Volts podcast: using DOE loan guarantees to accelerate clean energy, with Jigar Shah

In this episode, Jigar Shah, the recently appointed head of the
Department of Energy’s Loan Programs Office (LPO), discusses how
he and his team have reformed the office and pulled into into the
modern age, the kinds of help LPO is offering entrepreneurs, and
the frontier technologies that have him most excited.


Full transcript of Volts podcast featuring Jigar Shah, February
2, 2022


(PDF version)


David Roberts:


Back in 2010, the Department of Energy’s Loan Programs Office
(LPO) briefly became what kids these days call the main
character, the focus of a storm of controversy and media
attention, thanks to the bankruptcy of Solyndra, a solar company
that received the very first loan guarantee under Obama’s
Recovery Act and then promptly gone bankrupt.


Despite that wildly overhyped controversy, the LPO did reasonably
well under Obama. It ultimately turned a profit for the
government and was arguably crucial to the explosive subsequent
growth in markets for utility-scale solar and wind.


Under Trump, the LPO basically went dormant, doing little beyond
shoveling money into the ill-fated Vogtle nuclear plant in
Georgia. Now the LPO is being revived, reformed, and
reinvigorated by new director Jigar Shah.


Shah has a long history on the business side of clean energy — he
was the co-founder and president of Generate Capital and before
that founded “no money down” solar pioneer SunEdison — but he’s
perhaps best known to energy nerds as the co-host of the late,
lamented podcast The Energy Gang. (The team behind The Energy
Gang now has a new show: The Carbon Copy.)


He wants to streamline the process of getting loan guarantees
from LPO and rethink how the office approaches risk. And he’s got
about $40 billion to work with, more if Build Back Better passes.
(For the best account of Shah’s new approach, read these two
Canary pieces — one, two — from Jeff St. John.)


Under Shah’s leadership, the LPO has been doing due diligence on
the hundreds of applications that have flooded in since the
office reopened for business. In December, it issued its first
new conditional commitment for a loan guarantee, to a plant in
Nebraska that will transform methane into hydrogen and carbon
black. Many more loan guarantees are in the pipeline.


I’ve been looking forward to chatting with Shah about how the
office is reforming under Biden, how to think about risk and
communicate it to the public, and the kinds of clean-energy
technologies that have him excited these days.


Without further ado, Jigar Shah, welcome to Volts.


Jigar Shah:  


Thanks for having me.


David Roberts:   


I'm a longtime fan of your career and your many podcasts, so it's
great to finally get you on here.


Jigar Shah:  


Well, the feeling's mutual.


David Roberts:   


Give us the elevator pitch: What is the Loan Programs Office,
what does it do, and what is it meant to accomplish?


Jigar Shah:  


The Loan Programs Office was originally conceived of by Senator
Pete Domenici in the 2005 Energy Act. It was first funded in 2009
during the Obama stimulus. 


The main rationale for its existence is that the Department of
Energy does so much great work on basic fundamental research; it
gets all these technologies to what they call Technology
Readiness Level 7, which means that you can actually verify that
the technology works; but then they leave them there waiting for
the private sector to pick them up and take them the rest of the
way. And the private sector is saying, “we're happy to do it, but
we can't get any debt for these technologies because the
commercial banks are saying, ‘we don't want to spend the effort
to understand all the nuances of this and get all the expertise
lined up for one project, so until there are 100 projects to do,
we’re not in.’”


David Roberts:   


This is the famous “valley of death”?


Jigar Shah:  


That's right. In this case, it's a valley of death that focuses
on debt. The vast majority of valley-of-death conversations focus
on equity: raising venture capital or raising private equity. In
this case, you're talking about debt. 


When you talk about solving climate change, you're generally
talking about trillion-dollar scale, and trillion-dollar scale
only exists in infrastructure. In venture capital, we had a
banner year last year; it was about $60 billion. That's not
trillion-dollar scale. 


What does it take for the trillion-dollar-scale people to get
comfortable with a technology? That's a commercial debt
conversation. 


How do we underwrite a deal for commercial debt? I talked to most
of the money center Wall Street banks last year and they said,
“Jigar, one thing we will confirm is that the due diligence that
comes out of your office is of such high quality that we know
that a technology is ready if it gets through your office.”


