South Africa’s renewable energy independent power producers (IPPs) are facing a new and rapidly escalating financial risk – and it has nothing to do with the wind dropping or the sun going behind a cloud.
It is curtailment: instructions from Eskom’s System Operator to dial back output that IPPs stand ready to deliver, and for which they are contractually entitled to be paid.
Developers, owners and investors in projects procured under the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) report that curtailment has risen sharply in 2026. According to these sources, the volume of energy curtailed in the first six months of the year was roughly an order of magnitude higher than in the whole of 2025.
The financial consequences are material. Some IPPs report project revenues running about 9% below budget in 2026 – a shortfall they attribute both to the energy they were instructed not to generate and to the lengthening delays in being reimbursed by Eskom for it.
How curtailment is supposed to work
Under the “take-or-pay” power purchase agreements (PPAs) that underpin REIPPPP, Eskom is obliged to reimburse IPPs for the revenue lost when their output is curtailed. The principle is sound: a generator that is contracted and stands ready to deliver energy, and is then instructed not to, should not carry the cost of the decision taken to curtail output.
In practice, the process is demanding. After a curtailment instruction, the affected IPP must lodge a claim with Eskom within 48 hours, supported by documentation substantiating the energy that would otherwise have been delivered. Because that energy was never produced, the quantity has to be estimated from real-time wind speed and solar irradiance measurements, and adjusted for technical losses, to model what would have reached the grid at the point of connection.
Eskom then evaluates each claim through a technical and financial review before advising its determination – a process that IPPs say was historically completed within three to four months, and the outcome generally accepted. Increasingly, however, it is taking far longer, with delays of up to a year now being reported. Eskom’s practice of calling for further information, often slow to arrive, adds to the lag.
A backlog approaching R1bn
More frequent curtailment and slower reimbursement have together created a cash flow squeeze that IPPs describe as severe. The backlog of curtailment payments owed by Eskom is, according to industry sources, measured in hundreds of millions of rands and approaching R1-billion.
At project level, the effect is magnified down the income statement. A reduction of 9% to 10% in monthly revenue translates into a far larger percentage reduction in net cash generated once largely fixed operating and finance costs are met. That, in turn, erodes the cash flows on which IPPs depend to service their debt – and shareholders are already reporting concern about declining dividends.
The issue does not stop at the project gate. A major South African commercial bank that finances both REIPPPP projects and private wheeling, trading and behind-the-meter renewable energy projects has sought to understand how curtailment works in practice. Its concern is the effect on the margins, cash flow and debt service cover ratios of the projects it has financed, and on borrowers’ ability to meet their obligations.
That concern is most acute for the later procurement rounds. Projects awarded under Bid Windows 4, 5, 6 and 7 were contracted at substantially lower tariffs than the early Bid Window 1, 2 and 3 projects, leaving them with much thinner margins and far less headroom to absorb lost revenue and delayed payments.
Why curtailment is rising
The increase in curtailment is not in itself evidence of anything improper. A range of plausible and largely structural factors is at work, several of them reflecting welcome developments in the wider electricity system.
On the supply side, there are periods of generation overcapacity – currently sufficient for several Eskom coal-fired units to be placed into cold reserve. On the demand side, the picture is one of weakness: demand destruction as energy-intensive users such as smelters scale back or shut down, and a gradual decline in the energy intensity of the economy as steeply rising electricity prices push customers towards energy efficiency and alternatives.
At the same time, the volume of competing energy keeps growing – from additional REIPPPP capacity, Eskom’s own renewable ambitions, traditional and virtual wheeling, trading and a rising tide of behind-the-meter self-generation.
Network constraints compound matters: transmission and distribution nodes can become overloaded at particular times of the day, while grid availability is reduced by faults and maintenance. And there is the technical reality that coal and nuclear units cannot ramp up and down quickly enough to follow the variability of wind and solar generation.
Each of these is…
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