South Africa’s solar boom leaves Eskom with $242.3 million bill   

South Africa’s rapid expansion of solar power is creating an unexpected financial burden for Eskom, the state-owned power utility, which expects to pay R4 billion ($242.3 million) this financial year to renewable energy producers for electricity they are instructed not to generate. The payments are rising as rooftop solar installations and independent power projects add to electricity supply during daylight hours. 

Keith Bowen, senior manager of market operator at the National Transmission Company of South Africa (NTCSA), which remains part of Eskom, disclosed the projected cost during a panel discussion hosted by consultancy Cresco and law firm Fasken in Sandton. He warned that the bill could increase as more solar capacity connects to the grid.

Solar creates new costs 

The payments, known as deemed energy, compensate solar and wind farms for electricity they could have supplied but were instructed to withhold to prevent excess generation. Eskom must pay qualifying independent power producers as though the electricity had been delivered, while 

losing the revenue it could have earned from selling that power. 

The problem is becoming more pronounced as households and businesses generate more of their own electricity during the day, reducing demand for Eskom’s supply. At the same time, the utility cannot simply shut down its coal-fired power stations because they must be available when solar generation falls and evening electricity consumption increases. 

Electricity pricing expert Deon Conradie warned that consumers could ultimately absorb the additional costs through higher tariffs. Although R4 billion ($242.3 million) remains relatively small compared with the R383 billion ($23.2 billion) the National Energy Regulator of South Africa (Nersa) allows Eskom to recover from customers, he said the expense could grow rapidly.

Diesel spending offers warning 

Conradie pointed to Eskom’s diesel expenditure as a warning of how quickly operating costs can escalate. In the 2018 financial year, the utility spent about R320 million ($19.4 million) on diesel to operate its open-cycle gas turbines during peak demand, before spending climbed to nearly R24 billion ($1.4 billion) in 2024. 

The turbines were designed to provide additional electricity when demand rises, but prolonged use to limit load shedding pushed costs sharply higher. Conradie fears renewable energy curtailment could follow a similar pattern as more solar installations come online and additional utility-scale projects enter the market.

Investors face revenue uncertainty 

The financial exposure also extends to renewable energy investors and lenders. Eskom’s obligation to compensate producers applies to projects procured under the government’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), while arrangements involving private electricity buyers depend on individual contracts. 

Olga Suchkova, associate director at Cresco, said curtailment provisions have become central to project financing because lenders need certainty about revenue before committing capital. Mamoso May, CEO of Artemis Group Holdings, said the issue is increasingly influencing investment decisions and transactions involving existing renewable energy assets. 

Private-sector agreements have no uniform approach to allocating curtailment risks, leaving the outcome largely dependent on negotiations between buyers and power producers. Danielle van der Vaart, a partner at Fasken, said parties are now paying closer attention to the issue, which was rarely anticipated when many renewable energy contracts were signed five or 10 years ago.

Storage and gas offer options 

Rob Futter, director and advisory partner at Cresco, said the timing of curtailment matters because electricity prices can vary throughout the day. He urged the NTCSA to disclose more information about its instructions, arguing that greater transparency would help investors assess whether generation restrictions are being applied fairly. 

Additional gas-fired power stations could help balance electricity supply because they can increase or reduce generation quickly. However, South Africa’s latest attempt to procure new gas capacity failed to resolve uncertainty over fuel supply. Battery storage offers another option, although significant additional capacity is not expected for at least two years. 

Bowen also proposed lower electricity tariffs during daylight hours to encourage consumers to shift consumption away from evening peaks and absorb excess solar generation. However, he warned that securing Nersa approval for changes to the tariff structure could take up to 10 years. 

He also suggested operating coal-fired power stations more flexibly, although doing so carries maintenance risks. Eskom previously adjusted output at its Majuba plant to prioritise cheaper electricity from other stations during periods of low demand, but repeated changes in generation damaged equipment not designed for that operating pattern.