Curtailment, conflicts of interest and cash flow: Eskom is tightening its grip on renewable energy producers, writes Chris Yelland.

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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 independent power producers (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 R1 billion

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 Windows 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 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 a legitimate reason to curtail. The difficulty lies not in the fact of curtailment, but in how it is decided, applied and paid for.

The transparency problem

The central concern raised by IPPs is the opacity of the curtailment process itself. The methodology Eskom uses to set the merit order, level, frequency and targets for curtailment and reimbursements is, they say, far from transparent. IPPs cannot readily establish why particular projects are curtailed or face delayed reimbursements, in what sequence, or on what basis.

That opacity feeds a more serious suspicion: that curtailment and reimbursements may not always be applied in a fair and non-discriminatory manner. Some IPPs suspect that the older Bid Window 1, 2 and 3 projects – which have higher tariffs in their PPAs – may face delayed reimbursements more heavily than the cheaper later-round projects. Whether or not the data bears this out, the inability to test the proposition is itself a problem.

A conflict of interest at the heart of the system

The reimbursement delays raise similar questions. The lengthening of determination times from a few months to as long as a year may have entirely benign causes: a sharp rise in the volume and frequency of claims, the loss of experienced staff and skills, more rigorous scrutiny, or simple administrative inefficiency and red tape. But it may equally reflect Eskom’s own financial and cash flow constraints – or, less charitably, unstated strategic considerations that serve Eskom’s commercial interests.

This is the crux of the matter. Eskom is at once the System Operator that determines the merit order and instructs curtailment, the counterparty obliged to pay for it, and South Africa’s dominant generator with its own fleet of power stations and growing renewable ambitions through the newly launched Eskom Green. It is, in effect, setting and refereeing the rules of a game in which it is also the largest player, with a direct commercial interest in the result.

No amount of good faith can resolve a conflict of that structure.

The case for independent oversight

The logical remedy is independence. Given Eskom’s conflicting roles, it should arguably fall to the National Energy Regulator of South Africa (Nersa), as the independent regulator, to define the curtailment methodology and set the rules through a process that is clear and verifiable to every participating generator, and for a truly independent Transmission System Operator to determine the merit order and implement.

The PPAs are themselves part of the weakness. Eskom’s response times to communications are reported to be unsatisfactory, and the timelines and methodology for reimbursement are not adequately specified in the agreements between Eskom and the IPPs. This is a contractual gap that should be closed in future REIPPPP PPAs, so that compensation obligations are clear, time-bound and enforceable rather than left to discretion.

The bigger picture

Curtailment is not going to go away. If the economy remains weak, if electricity prices keep rising in real terms, if demand destruction continues, and if alternative energy keeps growing – through REIPPPP, Eskom Green, traditional and virtual wheeling, trading and behind-the-meter generation – then the frequency and magnitude of curtailment in take-or-pay REIPPPP projects will continue to climb.

That points to a deeper structural shift. South Africa is moving from a system built around a single, centrally controlled monopoly generator to a diversified and distributed one with many participants. Such a transition demands far higher levels of transparency and coordination if energy flows are to be optimised and curtailment – with the waste of clean energy and money it represents – is to be minimised.

For now, the curtailment being felt is largely confined to public-sector REIPPPP projects. But the same dynamics will increasingly bear on private wheeling, trading and behind-the-meter projects as the market deepens.

How curtailment is governed, and who governs it, is therefore not a narrow contractual dispute between Eskom and a handful of IPPs. It is a test of whether South Africa can build a diversified electricity market that investors, financiers and generators are able to trust.

Chris Yelland is the managing director of EE Business Intelligence.

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