David Roberts:   


That's one thing that maybe average people don't understand:
you're not just handing companies money. The whole process of
assessing the company and its technology is a long and
labor-intensive process. The bulk of the service you're providing
the industry is not even so much the money as the due diligence
itself, so they don't have to do it, right?


Jigar Shah:  


That's exactly right. The government process that we take
companies through is a lot more efficient and a lot shorter than
it used to be, so we've made a lot of strides there, but no one
would subject themselves to it if they could walk through the
front door of one of these big banks and just get a standard
commercial loan. They're going through that process and
subjecting themselves to the detailed diligence and the 10,000
expert scientists and engineers we have with the national labs
because they know that this is the best way for them to get a
loan. An average loan size for us is $500 million.


David Roberts:   


Backing up a little bit: the loan office has been, let's call it
“dormant,” for the last four years.


Jigar Shah:  


That’s certainly what the Secretary of Energy called it during
her confirmation hearing.


David Roberts:   


Dumping money down the giant Georgia nuclear plant was the only
thing it did, I think.


Before that there was the whole stupid Solyndra controversy. But
as I understand it, the Loan Programs Office under Obama did well
overall — ended up revenue-positive, spurred a lot of new
industries. I’m curious what you take from that experience, and
in what ways you're trying to improve. What needs to change to
make it more modern and more suited to current circumstances?


Jigar Shah:  


There’s a series of questions implied there, so let me take them
one by one.


First, Solyndra was one of the first loans that we issued out of
the office. The office was very young when we did that loan, and
since then, the office has matured greatly. We're up to 170
people from probably 20 people at that time, and we have a lot of
processes and procedures. Solyndra wouldn't pass the office in
the same way that it did in the past. The office has improved its
processes tremendously. 


Even with the Solyndra losses included, we did about $35 billion
worth of deals; we've had roughly $1.02 billion of losses,
inclusive of Solyndra. That track record is something you would
put up against any commercial bank in the space, let alone one
that focuses on hard-to-finance deals. There are a lot of people
who suggest we're not taking enough risk. 


In terms of what we're doing differently now: in the Obama era,
we had a financial crisis, so we actually had a lack of access to
commercial debt. When you look at Elon’s famous story of Tesla,
he also had a problem getting equity. The money wasn't flowing
like it is today with SPACs and etc. 


Fast forward to today: if you have a rock-solid 20-year power
purchase agreement with a utility company, you're generally not
going to come to the Loan Programs Office, unless you've got some
weird long-duration storage technology or something else that has
never been commercialized. 


We have to do a lot of things differently. The type of deals we
see are far more diverse than just electricity. We see deals in
the industrial decarb space, in the broader transportation space.
The markets are less formed. For instance, people sign power
purchase agreements in the electricity space; remember a lot of
that came from PURPA, which is what all the coal plants were
based on. But when you look at transportation fuels, for
instance, people don't generally sign a 20-year fixed-price
contract for aviation fuel. 


We have to change the way that we underwrite deals to figure out
how we support those kinds of projects as well as the merchant
market. When you look at the Low Carbon Fuel Standard credit
program in California, which is driving a lot of projects, the
price that gets set for those credits changes every month.


So we have to come up with a new way of evaluating those projects
and figuring out how we support them. The Loan Programs
Office has gotten far more sophisticated about how it underwrites
risk than it was forced to be, frankly — not that they were not
capable of it in 2010, they just didn't have to do it in 2010.


David Roberts:   


Is that reflective of changes in technology, or of a change in
approach at the LPO to take a broader look at technology, or
both?


Jigar Shah:  


All the above. In general, LPO could get away with doing
standard, easy-to-finance deals in 2009-2010 because you had a
historic credit crunch, and people needed our money. Today, those
standard, easy-to-finance deals aren't coming in to the office,
so we have to evolve to be relevant. 


But second of all, there were historic amounts of money invested
during the Steven Chu era and Moniz era around new technologies,
and a lot of those technologies are now mature enough to be able
to come to our office. They made a lot of investments in
industrial decarb. We had a lot of high-profile failures in
carbon sequestration and storage in that era, but the new
approaches are being built upon the success stories that we had.
One of the success stories that came out of that era was the ADM
Class VI wells, which continue to bury 1 million tons of carbon
dioxide a year in Illinois.


David Roberts:   


The topic of risk is interesting, especially when it comes to an
arm of government. The right-wing critique of the office was,
“it's taking too many risks and it's losing money.” But the more
educated energy-expert critique was, “it didn't lose enough
money. The whole point is to take risks; that's why the thing
exists, to take risks that private capital or banks won't
take.” 


