South Africa is paying renewable energy producers hundreds of millions of rand to stop generating, and no rule anywhere in the electricity rule book governs how that money is recovered or who ultimately carries it.

That is according to energy regulator Nersa, which told TechCentral that the framework meant to manage the country’s shift to a competitive wholesale electricity market does not deal with curtailment compensation at all.

Curtailment is the instruction to a wind or solar plant to stop generating because the system cannot absorb its output. South Africa’s power purchase agreements compensate producers for energy they stood ready to deliver, so every instruction carries a cost.

The National Transmission Company of South Africa (NTCSA) said on 24 July that curtailment claims under verification and settlement had fallen from about R2-billion in mid-June to R1.5-billion, and that it expected to finish paying approved claims by the end of August. It has not said whether it met that deadline.

Nersa currently has out for public comment a transitional generation pricing and vesting contract framework, intended to manage the move to a competitive market. It is the natural home for questions about how generators are paid during the transition. Curtailment compensation is not in it.

The framework “does not establish a separate daytime electricity pricing mechanism, nor does it prescribe a methodology for the recovery of curtailment compensation costs”, said Nersa head of communication Charles Hlebela. It recognises time-of-use periods only in the design of downstream vesting arrangements, where hedged volumes may be allocated across peak, standard and off-peak periods and settled against day-ahead market prices. That is a hedging mechanism, not a pricing policy.

The rule book has not caught up

“Curtailment compensation is not specifically addressed in the current transitional generation pricing and vesting contract framework,” Hlebela said. “Accordingly, any methodology for determining or recovering compensation associated with generation curtailment would need to be addressed through the appropriate market, trading, system-operation or tariff instrument, rather than being inferred from the vesting contract provisions.”

In other words, the money is flowing but the rule book has not caught up. TechCentral reported in July that the backlog had reached R2-billion, with some producers facing revenue shortfalls of around 9%. The consultation on the vesting framework closed on 4 August.

Nersa has also said it has received no application, proposal or even informal approach on reclassifying daytime hours from standard to off-peak – the mechanism now being discussed as a way to soak up South Africa’s surplus solar power rather than switching it off, as reported by News24 last month.

The NTCSA and the South African Photovoltaic Industry Association (Sapvia) said in a statement at the end of July that they are collaborating on “demand-side day shaping, including wholesale market mechanisms and price signals that stimulate daytime electricity demand” – in plain terms, giving consumers a reason to use power when the sun is at its strongest, so that solar farms need not be curtailed.

The workplan is barely five weeks old and no tariff application would be expected this soon, but it means the pricing idea remains a conversation between an operator and an industry body, with nothing before the regulator that approves tariffs.

Asked about it, Nersa pointed instead to changes it has already approved. “Nersa received a formal proposal from Eskom in August 2024, through the retail tariff plan application, to amend the allocation of time-of-use tariff periods,” Hlebela said. “Eskom proposed reducing the morning peak period from three hours to two hours, while extending the evening peak period from two to three hours (5pm to pm). Eskom further proposed introducing standard hours on Sunday evenings, from 5pm to 7pm during winter and 6pm to 8pm during summer.” Nersa approved those adjustments in February 2025, Hlebela said, “to better align with system requirements and customer needs”.

But that decision moved the boundaries of the peak periods. It did not reclassify the middle of the day, which remains priced at the standard rate on Eskom’s time-of-use tariffs – the change Sapvia and the NTCSA are now discussing.

Why the bill is growing

Solar curtailment instructions rose from roughly 100 a month earlier this year to more than 1 000 a month, Sapvia said, a more than tenfold increase that overwhelmed the NTCSA’s claims process. The NTCSA now pays 100% of the estimated claim value upfront, drawing operational data directly from the system operator’s Scada systems and verifying afterwards. According to the NTCSA, it administers power purchase agreements covering 117 projects and 10.1GW, and pays independent power producers roughly R45-billion/year.

The cause sits with coal. Eskom’s coal units cannot ramp up and down quickly, so they must stay online at minimum stable levels through the middle of the day to guarantee capacity for the morning and evening peaks, when solar output is unavailable. Hydro and pumped storage are adjusted first. Curtailing renewable producers is the last balancing tool the system operator has.

Sapvia CEO Rethabile Melamu said in July that faster payment “addresses the symptom”, and that the structural answer requires “storage at scale, market signals that reward daytime consumption, and a grid that is planned around the generation mix we actually have”.