NERSA decision unlocks wind generation in Eastern and Western Cape

Congestion curtailment is a regulatory mechanism that empowers the NTCSA to restrict the amount of power exported by generators at times when the transmission infrastructure is unable to accommodate all of the electricity that is being generated. This is done to free up more capacity on the transmission network for other generators to feed their generated power into the grid or to maintain system stability.

In practice, this approval means that the NTCSA will be able to restrict the power output of generators with a view to unlocking additional generation capacity in circumstances where the grid is constrained. The approval, effective from 1 April 2025 to 31 March 2028, is presently limited to unlocking additional wind capacity in the Eastern and Western Cape.

The NTCSA is required to report to NERSA on the congestion curtailment’s implementation every six months over this three-year period, including providing the regulator with information on the capacity connected to the grid through this regime; curtailment level implemented; records of the curtailment incidents; costs; progress on systems and ancillary service projects.

NERSA's decision will resolve transmission grid capacity constraints in the Eastern and Western Cape, which are rich in both solar and wind power. It follows the failure of the sixth and seventh competitive bid windows under the Renewable Energy Independent Power Producer Procurement (REIPPP) scheme to secure new wind energy projects due to grid capacity constraints in the Eastern, Northern and Western Cape. 

Expanding the use of the curtailment framework to other provinces will require further approval from NERSA. Generators which are subjected to curtailment by the NTCSA will be compensated on a limited basis under the approved Multi-Year Price Determination 6 – the methodology developed by the regulator to evaluate the price adjustment applications received from state-owned energy provider, Eskom.

This is a significant development for the energy sector, particularly wind power generators and those interested in building wind farms, because the framework will unlock investment opportunities in the Eastern and Western Cape – two provinces with the biggest wind energy potential in the country. By resolving the issue of grid capacity constraints in these provinces, the approved curtailment mechanism

provides businesses with reasonable certainty that the grid will have capacity to accommodate their generated wind power.

Prior to the approval of NTCSA's congestion curtailment framework there was a curtailment mechanism in place to address grid congestion within the context of renewable energy projects under REIPPP. However, there was no curtailment mechanism for private sector renewable energy projects.

For REIPPP projects, the central purchasing agency (CPA) compensated generators for energy output that was restricted due to congestion curtailment. Under REIPPP bid windows 1 to 4, the CPA agency paid deemed energy payments in accordance with the allowable grid unavailability period (AGUP) in instances when the AGUP was exceeded.

Likewise, under the fifth and sixth competitive bid windows under REIPPP, the CPA made energy payments subject to ‘allowable grid unavailability and curtailment’ (AGUC) in circumstances where the AGUC was exceeded. However, for the seventh bid window under REIPPP the AGUP and AGUC regimes were replaced by an allowance of 10% curtailment, and once the limit is exceeded, the affected generators would be compensated.

In contrast, within the context of private sector projects, the CPA did not compensate generators for restricting the output of their power generation.

Following NERSA's approval, the NTCSA's congestion curtailment framework will apply to both REIPPP and private sector projects, including existing and future projects. This is a significant development in that it formalises a curtailment mechanism for both REIPPP and private sector renewable energy projects. It also provides a regulatory basis for curtailment, which was previously lacking. Overall, this creates a predictable environment for investments in REIPPP and private sector projects.

Co-written by Njabulo Gumede of Pinsent Masons.