NTCSA Pays IPPs for Curtailed Renewable Energy

• The NTCSA has been paying IPPs for curtailed renewable energy due to increased curtailment events.
• Curtailment is a necessary measure to balance the grid, but its frequency and volume have tripled since last year.
• Deemed energy payments can impact IPPs' cash flow and financial obligations.
• The NTCSA's efforts to address the backlog in curtailment claims are ongoing.

This is very important because the system operator must at all times keep demand and supply in balance while maintaining system frequency close to 50Hz and keeping the network within its technical and security limits.

The National Transmission Company South Africa (NTCSA) has been paying independent power producers (IPPs) for curtailed renewable energy, a practice known as deemed energy payments. This phenomenon is not unique to South Africa, but it's becoming increasingly prevalent in the country due to the rapid growth of rooftop solar installations and the resulting fluctuations in electricity demand. The NTCSA estimates that 7,908MW of renewable generation is currently connected to the grid, with an additional 9,219MW of rooftop solar available. However, this surge in renewable energy has led to a significant increase in curtailment events, which have tripled since last year and may double or triple again in the next year or two according to Robert Futter, founder of Florion. The NTCSA's Weekly System Status Report reveals that it currently has 7,908MW of renewable generation connected to the grid, with a further 9,219MW of rooftop solar available.

The practice of curtailment is internationally accepted as a necessary measure to balance the grid. Generation curtailment occurs when the system operator instructs generators like renewable IPPs to limit their generation due to insufficient network capacity or temporary excess generation that could compromise system security. According to electricity pricing expert Deon Conradie, 'This is very important because the system operator must at all times keep demand and supply in balance while maintaining system frequency close to 50Hz and keeping the network within its technical and security limits.' The NTCSA's power purchase agreements with 117 renewable IPPs require it to pay for the energy that was available but not used due to curtailment instructions. This means that the NTCSA pays even though it doesn't receive any energy in return, a situation known as 'paying for nothing'.

The increased frequency and volume of curtailment events have significant implications for IPPs, who are entitled to deemed energy payments. These payments can impact the cash flow and financial obligations of IPPs, making it essential for lawyers advising clients with power purchase agreements in South Africa to be aware of this potential issue. The NTCSA's efforts to address the backlog in curtailment claims and finalise payments totalling R2 billion by the end of this month are a step towards easing the cash crunch faced by IPPs. However, the root cause of the problem – the rapid growth of renewable energy and resulting fluctuations in electricity demand – remains unresolved, making it crucial for stakeholders to develop effective grid balancing measures.

Lawyers advising clients with power purchase agreements in South Africa should be aware of the potential for increased curtailment events and resulting deemed energy payments, which may impact their clients' cash flow and financial obligations.

Source: Original reporting via Moneyweb