Talk a little bit about how you think about risk. Is there a
percentage of losses that you're targeting? How do you target the
right level of risk?


Jigar Shah:  


It's a great question. As a government appointee, your ability to
take risk is defined by the amount of support that you're
getting. The secretary mentioned the Loan Programs Office in her
confirmation hearing and has been talking about it ever since, so
we're clearly getting a lot of support. That means the world to
all of us, and it gives us the freedom to make the decisions that
we think are right for the country and not just right for the
political moment. That's valuable. 


We don't view risk on a portfolio basis like that, although it
does turn out that we check it that way. We view it on a
deal-by-deal basis. 


Everybody in the office gets the same interest rate, which is
Treasury’s plus three-eighths of a point, so that's 1.8
percent. Then we add a risk-based charge on top of it, based
on the percentage chance that it loses money. The vast majority
of our projects are not investment-grade. When you look at the
other lending institutions within the government — whether it's
the USDA programs, or TIFIA, or some of the other ones — they
generally do investment-grade credits. These are people that have
triple B or better credit ratings.


Our average credit rating in the office for new projects is
double B or single B, because it's by definition misunderstood;
otherwise, it wouldn't be coming to our office. Those projects
generally have a risk of failure of 15 to 20 percent, depending
on all the variables. 


We then add an interest rate adder to the interest rate to be
able to compensate the government for that risk of loss. Let's
say we'll add another four percentage points to the interest
rate, so now it's not 1.8 percent, it's 5.8 percent. That extra
money goes into the US Treasury Department. 


Then we do view our performance on a portfolio-wide basis. Today,
the program adds about $500 million of interest payments per year
to the US Treasury — so we make money for the government. There's
a separate component to that: on a portfolio basis, you charge
interest rates above the US’s cost of borrowing, to figure out
whether we're earning enough “excess” interest to be able to
cover any losses we have. 


Then, separately, Congress sometimes appropriates loss capital to
us; it's called a credit subsidy. For ATVM, the Advanced
Technology Vehicle Manufacturing program, the Congress has
determined that some of these projects are clearly going to be
risky, because you’re taking an “if you build it they will come”
risk; even if they make a great car, it could be that it's a
terrible design and nobody wants to buy it. In that case, they
actually allocate cash from the Congress to our program, and we
pay that credit subsidy on behalf of those applicants. That
basically forms a loan loss reserve in the US Treasury Department
for those projects. 


To summarize all that, on balance, we’ve reserved almost $6
billion in loan loss reserves at the US Treasury, and have had a
total of $1.02 billion in losses, and we don't expect very much
more loss out of the existing $30 billion portfolio.


David Roberts:   


That's the operational way to view risk; the semi-separate
question about how to communicate risk and loss and the chances
you're taking is … maybe not your job, maybe that's the job of
the secretary. But do you feel like the office itself, or the
Democratic government culture in general, has learned anything
about how to communicate risk? As we saw with Solyndra, it’s so
easy to demagogue, and it takes some time to explain why risk is
actually a good thing. Have you given that any thought?


Jigar Shah:  


On the political risk side of it, clearly sometimes political
arguments move away from logic, and then you end up in a place
that's — whatever it is. 


Sticking to the logic side of things, where I'm more comfortable,
the way that we've talked about risk is we've talked about
opportunity. Think about the sea change that has occurred in the
thinking of automakers. Ford Motor Company stock has gone up
tremendously in the last year, simply through the firm
announcement that they're moving to electric vehicles. That all
comes from the risk that we took in 2009 and the opportunities
that it has created for millions of Americans as a result. 


The way that the president and the secretary have been talking
about it is that this is the single largest wealth-creation
opportunity America has in front of it. If we do it correctly,
not only do we get to use our technology that we have ourselves
invented through our dollars that we put in out of DOE, and we
manufacture the products here, and we create the jobs here — but
we also help hundreds of countries around the world decarbonize
through the export markets for our technology companies. I mean,
Tesla is the single largest exporter in California, which itself
is the fifth-largest economy in the world.


David Roberts:   


Tesla serves so many contradictory symbolic roles at once. But
one of them is definitely: you give Big Money (or Big Debt)
permission to come into these markets and that spirals out
globally. It's difficult to trace all the consequences from
that. 


