The concept of curtailment is not new. It has been applied in power purchase agreements under Eskom’s Renewable Independent Power Producer Programme, bid windows (BW) 1–6. It is a mechanism used to balance the supply and demand of energy via the national grid. This said, the definition of “curtailment” was amended for BW 4–6. The amendment saw the insertion of additional wording to exclude specific events or circumstances from the definition. The amended definition reads as follows:

“Curtailment means any instruction from the system operator to limit or reduce the energy output of the facility, but excluding, for the avoidance of doubt, any such instruction given when there is a constraint on the system due to planned or unplanned maintenance, refurbishment, modification, extension or development being carried out on or to the system” (exclusions).

Under BW 1–6, curtailment is included in the definition of “system event”, in terms of which the remedies or relief available to a curtailed IPP project include the right to claim for deemed energy payment, for the energy output which could have been delivered, but for the instruction to curtail. Despite this right to claim being available for curtailing, the trigger for deemed energy payment is subject to the unavailability of the grid due to the system event being in excess of the allowable grid unavailability period (AGUP). As such, if the unavailability period arising from the system event is less than the AGUP, no deemed payment could be claimed or be payable.

A 10% curtailment allowance

Whereas for BW 1–6 curtailment was uncapped and therefore a potential revenue loss for any seller of energy output, in BW 7 the introduction of the 10% curtailment as per the Addendum, creates a cap on curtailment. In addition, the AGUP concept, before a claim for deemed energy payments arises, has been deleted. The result is that IPPs are entitled to receive deemed energy payments (not subject to the AGUP) during a system event which includes a period of curtailment. The net effect is revenue loss arising from curtailment up to the 10% threshold, but a grid unavailability period for other system events is no longer applicable.

In addition to the above, according to the Addendum, Eskom notes the following regarding curtailment:

“i.  Curtailment is defined as the controlled reduction of the output of renewable energy plants as a system operator response to transmission capacity constraints.

1. When the grid limit is reached, any further increase of generation in the supply area leads to grid congestion. In such cases, and in order to remove the congestion, generation has to be reduced. Curtailment therefore maximises use of the existing grid and increase generation connection capacity…”

Accepting the Addendum and amendment to the definition of curtailment in the BW 7, the amended definition incorporates the exclusions. Mindful of paragraphs (i) and (ii) above, and given Eskom’s view on curtailment, it may become necessary to define the exclusions more precisely to avoid a situation where a claim is made, but for a wide interpretation of the exclusions to be followed and therefore, unintentionally, the curtailment instruction included in the exclusions listed. As a result, deemed payments are thus not payable.

That said, according to Eskom, within the provinces the benefits of curtailment are significant. Time will tell whether such optimism is well founded and whether the 10% curtailment right held by Eskom (in lieu of the removal of the AGUP) constitutes a similar or reduced risk for the various stakeholders involved in such transactions, or whether it will lead to a shift in risk appetite, requiring additional mitigations tools before IPPs decide to invest in IPP programmes