Experts Only Podcast #104 with Commercial Financing Expert Jigar Shah

[ Director, Loan Programs Office at U.S. Department of Energy (DOE) ]

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Transcript

Jon Powers:

Jigar, thanks so much for joining me on Experts Only.

Jigar Shah:

My pleasure.

Jon Powers:

We’ve known each other a long time. You have just a renowned expertise in this space. People know you across the industry, but I’ll want to sort of look back 20 years ago be before SunEd, before Carbon War Room and Generate, what got you interested in the idea of clean energy and addressing climate change?

Jigar Shah:

Well, I mean, to be honest, I don’t think I was that interested in addressing climate change 20 years ago. I think I was focused on technology commercialization. Like when I was 16, I read a book and learned about solar power. And I was like, “Why aren’t we doing this?” And I was 16, so I didn’t actually know about politics and like the powers of being incumbents and all that stuff, I was just like, “This is really cool. Why do we keep boiling water to make electricity when we could actually just generate electrons directly from a semiconductor?”

Jigar Shah:

And so it set me on my life and I got a degree from the University of Illinois and worked with Ty Newell who was a great professor there who cared deeply about solar, who I actually just happened to talk to last week. And then I went out in the world to try to find myself and figure out what was going on and it took a long time to figure out that people just didn’t want to pay it for 20 years worth of electricity bills up front to participate in the solar revolution. But I definitely wasn’t motivated by climate change 20 years ago.

Jon Powers:

Yeah. Well, that’s good to know. And I mean, if you look at the sort of the track record of what you’ve built and you continue to as the industry’s growing, being in the front end of understanding the needs of what will move it forward, whether it be developing the PPA or the stuff you guys were addressing in the Carbon War Room around issues like shipping and other major market forces. And then when you generate, you guys are really looking at how do you drive project finance early stage to move some of these technologies forward. It seems like all that work has prepared you to land perfectly well and driving the seat you’re in today at Department of Energy. What sort of most excites you about the opportunity that sort of sits in front of you at LPO?

Jigar Shah:

Well, I mean, I think that it was an opportunity to serve and I think as someone who has served this country violently, you understand it better than most. I certainly haven’t served by putting my life at risk for the country but I do think when called to serve, I mean, you have to take it seriously. And so then the question really became like, what can we do with this program? Right? The secretary clearly talked about it in her confirmation hearing, she said the program had been dormant which it really had been. And-

Jon Powers:

Yeah.

Jigar Shah:

… the question is what could we do with it? And I think that when I think about my life’s work, it has been about not blaming people for what they believe to be rational decision-

Jon Powers:

Yeah.

Jigar Shah:

… but instead, trying to figure out how you change the construct of their decision making to get them to make better decisions. Right? So, I didn’t want to blame a bunch of consumers who didn’t want to pay for 20 years with of electricity bills upfront. I didn’t want to blame a bunch of investors who thought that solar was too risky in 2003 to make a 14% return-

Jon Powers:

Right.

Jigar Shah:

… towards the first deals I was offering at Goldman Sachs. But the question really became like, what is holding people back? And you figure all these things out. And I think when you think about Senator Jiminy’s vision for this program in 2005 when he created it and then when it got funded in 2009, it was really that the Department of Energy has all these technologies. I mean, just so many that they’ve gotten through lab scale demonstration, and they just sit there on the shelf gathering dust because the private sector says, “Well, it only makes a 10% rate of return, which isn’t high enough for us to a hundred percent equity finance it or venture capital finance it.” Right? And the debt players are saying, “Well, we don’t want to get involved until there’s been 20 of these deployed.” Right?

Jigar Shah:

And so you have this void here and the Loan Programs Office was created it. And then the fact that we’re sitting here in 2021, 16 years after Senator Jiminy created it, and it’s still not functioning to the full extent to what it could do, that made me sad. Right? And the fact that the Secretary of Energy said, “I’m going to spend political capital to make this functional and make it work.” I mean, inspires a person. Right?

Jon Powers:

Yeah.

Jigar Shah:

And so I said, “Well look, if you’re going to take that much political capital and spend it on this, I’d be honored to serve and try to figure out a way to fix it.”

Jon Powers:

Yeah. Her vision overall has been really, really powerful tied into of course the president’s vision to drive some significant change. I’m going to set back for a second and have help the audience understand, people understand Loan Program Office from 10 years ago. Right? And they know-

Jigar Shah:

Yeah.