Jigar Shah:  


Absolutely. The same thing is true for utility-scale solar and
wind, which of course is a more boring story. At the time, Europe
had a feed-in tariff, which meant it had a guaranteed payment
from the government, although it used the utility to pay it. That
was not the case in the United States. We had some power purchase
agreements, but in general, the whole concept of a feed-in tariff
really there. There was a tax equity portion with tax
credits. 


When we offered our loan guarantees for solar to SunPower and
others — who will tell you that they were essential to be able to
build those plants — Bank of America and Citibank and all those
banks had not yet gotten their arms around how to support solar
and wind, even though Germany and Spain and everybody else had
had these big years in 2007-2008. You were sitting in 2012 with
$1.5 billion projects such that those companies were forced to
sell those projects to Warren Buffett and MidAmerican. And Warren
Buffett and MidAmerican always make money. 


It wasn't until 2014 that there was a modicum of a competitive
market, that SunEdison had created with the REIT that they
created with TerraForm. Then in 2016, you got a lot more
liquidity in the market. It wasn't until 2019 that you had full
acceptance by all institutional investors such that the interest
rates went down to 2.5 percent.


David Roberts:   


There's a certain amount of money set aside in the LPO for fossil
fuel technologies like carbon capture. There's a certain amount
of money set aside for nuclear. Then everything else competes for
the remainder, which is smaller than the amounts set aside for
fossil fuel and nuclear. What is the logic of that setup?


Jigar Shah:  


Unfortunately, the truth is that we just used up the renewable
energy money. All of our allocations were received in 2009; there
was a little bit of reshuffling since then, but most of it's
2009. We had $20+ billion of renewable energy and efficiency
money; that money was largely used. We never issued a fossil fuel
loan, so that money is all unused. The nuclear part was bigger
too — but then of course we had the Vogtle nuclear plant that’s
used up a lot of the money — so that money is still there as
well. 


What I would say without getting into trouble is that Congress is
very supportive of what we're doing. They basically said,
“there's a lot of support for the loan program on both sides of
the aisle, so get the thing working again. Show us that it's
actually working before we allocate more money to that bucket.”


I don't think that's as controversial as it appears, and we are
getting it working. We've got 170 hardworking men and women and
they've done a great job of fixing the foundation of the program.
It resulted in one conditional commitment in 2021, and we'll have
a lot more this year. But that belies how much fixing that we did
in 2021 so that the foundation was strong enough to have a big
year in 2022.


David Roberts:   


Speaking of politics and money, what did the bipartisan
infrastructure bill do for the LPO? Secondarily, what's in the
as-yet-unpassed Build Back Better bill that relates to the LPO?


Jigar Shah:  


The bipartisan infrastructure legislation has a number of
provisions in it that broaden our authority. It took the ATVM
program and said, you now can do heavy trucks, light duty trucks,
airplanes, battery chargers, locomotives. Somebody even included
Hyperloop, which I thought was interesting, but it is what it is.
I haven't seen any good Hyperloop applications coming in. 


We also got a broader level of authorities around carbon dioxide
pipelines. A lot of the work that we're doing, for instance, is
on these industrial hubs, where you're taking some of the places
that have the most pollution in the United States, like the LA
basin or the coast around Texas or Louisiana, and decarbonizing
those. 


The hydrogen hubs, which are also in the bipartisan
infrastructure legislation, marry with the carbon dioxide
pipeline authority that we have to be able to help decarbonize
all that heavy industry. 


There's also one other provision which was little noticed in the
legislation that says that if a state entity supports the
applicant, it actually moves away from the innovation
requirements of our office. That's an interesting nugget that
we're trying to figure out exactly what it means. Senator
Murkowski had a big role in putting that in.


David Roberts:   


But no new money in the bipartisan bill.


Jigar Shah:  


Yeah, exactly. The new authorities were put into the bipartisan
infrastructure legislation, and then the additional money comes
into the House Build Back Better bill. Obviously the Senate's
working on it. 


Because we make money for the federal government, the
Congressional Budget Office has largely determined that new
authority that goes into Title 17, in particular, only costs 1
percent in deficit spending of the loan amount we receive. So if
we wanted to do an extra $100 billion of loans, it would cost $1
billion of deficit spending.


David Roberts:   


So it wouldn't take very much additional appropriation to vastly
increase the amount of capital you have to work with.


