any income and must be clearly identifiable and capable of scrutiny by customers and the regulator.
Buying deemed energy will result in lower sales volumes.
If the sales assumptions on which the NTCSA’s revenue allocation was based are proven wrong, it may try to recover the lost income through the regulatory claw-back mechanism – which will add to future tariff increases.
Conradie says the financial consequences for both the NTCSA and electricity consumers depend on how the resulting deemed-energy and curtailment costs are treated within the regulatory framework as it could further increase the unit cost of energy, which may also be reflected in future tariffs.
Costs
Notably, the NTCSA is only allowed to recover prudently incurred cost from customers through tariffs.
While curtailment is, in general, necessary and justifiable, the system operator does have certain choices to make that may determine whether the spending is prudent or not.
To limit the cost, it could, for example, curtail the cheapest IPPs first and the very expensive ones last.
The NTCSA pays about R45 billion per year to IPPs for electricity. With R2 billion in curtailment claims seemingly generated in just a few months and the increase in solar generation expected to keep on growing, this may become a significant factor in managing renewable energy costs.
Transparency
Curtailment decisions will have to be transparent to enable the regulator and the public to ensure that consumers don’t pay for inefficiencies.
Futter says there is a need to get clarity about the risk allocation of curtailment for future government procurement as well as IPPs that sell to private sector clients to sustain the growth in private sector generation.
He says currently the risk is shared between the generator and the private sector client or trader. How it must be apportioned in future is a topic of discussion within the industry – and Eskom must provide guidance regarding its curtailment modelling, he adds.
This article was republished from Moneyweb. Read the original here.