Policy Adjustment Clauses Are Now Standard in Solar Contracts — Here's What They Mean for You

If you signed a solar Power Purchase Agreement (PPA) or lease three years ago, your contract almost certainly does not contain a Policy Adjustment Clause (PAC). If you are signing one today — or renewing one — it almost certainly does. That shift is not a minor administrative detail. It is a fundamental rebalancing of long-term risk between solar developers and their commercial clients, and understanding exactly what you are agreeing to could be worth millions of rands over the life of your contract.

What Is a Policy Adjustment Clause?

A Policy Adjustment Clause is a contractual mechanism that allows the energy price or contract terms within a PPA or solar lease to be adjusted when a specified regulatory or policy event occurs. These trigger events typically include material changes to NERSA tariff structures, changes to Small-Scale Embedded Generation (SSEG) approval frameworks, shifts in wheeling fee methodology, municipal bylaw changes affecting grid-tied systems, or new licensing obligations introduced under legislation such as the Electricity Regulation Amendment Act (ERAA).

In plain terms: if the rules governing how your solar system connects to the grid, or how you are charged for the grid energy you still consume, change materially during your contract term, the PAC gives the developer the right — and sometimes the obligation — to re-price accordingly. Some clauses are narrow and specific; others are broad enough to capture almost any regulatory development. The difference matters enormously to your finance team.

Why PACs Are Now Standard — The Tariff Context

The mainstreaming of PACs is a direct response to an increasingly volatile tariff and regulatory environment. NERSA has approved an average electricity price increase of 8.76% for customers supplied directly by Eskom, with the new tariffs applying from 1 April 2026. Municipal bulk purchasers will implement their own tariff increases, averaging 9.01%, from 1 July 2026, in line with the Municipal Finance Management Act.

Critically, these increases are not the result of a clean, predictable determination. The 8.76% increase follows NERSA's correction of errors in its earlier tariff determination, which had initially set the rise at only 5.36%. South African electricity consumers faced a far steeper tariff increase than originally anticipated, following a court-mandated recalculation that could add R76 billion to Eskom's recoverable costs. Looking further ahead, in 2027/28, a further R23 billion will be recovered, maintaining an increase of 8.83% instead of the previously anticipated 6.19%.

For a solar developer pricing a 10- or 20-year PPA today, this level of regulatory unpredictability is simply uninsurable without contractual protection. PACs are their hedge. For you as the offtaker, they are a risk that must be carefully scoped and capped.

The Regulatory Layer That Makes PACs More Complex

The Electricity Regulation Amendment Act (ERAA), signed into law by President Cyril Ramaphosa in August 2024, came into force on 1 January 2025, with key aspects extending into 2026. One of the most profound shifts under the new framework is the move away from a state-controlled electricity monopoly toward a competitive energy market, with amendments aiming to unbundle Eskom's generation, transmission, and distribution functions.

This restructuring creates genuine legal ambiguity in long-term contracts signed today. Wheeling tariffs, grid access charges, and SSEG approval pathways could all shift materially as the National Transmission Company of South Africa (NTCSA) assumes its interim role and new market participants enter. Eskom's rule that all grid-connected solar PV systems must be registered and shifted to a specific tariff category has already attracted organised opposition, while Eskom continues to push for structured tariff changes to better manage the evolving electricity grid. Each of these developments is a potential PAC trigger.

What CFOs and Finance Directors Need to Examine Right Now

Whether you are evaluating a new solar contract or reviewing an existing one ahead of renewal or refinancing, the following questions are non-negotiable:

• What specific events trigger the clause? Insist on an exhaustive, closed list of trigger events rather than open-ended language like "material regulatory change." Broad drafting can allow re-pricing for reasons you would never have accepted at signature.
• Is there a price cap or collar? A well-drafted PAC should cap the maximum annual adjustment — typically linked to CPI or a fixed percentage above the approved NERSA tariff increase. Uncapped PACs are a red flag.
• Who bears the burden of proof? The developer should be required to demonstrate, in writing, that a triggering event has occurred and provide a quantified cost impact before any price adjustment is applied.
• What is the dispute resolution mechanism? Given the pace of regulatory change, disputes over PAC triggers are increasingly likely. Independent expert determination — not litigation — should be specified as the default resolution path.
• Does the clause apply symmetrically? If a regulatory change reduces the developer's cost base (for example, a reduction in wheeling fees or an SSEG approval simplification), the PAC should work in your favour too. One-directional clauses only serve the developer.

The BESS Dimension

Policy Adjustment Clauses carry extra weight in contracts that include Battery Energy Storage Systems (BESS). BESS-inclusive agreements are more capital-intensive for the developer, making them more sensitive to regulatory cost changes — particularly around time-of-use tariff structures and demand charge methodologies. As NERSA progressively restructures tariff categories under the MYPD6 retail tariff plan, the economics of peak-shaving and demand charge reduction can shift mid-contract. A PAC that does not specifically address BESS-related regulatory changes is incomplete for any agreement that includes storage.

What This Means for Your Investment Decision This Year

The presence of a PAC in a solar contract is not inherently negative — in a period of structural regulatory reform, some form of risk-sharing is legitimate and necessary for developers to continue deploying capital. The commercial question is always: who bears how much risk, under what conditions, and with what limits?

For commercial and industrial energy users making solar and BESS decisions in 2026, the practical implication is straightforward: contract legal and financial review has become as important as the technical and engineering assessment. A PPA priced at R1.20/kWh with a broad, uncapped PAC may cost you significantly more over ten years than one priced at R1.35/kWh with a tightly drafted, capped, and symmetrical clause.

Any credible solar developer — including a funded, zero-capex PPA or lease provider — should be prepared to walk you through their PAC language in detail, explain every trigger scenario, and demonstrate how the clause has been applied in practice. If they cannot, or will not, that is material information before you sign.