Price per kilowatt-hour is not revenue. It is the starting point for a calculation that most energy project models treat as an ending point, and the gap between the two is where projects that looked bankable on paper stop looking bankable in a lender’s credit committee.
The question that matters is not what the offtaker pays per unit. It is what the revenue stream actually looks like month to month – when power is delivered, what happens when it is not, how billing is calculated and by whom, and what the cashflow profile looks like during curtailment, outages, and seasonal variation. These are questions that get answered in the contract, but they need to be thought through well before drafting begins.
Curtailment: the cashflow risk nobody prices correctly at the start
Curtailment occurs when a generator is instructed to reduce or stop output despite being technically capable of producing. In South Africa, curtailment instructions can come from Eskom as system operator for grid stability reasons, from a municipality managing local network constraints, or from offtake agreement terms that permit the buyer to reduce take during periods of low demand or technical constraint.
The legal and commercial question is not whether curtailment will happen – in most South African energy projects of scale, it will. The question is who bears the revenue loss when it does. A curtailment provision that treats all curtailment as force majeure gives the generator no protection. A provision that distinguishes between system-driven curtailment, buyer-driven curtailment, and technical curtailment, and allocates each differently, does. The difference in revenue certainty over a fifteen or twenty-year project term is substantial enough to affect whether a lender will finance it and on what terms.
The shape of supply problem
Lenders and project finance committees care less about annual energy output than about the profile of that output over time. A solar project produces nothing at night and reduced output in winter. A wind project has a capacity factor that varies materially by site and season. The question for revenue modelling is not what the project will produce annually but whether the delivery profile matches the payment profile in the PPA – and whether the billing mechanism accurately reflects what was actually delivered.
PPA billing clauses that rely on estimated generation rather than metered output create disputes. Clauses that rely on a single metering point rather than accounting for transmission losses between generation and delivery create disputes. Clauses that do not define who is responsible for reading, validating, and reconciling meter data create disputes. These are not obscure edge cases. They are the most common sources of post-commercial-operations-date disagreement in South African energy projects, and they are entirely preventable if the billing logic is specified clearly before the contract is signed.
Outage and availability: what the contract needs to say
A PPA that does not clearly define what constitutes an availability event, what performance standards the generator must meet, and what remedies apply when those standards are not met leaves both parties exposed to arguments that could have been resolved at drafting stage. For the generator, an availability clause that is too aggressive creates liability risk that a lender will not underwrite. For the offtaker, an availability clause that is too loose creates the risk of paying for capacity that is not reliably available.
The right outcome is a set of performance and availability provisions that reflect the realistic operating parameters of the technology, the site-specific conditions, and the maintenance regime – not provisions copied from a template that was designed for a different technology in a different market. EPC and OEM contractors need to be involved in defining these parameters before the PPA is finalised, not after, because what the contract promises needs to be what the equipment can actually deliver.
Municipal offtakers: a specific cashflow risk
For projects selling power to municipalities rather than directly to Eskom or large corporates, there is an additional revenue risk layer that receives less attention than it deserves. Municipal payment reliability in South Africa varies considerably, and a PPA with a municipality that has a weak payment history or structural financial difficulty transfers that credit risk directly to the generator and, by extension, to the project’s lenders.
Security mechanisms – escrow arrangements, payment guarantees, step-in rights for lenders if the municipality defaults – need to be negotiated into the agreement as standard, not as additions that the generator asks for and the municipality resists. The municipalities that will be meaningful players in the post-ERA energy market are the ones whose procurement frameworks and financial positions can support the contractual structure that a bankable project requires. Identifying which municipalities those are, before a development budget is committed to a site that depends on one of them, is a commercial and legal question that needs to be answered early.
Caveat Legal advises IPPs, off-takers and project finance teams on PPA structuring, curtailment risk allocation, and revenue and billing clause design. If your project model has a revenue number that does not account for curtailment, seasonal variation, and billing disputes, that is worth testing before a lender does it for you.
