South African IPPs Demand Compensation Amid Eskom's Curtailment Measures

Independent Power Producers (IPPs) in South Africa are pushing for equitable financial redress in light of revenue losses incurred from curbing their electricity supply to the national grid, as mandated by Eskom, the state-owned utility company. This demand for compensation follows Eskom's proposal to the country’s energy regulator, aiming to implement a compensation mechanism for up to 10% of curtailed output.

The transmission infrastructure constraints, marked by insufficient pylons and high voltage lines, have created bottleneck scenarios in Eskom's transmission system, necessitating cuts in the supply. Eskom has acknowledged that these curtailment activities form part of a suite of regulatory reforms intended to liberalize Africa's largest power market.

SOLA Group, a prominent private power developer, reported significant curtailment of its Lichtenburg solar PV plants on the request of Eskom. In specific instances, the output was slashed by as much as 80%, resulting in the generation of only 20 MW per day against a possible output of just over 100 MW for each plant. The Lichtenburg plants are responsible for supplying power to the mining company Tronox, accentuating the impact of such curtailment on industrial operations.

Eskom's strategies contend that curtailing renewable energy is a financially more viable option compared to the colossal costs associated with upgrading the grid to accommodate the same quantum of renewable supply. This curtailment is aimed at alleviating some of the grid pressure, theoretically unlocking around 3,470 MW of grid capacity.

In the wake of Eskom's submission, the National Energy Regulator of South Africa (Nersa) released a draft policy in July to tackle the congestion curtailment based on Eskom's application. The draft seeks to categorize the curtailment as a "constrained ancillary generation service," which would allow for precise formulae to compensate renewable energy plants affected by grid strains.

Kilian Hagemann, CEO of G7 Renewable Energies, highlights the nuance and potential in this policy, suggesting that judiciously curtailing IPPs offering lower tariffs could further reduce the economic impact on consumers, rather than implementing across-the-board curtailments.

Eskom, which achieved its first continuous electricity provision in over two years, has indicated that it intends to adopt congestion curtailment measures routinely from 2026. Furthermore, as the grid integrates more renewable energy projects, the levels of curtailment are projected to rise.

The South African energy sector now stands at a crossroads, weighing the immediate benefits of curtailing IPPs against the long-term vision of a robust, renewable-inclusive grid. Ensuring fair practice and compensation for IPPs is a critical piece of this strategic puzzle, as South Africa endeavors to harness its renewable energy potential without throttling the economic viability of its independent producers.