Jon Powers:

… through some of the unfortunate public stories that came out about it, but it really had a tremendous track record through that phase executing and getting returns for the public dollar. Can you talk a little bit about that window of time? And people might think about Slender or Fisker or these other issues, but there are a lot of wins that came out of LPO. And I think that story does not get told enough, that it was actually a really successful initiative before it went dormant the last few years.

Jigar Shah:

Yeah. Look, I think that… I mean, well, we should just start with solar and just wind, get it out of the way. I mean the bottom one line is, that was sort of the first loan that was made. There was no director in place at the time it was made. And I think there was a feeling that they should just push it out the door because we had a global financial crisis and-

Jon Powers:

Right. Right.

Jigar Shah:

… we need shovel ready projects and that project was ready to go. So I get it. Right? But when you think about all the other missteps that we’ve made since then, we haven’t gotten the political blow back for it just because I think that the processes and procedures in place in the office have been tightened substantially and we are supposed to take risk.

Jon Powers:

Yeah.

Jigar Shah:

So you are going to have some issues, whether it’s a bound solar or ton of power or some of the other deals that we had issues with. I think you haven’t seen as much blow back because the level of thoughtfulness that went into underwriting those deals was much higher.

Jon Powers:

Yeah.

Jigar Shah:

And that was as a result of us learning, which is a very human thing to do. But when you think about the solar and wind industry, there was no commercial debt really available for those industries in 2009, 2010, or even in 2008, right? Before the financial crisis.

Jon Powers:

Right.

Jigar Shah:

And even after we provided our loan guarantee, many of those projects were purchased by Berkshire Hathaway at much higher rates of return than they ultimately could have gone for. And it wasn’t until 2014 that the banking industry finally got their arms around creating a competitive market for debt for solar and wind projects. And so, when you think about that bridge to bankability that we catalyzed and then was created in 2014, it took the industry four years after we initially provided those guarantees to really get comfortable with solar and wind as an asset class such that banks started competing over providing debt to those players and tax equity was the same, remember tax equity was very difficult to get in 2012, 2013 and now it’s a pretty competitive marketplace for large utility scale projects.

Jigar Shah:

But also we funded a number of geothermal projects, which I think their track record is what is sowing the seeds for advanced geothermal today. We funded a transmission line which has become a really big, important part of the decarbonization of the grid, which I think that experience has given the government a lot of understanding of what to do differently for offshore wind and other programs that we’re doing. So there were a number of industries, four in particular but probably five, that really came out of that. Where we were able to bring technologies over the bridge to bankability to more mainstream finance.

Jon Powers:

Yeah. And I mean, the market today is so much significantly different for it was before the offers went dormant. And your new approach to really revitalize the office and putting out the framework, so I want to talk about here in a second about the American approach to commercialization. I think is going to be really monumental in getting folks aligned to help drive implementation. Before getting that though I do want to just mention, you’ve put together a rockstar team and continue to put together a rockstar team. How did you sort of attract some of the best and brightest into that office?

Jigar Shah:

Well, I think it comes from the genuine desire to serve, right?

Jon Powers:

Yeah.

Jigar Shah:

And I think that when my announcement went out, we had many, many people that reached out to congratulate me, but also many people who offered their assistance. And instead of viewing their offer as polite, I was like-

Jon Powers:

Right.

Jigar Shah:

… “Well, if you’re serious, you should join me.” And a lot of them also said, “What the hell? I guess I should.” And we were able to get a lot of senior executives from clean energy companies to say, “Well, actually, I had an exit recently, et cetera. I’m happy to come in and join.” We have a lot of communications professionals like Jamie, who has a huge amount of expertise and worked in the Department of Energy before to come back into the fold. I think we got a lot of lawyers who had left the office or were experiencing project finance to say, “You know what? Actually, I want to do things that are more meaningful and less boring.”

Jon Powers:

Yeah.

Jigar Shah:

And so we were able to attract really fantastic people to the office. And then that led us to really revamp the office and not treat people like they were idiots, right? Because the biggest problem is you’ve got all these people who are the best of the American innovation spectrum, who have raised C rounds and D rounds or stacked their company and gone public. And then they come to our office and they have no idea how to read government forms. Right? And-

Jon Powers:

It’s a different office, yeah.

