A Clean Energy Playbook For The Global South — Ep196: Lucy Heintz
Feb 12, 2025
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Lucy Heintz, Partner and Head of Energy Infrastructure at Actis, discusses clean energy investments in the Global South. She highlights the urgent need for billions in funding for clean energy infrastructure and the challenges in attracting investors. Lucy describes the evolution of investment strategies from government-funded to private initiatives, shares insights on India's renewable advancements, and explores how to navigate risks and maximize value in emerging markets. The conversation offers a deep dive into the complexities and opportunities of fostering sustainable energy solutions.
The Global South requires substantial annual clean energy investments yet receives only a small fraction of global capital flows.
Investment in critical infrastructure in growth markets can yield sustainable returns despite perceived geopolitical and market risks.
The evolution of Actis from the Commonwealth Development Corporation illustrates a successful shift towards mobilizing capital for energy infrastructure.
Deep dives
Low Default Rates in African Power Projects
The discussion highlights an impressively low default rate of 1.4% for power projects in Africa compared to the approximate 8-9% default rate in the US energy market. This statistic challenges perceptions about the risks associated with investing in African infrastructure, suggesting that with the right protections, these projects can be remarkably resilient. The emphasis on critical infrastructure as essential to economic growth underscores the reliability of such investments. The speaker’s experience reinforces the idea that strategic planning and risk management can mitigate concerns traditionally associated with doing business in these regions.
Defining Growth Markets
Growth markets are described as the countries where approximately 85% of the world's population resides, extending beyond traditional definitions of emerging markets. This broad categorization includes regions like Latin America, Africa, the Middle East, Central Eastern Europe, and parts of Asia, excluding North America and Western Europe, which attract the majority of global investment. The speaker argues that these markets present significant opportunities due to undercapitalization and evolving infrastructure needs. By focusing on these growth markets, investors can tap into a realm of potential that is often overlooked by mainstream capital flows.
Evolution of Actis from CDC
The transition of Actis from the Commonwealth Development Corporation (CDC) marks a significant evolution in investment strategy focused on growth markets. Originally set up to aid private sector development post-World War II, CDC began transitioning into a privatized structure in 1997. The creation of Actis in 2004 aimed to mobilize capital alongside the UK government while attracting third-party investments. This approach enabled Actis to develop a robust investment strategy focused on critical infrastructure, particularly in energy, while diversifying its capital sources beyond governmental funds.
Investment Strategy and Track Record
Actis, having shifted its strategy, has focused increasingly on critical infrastructure projects, specifically in energy. The company has successfully established a series of renewable energy projects in various geographical locations, growing each fund size sequentially. The speaker outlines successful case studies, like the creation of a renewable energy business in India, which expanded from initial operations to a substantial player in the market. This pattern indicates a strategic commitment to long-term investments that yield sustainable returns while addressing pressing energy needs.
Political Risks and Market Resilience
Investment in growth markets comes with various geopolitical uncertainties, yet the underlying demand for energy helps mitigate these risks. Countries like India and Mexico are presented as examples where essential infrastructure investment remains crucial despite political volatility. The focus on resilient investments that provide value through reliable energy supply underpins Actis's strategy. By ensuring that projects are both necessary and competitively priced, Actis strengthens its position in markets that need continued investment in order to thrive.
The global south needs to build out vast amounts of clean energy, and requires hundreds of billions of dollars annually to do. And yet, only a fraction of the investment going into clean energy and the net-zero transition is flowing into those growth markets. So why are so few investing?
Lucy Heintz is partner and head of energy infrastructure at Actis, whose most recent Energy Fund represents over $6 billion of investable capital. She is a driving force behind the small slice of investment which does address clean energy in growth markets.
Lucy joins Cleaning Up to unpack Actis' approach to investing in critical clean energy infrastructure projects across the Global South. From assembling renewable energy platforms to managing foreign exchange risks, Lucy shares the strategies that have historically allowed Actis to succeed in markets that many consider to be too risky.
The Acronym Corner:
BII - British International Investment; the UK's development finance institution. https://www.bii.co.uk/en/
LP - Limited Partner, the capital provider for fund
DFI - Development Finance Institution, e.g. BII
DISCO - A distribution company, in places like India and Pakistan. Responsible for distributing energy from producers to consumers.
DNO - Similar to a DISCO but UK focused, a company licensed to distribute electricity.
PPA - Power Purchase Agreement — A long term contract between an electricity producer and a customer, that guarantees electricity be bought and sold at a pre-negotiated price for the period of the agreement.
MIGA - The World Bank's Multilateral Investment Guarantee Agency. Its mandate is to promote cross-border investment in developing countries by providing guarantees (political risk insurance and credit enhancement) to investors and lenders. See: https://www.miga.org/about-us
Leadership Circle:
Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Division Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit https://www.cleaningup.live.
New Private Markets, De-risking transition investments in emerging markets
Disclaimer:
The statements made by Actis executives are as at February 2025 and are not necessarily representative of the views of executives of portfolio companies in which Actis has invested, and Actis assumes no obligation to update the information herein. Please refer to the following link for further important information in relation to this podcast: https://www.cleaningup.live/a-clean-energy-playbook-for-the-global-south-ep196-lucy-heintz/
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