When the Nobel committee announced this year’s prize in economics for “innovation-driven growth”, I could almost hear those battling in the trenches of SA’s energy sector reform yell in agreement.
Half the award went to Joel Mokyr, the economic historian who explained how cultures of curiosity and experimentation built the modern world. The other half went to Philippe Aghion and Peter Howitt, who formalised Joseph Schumpeter’s idea of “creative destruction”, the process by which new technologies and firms relentlessly replace the old.
Together they tell a story with profound relevance for a country trying to rebuild its broken energy system. The bottom line is that progress is not about patching the old but about letting the new emerge.
For decades Eskom was the industrial leviathan at the centre of SA’s economy, a vertically integrated, coal-fired colossus that once symbolised our industrial success. But as the laureates’ work reminds us, sustained growth happens only when economies institutionalise innovation, not when they mollycoddle incumbents.
The Electricity Regulation Amendment Act, signed into law this year, finally cracks open Eskom’s monopoly and sets the legal architecture for a competitive, multi-buyer, multi-seller electricity market. The new National Transmission Company SA will act as an independent system and market operator, an essential act of institutional creative destruction.
This is Schumpeter in real time. We have a regulated monopoly giving way to a networked ecosystem of independent power producers, storage operators, traders and municipal distributors. What Aghion and Howitt modelled on paper three decades ago is now unfolding on the SA grid.
But the laureates would warn that creative destruction is not automatic. It requires policy discipline, open institutions and the courage to let legacy capital depreciate. Too often, reform in SA stops at rhetoric keeping the old system on life support instead of clearing space for the new, which I fear is happening still with the shareholder’s approach to Eskom.
Culture of improvement
Mokyr’s great insight was that the Industrial Revolution wasn’t born of machines alone but of a mindset and a “culture of improvement”. Britain’s 18th-century inventors flourished because they inhabited a Republic of Letters, a sprawling network of experimenters, artisans and thinkers who traded ideas freely and learnt from failure.
Our energy transition needs its own “republic of energy”, a culture that prizes learning, iteration and collaboration between engineers, entrepreneurs and policymakers. Yet SA’s regulatory DNA still treats innovation as a risk, not a resource.
Consider how slowly new technologies have been integrated: rooftop solar and battery storage were once bureaucratic nightmares to connect; wheeling agreements took years to standardise; municipal procurement of renewables gained traction only when the national grid collapsed under its own inertia.
If Mokyr were advising the National Energy Regulator of SA (Nersa) today, he’d say: open the data, lower the barriers and let the experimenters in. A “republic of data” could become the new engine of efficiency with shared grid information, transparent performance metrics and regulatory sandboxes for municipalities and start-ups to pilot demand-response and micro-grid models.
And yet instead of cultivating that “culture of improvement”, our regulator recently offered a painful case study in what happens when institutions stagnate.
In January Nersa approved Eskom’s three-year tariff plan under its MYPD6 application, only to admit months later that it had made a R54bn error in its determination. The blunder is mind boggling — it could force future tariffs to rise three times faster than inflation.
Eskom had to haul the regulator to court, again, to fix the mistake. It’s the third time in five years that a judicial review has been needed to correct Nersa’s arithmetic and governance failures.
How, after five-and-a-half months of review, could a regulator miss a discrepancy of that magnitude? Where were the internal checks, the peer review and the governance process? The irony is that while Nersa is meant to enable a market that rewards efficiency and transparency, it’s now the biggest bottleneck to both.
Reward innovation
The Nobel laureates would call this the death of dynamism, to the point where incumbency and bureaucracy choke the learning process that underpins growth.
Aghion and Howitt’s work formalised what every entrepreneur knows instinctively: people innovate when the rewards for doing so outweigh the rewards for standing still.
SA’s new market framework must therefore ensure open access to the grid, nondiscriminatory rules and fair pricing that lets private producers compete on equal terms with state-owned incumbents.
The new curtailment framework, allowing developers to connect to constrained parts of the grid under a 10% flexibility rule, is a good start, unlocking roughly 3.5GW of new capacity. But unless it is paired with faster grid expansion and clearer market rules, innovation will remain trapped in procedural amber.
The laureates’ theory also warns against regulatory capture. When policymakers allow incumbents to dictate the rules, they slow the cycle of renewal that sustains growth. SA’s greatest danger is treating reform as a rebranding exercise for Eskom rather than a genuine market opening.
That’s where I am starting to worry that with all the good work done by the recent Eskom board, there is an unwillingness politically to let this old lady depreciate to her natural end.
Just transition
“Creative destruction” sounds clinical, even cruel. But Mokyr and Aghion both emphasise that the transition to new systems succeeds only when institutions cushion those displaced by it.
That is the challenge facing the just energy transition. The decommissioning of coal plants will hit real towns, real workers and real livelihoods. Without credible retraining, local procurement and small business support in the coal belt, the political backlash could stall reform entirely.
In that sense the just transition is the legitimacy condition of creative destruction. People will trust change only if they see a place for themselves in the future being built.
The task before us is to build a system that rewards discovery, tolerates failure and invites many players to participate in the act of rebuilding. Because in the end, as Mokyr wrote, useful knowledge is the true lever of prosperity.
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at michael@fmr.co.za.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.