Jigar Shah:  


That's right. Again, that's tied up in folks saying, “guys, prove
to us that the office is working. Get some conditional
commitments out the door and get some of the companies that are
in our districts to tell us that you really are open for
business. I understand that you're telling me you're open for
business, and I see this big graphic that says you're open for
business, but I'd like to hear confirmation from our
constituents.”


David Roberts:   


Say Build Back Better passes or Congress got excited about this
and dumps a bunch of money on you: are there capacity constraints
for how much you can get out the door? How much could you
possibly deploy before January 2025?


Jigar Shah:  


We've spent a lot of time on that in the office the last five
months. The office initially was extraordinarily optimistic about
what it thought it could accomplish, which frankly is amazing to
see that level of risk-taking from the federal government staff
that we have. It's really inspiring to see. But we've been a
little more realistic about it in the delivery phase in
January. 


We've got about 77 applications that have come in as of December
31, representing roughly $60 billion of requests. I do think that
we can get a third of those applications through the system,
mainly because the applicants are sophisticated and competent
enough to go through all of our stage gates efficiently. Then
half of the ones that can't do that quickly will also get through
our office, it'll just take them an extra period of time to cure
the defaults in their applications. 


We can actually move quite a bit of volume through the process.
Note that if we obligated $30 billion of capital, which is a big
number, that would make us the single largest provider of this
kind of capital in the world. It's not like JPMorgan Chase or
some of these other companies are chomping at the bit to do
first-of-a-kind deployments; they're coming later in the
process. 


It really is significant. When you think about the numbers in
relation to each other, the venture capital community put $60
billion to work last year into companies; those companies need to
put first-of-a-kind projects out the door. They would take $30
billion from us, they would match it with probably $30 billion of
their venture capital as equity, and we put in let's say 50
percent debt. That would be $60 billion of first-of-a-kind
projects. 


That would then cascade into second through fifth projects, EPC
excellence, learning curve, the six cumulative doublings of
experience. And a lot of that learning curve actually comes from
a mixture of state and federal policy. The federal government
generally likes to give them tax credits and maybe some
demonstration dollars, which we have in the new Office of Clean
Energy Demonstrations; then the state is the one that does more
of the mandates. For instance, you're seeing California, New
York, and New Jersey right now looking at green cement mandates,
which then allows us to fund green cement manufacturing
facilities.


David Roberts:   


Let's talk about some of the technology areas where you are
focusing. When you are choosing technology areas, are you
choosing purely based on an analysis of what you think is going
to be needed? Or is it mostly, what among that set of
technologies that will be needed are facing this first-mover
problem and specifically need us? Big Solar and Big Wind, I
presume, have now grown past the need for you. So what are the
on-the-verge-but-not-quite-first-big-demonstration-yet
technologies that you're looking around on? 


Jigar Shah:  


For our process, we looked at all of the different sectors where
we thought that the technology itself was actually mature and
commercialization was the problem, so we needed to lean in. These
are things like low-impact hydro; advanced geothermal; some of
the battery chemistries that have been around for some time,
you’ve seen them SPAC; hydrogen; carbon sequestration storage in
some forms; sustainable aviation fuel; small modular
reactors. 


All these sectors we tapped down, went across DOE and said,
what's ready for primetime? Then I went to all the trade
associations for those groups and said “get me all your CEOs on
the phone, hold a meeting, invite me to speak, and let's talk
about it.”


Some of them were ready. We’ve gotten $10 billion worth of
applications from the sustainable aviation fuel and biofuel
space; roughly $10 billion of applications from the advanced
nuclear space; $5 billion of applications in from the carbon
sequestration side; several billion dollars of applications in
from transmission, etc. 


There are some places where they weren't ready. I've gotten
almost no applications in for geothermal or for hydro.


David Roberts:   


“Ready” means “have their s**t together enough to be able to go
through the due diligence properly?”


Jigar Shah:  


No, they actually are prepared to go through the office, but they
don't have projects ready to go. You can't come in and say, “I
have this dream.” You have to say, “I have a utility, I've
received the allocation from the Bureau of Land Management for
this land, I've got this, I've got that.” Therefore you have
something to evaluate. 


Some of the sectors we don't have projects in not because the
technology is not mature, but the developer community has not yet
developed the projects for us to evaluate. We haven't given up on
those sectors; we continue to educate them and make sure that the
trade associations and others know what services we offer.