Jigar Shah:

And we put a whole team together and said, “Look, you don’t have to know how to do this. We’ll hold your hand through the process. We’ll explain to you what each paragraph means and why we need that information. What the importance of that information is.” And it turns out half of the information was not needed. So then we edited our documents and got rid of that half and said, “Well, you don’t have to bother collecting it because we don’t need it.” And we’ve refined the process through the help of our staff that we were able to attract, but also through the help of the feedback that we got from our applicants around the hardest parts of this. And I would say that the process is clearly not easy. It’s not intended to be, but it’s certainly far more straightforward than it was when we first came in.

Jon Powers:

Yeah. So let’s… I’m going to get in the process down the road, but the Loan Program Office has what? 40 billion dollars in loan authority to put-

Jigar Shah:

Yeah.

Jon Powers:

… out there. And I think what’s been really helpful is the framework that you and your team are developing around the unique American approach to commercialization, and how to best use those dollars really to help push forward private investment, bring capital as you know from all different parts of the value chain. And can you talk about that framework and why it’s important for sort of aligning all those different stakeholders?

Jigar Shah:

Yeah, no, it’s a great question. And it’s one that I think is something that I think confuses a lot of people across the ecosystem, right? So there are many people including private sector folks, right? Who have a belief that what China is doing is superior to what the United States is doing, or they believe that what Germany or Canada are doing is superior to what the United States is doing. But I think largely they just don’t understand what the United States is doing, right? The United States does not put the government at the center of innovation, right? We put the private sector and our innovators at the center of innovation, right? And so, we’re often saying that the private sector is really the source of like sort of disruptiveness and innovation, all those things, but they’re actually just as plagued by inertia as anybody else’s right.

Jon Powers:

Right.

Jigar Shah:

I mean, this is the venture capital community, it does things exactly the same way they did 25 years ago. They don’t like to disrupt themselves just as much as the traditional corporations, right? And so what the government does is the government has a bunch of policies, right? And we have tax credits, we have demonstration grants, we have the Loan Programs Office, we have-

Jon Powers:

Right.

Jigar Shah:

… government procurement, right? By America provisions, et cetera. And think a lot of people think that the government is the aircraft carrier in the center, right? And that’s not true. The private sector is the aircraft carrier in the center, and the government are the tugboats on the side. They’re trying to like move the aircraft carrier three degrees to left or three degrees to the right, to avoid some of these huge pitfalls like islands that are… Or Rock croppings that are in the water. And we’re trying to like-

Jon Powers:

Yeah.

Jigar Shah:

… try to steer things, right? And once you take that frame, right? Then the question becomes, what’s the point, right? What’s the point of this demonstration project? What’s the point of these tax credits? What’s it’s the point of Loan Programs Office? Well, it’s to get the private sector to dedicate funds to these new sectors. That’s the point? Right? So now the question becomes is the government soliciting the right level of feedback from the private sector so that they know whether these policies will get this much capital formation on the other side? And further, when you think about what the secretary has announced around earth shots, for instance.

Jon Powers:

Yeah.

Jigar Shah:

We all know that a lot of those cost reductions come from the learning curve. So you now have to deploy seven cumulative doublings of deployment, to able to get from $5 a kilogram of hydrogen to the dollar a kilogram of hydrogen that the secretary announced. Right? And I think we both know that probably we can get from $5 to maybe 250 a kilogram just through scale. Right? And then the other 250 or 225 to a dollar will require more R&D and innovation. Right? Just like solar-

Jon Powers:

Okay.

Jigar Shah:

… panels came down in cost from manufacturing excellence, but it also came down in cost because R&D took it from 12% efficiency to 19% efficiency for the panels.

Jon Powers:

Right.

Jigar Shah:

Right? So it was both.

Jon Powers:

Right.

Jigar Shah:

And so when you think about that then the question becomes, have we asked the private sector whether what we’re doing is enough, right? We have all these new transmission authorities that came out of the bipartisan infrastructure legislation. Is it enough? If you’re a developer of transmission, are you going to spend a 100 million bucks now to develop a transmission line because of all these new authorities we just provided? Right?

Jon Powers:

Right.

Jigar Shah:

If the answer is no, well then we clearly missed the mark.

Jon Powers:

Right.

