Leveraging smart contracts to mitigate off-taker risk in the Virtual Wheeling system

Stapelberg, Johannes Stephanus

Leveraging smart contracts to mitigate off-taker risk in the Virtual Wheeling system

Thesis / Dissertation

2026

Publisher

University of Cape Town

Department

School of Economics

Faculty

Faculty of Commerce

Abstract

The South African energy market is undergoing a fundamental shift toward renewable energy integration. In response to supply constraints and the global focus on sustainability, Eskom has proposed and is in the process of developing the Virtual Wheeling system, enabling independent power producers (IPPs) to sell energy via energy buyers– intermediaries matching off-taker energy requirements with IPP capacity– to off-takers through Eskom's grid infrastructure. While this system presents significant opportunities to open the energy market, foster competition, and accelerate renewable energy adoption, it also introduces risks for off-takers. These risks stem from the requirement for off-takers to continue paying their traditional electricity bills while simultaneously settling accounts with IPPs for alternative energy supply. The refunding process, which offsets the off-takers' double payment, follows a sequential payment process: first, distributors– typically municipalities– settle their Eskom bill. Eskom then calculates refunds and allocates funds to energy buyers. Finally, energy buyers allocate refunds proportionally to each off-taker in its portfolio, and ultimately off-takers are reimbursed. Any default in this process could jeopardise the entire system, while delays or estimations in refund calculations could impose temporary financial burdens on off-takers, discouraging participation and limiting the overall success of the system. This study explores the potential of blockchain-based smart contracts to address off-taker risks by automating the reconciliation and settlement of energy transactions within the Virtual Wheeling system. A prototype smart contract is developed to automatically calculate fees for each stakeholder and allocate funds in a single transaction upon off-taker payment, streamlining the multistep refunding process. The proposed system not only mitigates inherent process risks, but also enhances efficiency, transparency and trust in the Virtual Wheeling system. The research methodology includes a risk assessment of the current Virtual Wheeling system, the design and development of a smart contract prototype and the evaluation of its effectiveness in mitigating identified risks. The findings indicate that blockchain-enabled automation could significantly reduce default risks, enhance cash flow certainty for off-takers, and improve overall trust in the Virtual Wheeling system. However, regulatory challenges, interoperability with legacy infrastructure and scalability considerations remain critical factors for widespread adoption. This study contributes to the growing body of research on blockchain applications in energy markets and provides practical insights into how decentralised technologies can improve financial resilience in billing and settlement processes.

Keywords

renewable energy

Virtual Wheeling

Reference:

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Masters

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