- No deemed revenue protection for curtailed wheeling energy.
- Risk allocation differs from REIPPPP standard PPAs.
- Bankability of new private wheeling projects may be affected.
The Regulatory Gap in Wheeling Contracts
South Africa's private wheeling framework currently offers no regulated compensation mechanism when the grid operator curtails generation due to midday oversupply. This means Independent Power Producers (IPPs) and their offtakers absorb the full financial loss when solar energy is abundant but demand is low, a scenario becoming increasingly common as rooftop and utility-scale PV capacity grows.
Unlike traditional Power Purchase Agreements (PPAs) under the REIPPPP, which include deemed generation clauses, bilateral wheeling contracts rely on bilateral negotiation. Without a standard grid code provision for curtailment payments, the risk sits entirely with the private parties, potentially undermining the bankability of new projects.
- No deemed revenue protection for curtailed wheeling energy.
- Risk allocation differs from REIPPPP standard PPAs.
- Bankability of new private wheeling projects may be affected.
Why Midday Curtailment Is Rising
The surge in embedded generation — particularly rooftop solar — has created a pronounced 'duck curve' effect where midday supply frequently exceeds operational demand. Eskom, as system operator, must maintain grid stability by balancing supply and demand in real time, leading to instructions for generators to reduce output or disconnect entirely during peak solar hours.
This operational reality clashes with the commercial assumption that wheeling electrons will always find a path to the offtaker. When the grid says 'stop', the contractual obligation to deliver often remains, but the revenue to pay for it vanishes, creating a structural mismatch between grid physics and contract law.
- Embedded generation growth drives midday oversupply.
- System operator prioritises grid stability over commercial contracts.
- Physical curtailment does not trigger automatic financial settlement.
Impact on SMEs, IPPs and Energy Buyers
For SMEs procuring wheeled power, the hidden risk is budget volatility: contracted capacity may not translate to delivered energy during curtailment events, yet demand charges or take-or-pay clauses could still apply. IPPs face revenue uncertainty that complicates debt service and investor returns, potentially cooling appetite for new wheeling projects unless contracts explicitly price this risk.
Job seekers in the renewable energy sector should note that project finance roles increasingly require modelling curtailment scenarios, while legal and commercial teams need expertise in drafting force majeure and curtailment-sharing clauses. The market is moving toward bespoke risk allocation, creating demand for specialists who can bridge grid code compliance and contract design.
- SMEs face potential take-or-pay exposure during curtailment.
- IPP revenue models must incorporate curtailment probability.
- Growing demand for curtailment-aware contract structuring skills.
Practical Steps for Market Participants
Buyers and sellers should immediately audit existing wheeling agreements for curtailment provisions — specifically, who bears the cost of deemed energy, how force majeure is defined, and whether grid code compliance obligations override commercial terms. Engage legal counsel to stress-test contracts against NERSA and Grid Code amendment trajectories.
Developers pitching new projects must build curtailment scenarios into financial models from day one, presenting lenders with sensitivities for 5%, 10%, and 15% annual energy loss. Proactively negotiating revenue-sharing mechanisms for curtailed energy — even if not yet regulated — signals sophistication and protects both parties when the grid operator acts.
- Audit contracts for curtailment and force majeure clauses.
- Model curtailment sensitivities in project finance proposals.
- Negotiate bespoke revenue-sharing for curtailed energy.
- Monitor NERSA and Grid Code regulatory developments.
This Connect analysis references reporting or documentation from TechCentral. We add our own South African business context rather than republishing the original article.
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