Jigar Shah:

Right. Clearly your board hasn’t authorized you to spend a 100 million dollars. Now we’re going to get in your face and get you to tell us what the feedback is. Why did you vote against putting a 100 million dollars into development of a new transmission line? Give us the feedback so we can improve. And we can make sure these policy mechanisms really do unlock carbon sequestration and storage or hydrogen or transmission or green cement or green steel, I mean-

Jon Powers:

Right.

Jigar Shah:

… or offshore wind or whatever it is that we’re talking about, right? And I think in general, the government for a long time thought, well, it’s RFI process. The request for information process was suitable.

Jon Powers:

Yeah.

Jigar Shah:

But you and I both know the vast majority of our peers in this sector are closet libertarians.

Jon Powers:

Yeah.

Jigar Shah:

And they’re like, “I did all this stuff on my own. The government had nothing to do with it even though I’m using $4 billion worth of government tax credits every year and I invest heavily into the trade associations to make sure that those tax credits keep streaming.” They don’t ever engage. I mean and-

Jon Powers:

Yeah.

Jigar Shah:

… and the when we do get engagement, it’s generally through the government relations people or the trade associations. And I love those people. I’m not badmouthing them.

Jon Powers:

Yeah.

Jigar Shah:

But they’re not capital allocators.

Jon Powers:

No.

Jigar Shah:

Right? The capital allocators are the CEO.

Jon Powers:

CEO.

Jigar Shah:

So I’m like, “Are you going to allocate capital or not based on these new policies?”

Jon Powers:

Who likely never even knew the RFI process happened so they’re definitely not putting input in. Right.

Jigar Shah:

Right. And so I’m shaking the trees and forcing them to respond and saying, “Hey, this is the moment where you get to tell me that good idea that you set on the podcast. Well, don’t put it on the podcast, actually write it up and send it in the RFI process and then we’ll change the way we provide those grants. So they’re not just 50/50 cost share grants which you don’t want to do. I get it. And instead you want us to solidify a contract for differences so that you can raise commercial debt and you can train the market so that once that grant is over, right? Then the market is ready to go.” Got it. Okay. Well then say that to me so that I can say that to the internal people at DOE and they can change the way that the funding opportunity gets structured.

Jon Powers:

So with that in mind, have you guys seen a ramp up in applications coming to LPO?

Jigar Shah:

Oh, yeah.

Jon Powers:

For the opportunities?

Jigar Shah:

Oh yeah. I mean, since the secretary’s been talking about us all the time, I mean, we’re up to, I think a cumulative of, over the last six months, we’ve averaged $1.6 billion worth of application a week.

Jon Powers:

A week?

Jigar Shah:

A week.

Jon Powers:

Wow.

Jigar Shah:

Right. And so we have roughly 115 applications that have either been submitted or we’ve gotten an early draft of it, and representing $90 billion worth of resources.

Jon Powers:

Yeah.

Jigar Shah:

And we think that we’ll still maintain that $1.6 billion a week all the way through 2022.

Jon Powers:

And looking at the different verticals that you guys are addressing, do you see that coming in more weighted towards one versus the other or are there is a pretty wide spectrum of what you’re seeing?

Jigar Shah:

It’s pretty amazing how diverse they are. We’ve got three applications for brand new nuclear plants, if you’ll believe it.

Jon Powers:

Wow.

Jigar Shah:

Right? A fourth one expected the next few weeks. We’ve got $12 billion worth of applications for carbon sequestration and storage type projects and fossil projects, which is great. We’ve got-

Jon Powers:

Yeah.

Jigar Shah:

… a number of projects, of course, in the renewable energy and efficient energy categories, which is like sustainable aviation fuels and green hydrogen, and a lot of that kind of stuff. But we have a lot of industrial emissions applications, right? Green chemicals, green cement, green steel. Some of that kind of stuff, which I think is awesome. And then of course on the ATVM side, the Advanced Technology Vehicle Manufacturing Program, you got all these new electric vehicle manufacturing facilities, you got battery gigafactories, you got… I think we have nine applications that have either come in or are being prepared for critical minerals and making those here, recycling batteries.

Jon Powers:

Yeah.

Jigar Shah:

And then we have our first Tribal Energy Loan Guarantee Program application that’s come in. So we’re hoping that gets through the process here soon. And then we got three more after that, the tribal energy loan guarantee program. So, we’re active.