David Roberts:   


Do you think geothermal will come along and be ready for you at
some point? Do you have a capsule assessment of that?


Jigar Shah:  


The California RFP for 1,000 megawatts of geothermal is useful.
Anyone who wins that RFP will probably come to our office. 


In general, the biggest problem with geothermal — and you see
this across all the flexible-baseload technologies, it comes out
of the UC Berkeley study or the Princeton study — is that in
general, all of them need 7 cents a kilowatt hour. That 7 cents a
kilowatt hour is completely justified. So when you look at the
modeling, to build more solar and wind at 1.8 cents or whatever
it is, you have to build more transmission to transport it from
where it blows to where it's needed. That transmission is hard,
and if you want to move hard to fast then you have to pay extra
for it, so you pay double the cost of the transmission. 


The alternative is you pay for technologies that have more like a
60+ percent capacity factor on existing transmission, and then
that's 7 cents. But when you look at the decarbonization
strategies that are finally starting to emerge from these
utilities who have determined that they're going to be net zero
or whatever it is by X date, they have now determined that there
is some mix of variable renewable energy and flexible baseload
that they need, and that they actually can afford to pay 7 cents
for part of their portfolio. 


That has led California to put out this RFP, and you're seeing
Nevada and a few other places go “wait a second, we should
actually be putting in some of these flexible baseload
technologies, because the alternative is we put in natural gas,
and then natural gas prices almost doubled, and we're stuck.”


Part of this is not that the technology is not mature but the
markets haven't been mature, and LPO does play a big role in
that. We've hired people on our platform that have engaged with
the utilities in their Integrated Resource Plan process and their
other processes and said to them “hey, you should be looking at
these types of resources, because otherwise, you're just not
going to get there.”


David Roberts:   


Right, unless you build an absolute boatload of transmission,
which is more politically and regulatorily difficult in some ways
than any of these new technologies.


Jigar Shah:  


More expensive, not more difficult. I'll give you an example.
When we came into office, the Department of Transportation
announced that they were going to let federal highways be used
for right-of-ways for transmission. I said, “huh, what would that
cost?” And people are like, “I don't know.” So we hired NREL to
figure that out. 


They'll come up with a paper or something on this, but they
showed me their preliminary results. They mapped every single
highway and they said, “these highways have very limited
obstruction, so it may only be 1.2 times the cost of normal
transmission” — which, of course, “normal” transmission doesn't
exist, because it's hard to build — “and these highways have tons
of four-leaf clovers and tons of issues so you have to
underground under all those; you can't go over. That's going to
cost more like 1.9 times normal.”


Now I have a number, I actually know what it costs. Someone could
say “that's too expensive, I don't want to pay for it.” But you
can't say that it's impossible to build. You can just say “we
can't afford to pay that.” Now you can actually do real trade-off
analysis.


David Roberts:   


The model here is a big, capital-intensive project like the one
that got your first loan guarantee: the Monolith pyrolysis carbon
black / hydrogen project. But of course, one of the trends in
energy these days is distributed energy; thousands and thousands
of small-scale projects. Intuitively, it doesn't seem like that
matches your mission or your capacity that well, but you are
trying to figure out how to get some LPO money behind distributed
energy. Say a little bit about conceptually how that works.


Jigar Shah:  


Let me give you a little history. In 2009, when we did the
rulemaking, these distributed projects were not really
contemplated. The rulemaking and the solicitation around this
program didn’t cover these kinds of projects. 


Then in 2015 we had a substantial residential solar company come
in and try to use the office, so a lot of thinking was done there
on the legal side around how to shoehorn — it was very Apollo 13,
“here's what we have, figure out a way to make this work,” which
was great. There were other folks too, like there was a FIT RAM
program in California, so one of the companies came in to do
distributed CNI (commercial and industrial) solar. When I came
in, I said, “we're going to get a lot of applications that look
like this; let's start revving that back up and figuring it
out.” 


The harsh reality of the situation is that the government doesn't
do things in a vacuum very well, so we had to convince some
people to apply to the office. We luckily got a couple of people
to apply, and I warned them, “you are going to be a guinea pig
here, so it's going to take a while to process your loan.” 


As a result of them applying, we were able to get the
nitty-gritty details around what they needed and where they ran
afoul of our existing rules. Then we were able to review those
existing rules and see whether those were in the statute, meaning
they came from Congress, or whether they were self-imposed
restrictions. It turns out that the vast majority of them were
self-imposed restrictions. 


We have gone through a long process to rewrite the solicitation
and to broaden and update it for modern times. It hasn't been
substantially updated since 2009. That then allows us to do a lot
more of these. 


We still have an innovation mandate, so you can imagine I can't
just do standard solar and wind projects that are distributed in
nature, or whatever it is. It's the applicants’ responsibility to
prove to us what innovation is; we can't make it up for them. But
what they have pitched us, which has been very fascinating and
very relevant, is DERs, DERMS – distributed energy resources,
demand flexibility work.


David Roberts:   


The people applying presumably are aggregators of large numbers
of small projects?


Jigar Shah:  


Sure. We've said to them that they have to be innovative, and the
innovation that they pitched us is this participation in the FERC
Order 2222 markets, which allows for demand flexibility to get
equal standing in the wholesale power markets as natural gas
peaker plants. 


Then a lot of utility companies have also offered these demand
flexibility programs; California, New York has used them to save
the grid multiple times. You see companies who’ve SPAC’d that
specialize in this; EnerNOC in the old days, Voltus recently, and
others. You're starting to see a lot of investor interest as well
in these companies. 


So they've come into the office and said, “the underlying
technology might be solar plus battery storage and a thermostat
and water heater and bidirectional charging using wallbox — but
if we're aggregating all these assets up and opting them into a
DER framework, which then provides a huge amount of extra
reliability to the grid at one-tenth the cost of today's natural
gas peakers, does that qualify? And we’re like, “huh, I guess it
does.”


David Roberts:   


None of those pieces are particularly innovative. All of those
technologies exist now. It's the aggregation and playing in the
market that's the innovation.


Jigar Shah:  


The underlying hardware is not innovative, but the software
continues to innovate. 


I was one of the first investors in battery storage behind the
meter in my previous role, and that software has dramatically
changed every year, such that some owners of batteries have hired
a new platform to operate their batteries every year, because the
software is changing so quickly.


David Roberts:   


It seems like those markets for distributed energy aggregators
depend so much on politics and regulation. This is not a
free-market situation; you can do that where regulation has
permitted you to do it. In a sense, the market is limited by
things that you can't really affect. You can help them succeed
under those circumstances, but you can't bust the market out of
those circumstances. It requires regulatory changes.


Jigar Shah:  


You're right, and that's true for everything, right? The advanced
geothermal market isn't going to work unless someone pays 7 cents
a kilowatt hour with a dedicated RFP. 


But we do have the ability to nudge in ways that are quite
influential. For instance, in this case, the vast majority of the
repayment obligation comes from FICO score, not from markets.
People are agreeing to pay a fixed price for their new water
heater or bidirectional EV charger. Even though they are now
registered to operate in these demand flexibility markets,
they're agreeing to pay a fixed $20 a month in loan payments to
pay us back. 


We can, on the one hand, get a reasonable prospect of repayment
without the regulatory changes. On the other hand, the companies
that borrow the money from us go to the regulator and say, “I'm
adding 20 megawatts a week of load that I control now, you guys
should put that into the regulation.” So there's some circularity
to this, and someone's got to go first. Clearly, the DOE Loan
Programs Office should be the one that goes first.


David Roberts:   


One of the big problems facing clean energy expansion is the
availability of minerals. Their production is concentrated in
certain countries, which are not necessarily great; processing is
concentrated in China, which is not necessarily great. So there's
a big focus on finding them, mining them better, refining them
better, moving those domestic supply chains, and recycling. Are
any of those on your radar?


Jigar Shah:  


They're all on our radar. The one big initiative that was added
during the Trump administration was a focus on critical minerals.
We have improved a lot of the legal justifications in
others. 


We've mapped out every single opportunity in the country that we
believe to be commercially ready. A lot of people have mapped out
where the minerals are in the United States; we've overlaid that
with people who are actively getting the permits and doing all
the work to start it. I would say every one of those folks is in
our pipeline, and we've already received about $3 or $4 billion
worth of loan requests in the critical minerals and battery
recycling space.


David Roberts:   


How excited should I be about battery recycling? Is there cool
stuff going on in the recycling space, generally?


Jigar Shah:  


Recycling is a big deal, and it's one thing that the US has,
frankly, done a terrible job of over the decades. Even in the
steel market, or the copper market, we send gargantuan amounts of
raw materials to China by accident because we don't want to
recycle it here. We just stick it in a shipping container to
Malaysia, Malaysia recycles it, and it happens to go to
China. 