Jon Powers:

Yeah. Very active. So with that ramp up in activity, one, how do you guys sort of prioritize where we’re going to be putting the dollars? And two does the current, obviously the infrastructure bill and then Build Back Better, not just the agenda, but the actual legislation. Is that going to continue to enhance and grow your impact?

Jigar Shah:

Yeah. I mean, in general, I’d say that we’re not really picking one application over another.

Jon Powers:

Okay.

Jigar Shah:

So it’s not like we have five applications and we say-

Jon Powers:

Could you talk through that process for a second? Just so folks that may not understand what the application process is, how that sort of works.

Jigar Shah:

Yeah, that’s great. So, I mean, we basically do extensive pre consultations.

Jon Powers:

Okay.

Jigar Shah:

So we basically give you all of the advice around the low hanging fruit and the long poles and the tent early. So we say, “Well, you might not meet the innovation requirement. You might meet the innovation requirement.”

Jon Powers:

Okay.

Jigar Shah:

“Here’s an integrated business plan that you have to do, or here’s greenhouse gas emission savings.” Or whatever it is that we have as our requirements, we try to really give you a good sense of it before you apply. So that way you don’t have to spend the 500 hours putting an application together, right? And then once we have a good sense, and we’re never going to know for sure until you submit it, right? Because sometimes people will say one thing verbally-

Jon Powers:

Yeah.

Jigar Shah:

… and then submit something different in writing.

Jon Powers:

Okay.

Jigar Shah:

Then we invite you to come in. And we only invite applications to come into the office that we think have a chance of getting approved. If we don’t think you have a chance of getting approved, we tell you to save your time, right?

Jon Powers:

Yeah.

Jigar Shah:

So all the $90 billion of applications that are actively being prepared are ones we think have a good chance of getting through the entire process. Then once you submit it, we first do a review of the greenhouse gas emissions savings and the innovation requirements, right? And we basically send you a letter that says, “Yes, you save greenhouse gas emissions sufficiently to matter.” Right? We’re not going to do something that just has a 1% say savings.

Jon Powers:

Right.

Jigar Shah:

And you are innovative. And we send you a letter saying that we believe you’ve crossed the threshold, right? The next stage is you give us the 30 to 50 page SIM. You give us the full data room. You give us the-

Jon Powers:

Right.

Jigar Shah:

… financial model, and then you have to hire one of the seven approved rating agencies to do private rating. And we don’t really care what they rate your project although it’s interesting. And what we-

Jon Powers:

Yeah.

Jigar Shah:

… care about is the 75 pages of advice that they provide around why they provided that rating. It’s important for OMB to believe that, like we didn’t just figure it all out at DOE but we got a second opinion.

Jon Powers:

Yeah, to folks that don’t know, OMB is the Office of Management and Budget.

Jigar Shah:

That’s right.

Jon Powers:

Sorry. That’s right. Okay, continue.

Jigar Shah:

The acronyms get a little crazy here in the government.

Jon Powers:

I get it.

Jigar Shah:

My wife used to work at OMB. So I’ve known that one for a long time. Yeah. And then once you’ve submitted that next set of material, we determine that it’s all there, right? And sometimes it’s not, we ask you for more stuff.

Jon Powers:

Yeah.

Jigar Shah:

And then we hire a bunch of consultants and other third parties to help us do the diligence, and that could easily cost us a million bucks or more to do that, right?

Jon Powers:

Right.

Jigar Shah:

And that’s why our average loan size is $750 million, right? And so we can do smaller deals, a $100 million dollar deals or less but generally speaking, it’s bigger loans, right? And then when we close the conditional commitment, which is basically a 25 page term sheet, right? Then it’s largely gone through the government, right? That means it’s been approved by the Office of Management and Budget.

Jon Powers:

Right.

Jigar Shah:

It’s been approved by the US treasury department, approved by the secretary ultimately, and you have a term sheet, right? And then you close the loan, right? That’s a legal document that actually closes it.

Jon Powers:

Yeah.

Jigar Shah:

And that’s when you owe us a full reimbursement of all the fees, is when we close, right?

Jon Powers:

Right.

Jigar Shah:

So you don’t pay anything through this whole process. You reimburse us for what it costs us to underwrite your loan at that end point. And then we do first disbursement, right? When you’ve met the milestones, right? So you might say, “Well, we’ll only do first disbursement after the equity has actually come in and been funded.” For instance.