Why are we doing that? We should do that here. Steel, for
instance: we have a huge amount of steel that we could actually
melt using an electric arc furnace. For brand new steel, you need
pig iron and you need the HYBRIT process and all that, but we
could substantially increase the amount of recycled steel we use
in this country. We just haven't invested in the infrastructure
to do so. 


The same thing is true with battery recycling, copper, heavy
metals, cell phone recycling — there's lots we can do here. And
that's all eligible within the Loan Programs Office.


David Roberts:   


Looking back now on the performance of the LPO during the Obama
years, we can trace pretty clearly that it played a big role in
the explosion of a couple of key markets: utility-scale solar,
onshore wind, arguably batteries. If I'm in 2032, looking back on
the LPO’s performance under Biden, what two or three markets
could you envision exploding in the same way due to your work?


Jigar Shah:  


It's a great question and one that I will partially answer and
then leave you wanting more for our next podcast session. 


In general, what I have said to my colleagues at DOE is that we
actually know how to do this. We have written a lot of white
papers out of the Loan Programs Office that have been shared
widely across government around what we think the formula is on
how to do it. If we agree with the way in which we do it, that
forms the new approach to American commercialization. 


Instead of being jealous of Canada or Germany or other countries,
we should actually admit that we're really damn good at this, and
we should stop self-hating and start owning what we do. It's a
combination of tax credits, Loan Programs Office, state
regulation; and we should do it in a way that's more methodical
than what we perceive to be haphazard, but isn't haphazard.


David Roberts:   


This is uniquely American, I feel like, the way we think about
industrial policy — which every country does, and always has, but
we're vaguely embarrassed about it, so we don't look directly at
it, do it behind our backs. I agree, that's silly.


Jigar Shah:  


Yeah, but not anymore. 


If you look at the big pots of money in the bipartisan
infrastructure legislation: you've got hydrogen, we will make
that work. Instead of hemming and hawing around green and blue
and pink and whatever, what we should be focused on is that we
use 10 million tons of hydrogen a year; all 10 million tons of
that will be turned into low-carbon hydrogen. We have a pathway
to do that, the secretary has laid it out, and with all the
applications I've already received in the office, I'm fairly
confident that we have a pretty clear pathway of doing it. 


The same thing is true in direct air capture and CCUS, even
though a lot of people love to hate it. The Class VI wells that
we have in Illinois, which are being replicated in Wyoming, North
Dakota, and other places, do work for industrial emissions. I am
not going to say that I know how to capture carbon dioxide from
power plants and put them into Class VI wells, but from ethanol
plants or chemical plants, we know how to do that really
well. 


Direct air capture, too. It's like $500 a ton, but we know how to
get that down to $200 a ton, and the secretary has announced the
Carbon Negative Earthshot which gets it to $100, and there are
several people who are telling me that they think they can get it
done before 2030. So we're pretty on track there as well. 


One other area that I'm super proud of is the virtual power plant
/ DER / DERM area. There are millions of Americans who've been
left out of this revolution and we are going to get them in, and
it's going to be pretty damn cool to watch.


David Roberts:   


You mean lower-income people having access to DERs?


Jigar Shah:  


Lower-income people, people in multifamily housing; a lot of
people control loads that they can contribute into these virtual
power plants and get paid to do so. Ten percent of our entire
electricity bill is used to pay for these reliability /
resiliency balancing services. Why pay the natural gas peaker
plants for this when you can pay people to have flexible demand
for this?


David Roberts:   


You think that's going to overcome all of its many logistical,
regulatory, financial obstacles? It's such a tangle.


Jigar Shah:  


It's 90 percent cheaper than what we're doing now, so it
literally makes no sense for anyone to ignore it. Why would you
not pay the money to individual ratepayers as opposed to paying
it to the owners of natural gas peaker plants?


David Roberts:   


Well, Jigar, thank you for coming on, and thank you for taking
the reins of this thing and whipping it into shape. I'm super
excited to see what happens over the next few years.


Jigar Shah:  


My pleasure. I’m in the luxurious position to evaluate other
people's work and not have to do it myself. I appreciate all the
hard work that the entrepreneurs are actually doing. 


David Roberts:   


Thanks again, Jigar. We'll talk again soon. 


Jigar Shah: 


Thanks, Dave. 


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