Jon Powers:

Yeah. And how long in the projects you’ve seen, I mean, you guys have only been in there now for about six months, is that right?

Jigar Shah:

Yeah.

Jon Powers:

Yeah.

Jigar Shah:

Yeah, that’s right.

Jon Powers:

What do you… Just so to set the table for folks, and having… By the way just for the audience, I’ve been in some of these earlier conversations as CleanCapital and folks we know and are… As Jigar said, the collaboration is phenomenal and the advice that help think through how to approach is phenomenal. So you don’t have to come in with the perfect cookie cutter to put forward, but they help advise you on how to think about it. But once that application’s in, is it an 18 month window? What’s a realistic timeline on-

Jigar Shah:

so-

Jon Powers:

… the underwriting and getting a closing.

Jigar Shah:

So I think, I would say that in general, it was sort of probably a 12 month window before. I would say that we’ve done a pretty good job of shrinking it to six.

Jon Powers:

That’s great.

Jigar Shah:

And we’ve got one project in particular that looks like it’ll get done in four.

Jon Powers:

Wow.

Jigar Shah:

So it can be pretty fast. I mean, obviously it depends on how prepared the applicant is. And I do want to make sure that we acknowledge fully that the vast majority of our applicants that come into our office are not prepared to do project finance, and that’s okay. The whole point of this is for us to be a safe place for these entrepreneurs who are frankly, like I said, the best of their generation, the best that America has to offer, but they’re expert in manufacturing stuff.

Jigar Shah:

They’re experts in the next generation of hydrogen electrolyzer technology. They’re not experts in commercial debt. The vast majority of these folks have raised A rounds, B round, C rounds, D rounds from equity. And equity as you know, that story-

Jon Powers:

Yeah.

Jigar Shah:

… is always about the future.

Jon Powers:

Right.

Jigar Shah:

And commercial debt is always about the past.

Jon Powers:

Right.

Jigar Shah:

And the past is not always beautiful. I get it, right? Like there are a lot of mistakes made. You learn from those mistakes. You put them in version 3.0 of the product. But I think that there’s just a lot of confusion and a lot of uneasiness from these entrepreneurs around commercial debt because they don’t want to be judged. And a lot of what I’ve said to them is like, first of all, I am judging you. It’s not an uncomfortable process. I’m not judging you badly, I’m just judging you to see whether we’re going to have a reasonable prospect of repayment, right?

Jon Powers:

Right.

Jigar Shah:

And we’re here because we’re supposed to believe in you. That’s the whole point of this office. Now we may not get there. And if we don’t get there, I’ll give you a very clear set of feedback. And so I’m not closing the door I’m just saying, we’re not going to get there in this round, come back to us when you’ve solved these three things.

Jon Powers:

Right.

Jigar Shah:

And I think a lot of the folks that we’ve invited into the 90 billion, right? Because there’s a lot of folks that we tell like, “Look, you’re just not going to make through the office. Don’t bother.” Right?

Jon Powers:

Right.

Jigar Shah:

And the 90 billion we actually have pre-evaluated and we actually think we’ll probably have a good chance of making it through the office, but they may end up with just one conditioned precedent to closing that they just can’t solve.

Jon Powers:

Yeah.

Jigar Shah:

And then in that case we say, great, we’re going to put you on ice and when you go solve it, come back to us and we’ll start where we left off.

Jon Powers:

Yeah. And realisticall the four to six month window is pretty commercial to what we’re seeing for a big debt facility.

Jigar Shah:

Yeah. That’s the goal.

Jon Powers:

For sure. Yeah. So I want to go back to the framework of the American approach of commercialization, which I find so interesting and refreshing and gets me really optimistic about sort of the path ahead. Could you just take a second and paint a picture of maybe a case study or I go to a company, but an example of like-

Jigar Shah:

Yeah.

Jon Powers:

… technology that followed that framework or is following that framework, and what it means for really growth and scale over the next say, five to seven years, right? If-

Jigar Shah:

Well, let’s go through three of them because I feel like the most important thing I would say is that every framework is uniquely different.

Jon Powers:

Right.

Jigar Shah:

And I think we should just acknowledge that because I think that people in government in particular just love these like doctrines, like this is the new doctrine, right? And-

Jon Powers:

Right.

Jigar Shah:

… that doesn’t work. So I’ll give you three things that were funded heavily within the bipartisan infrastructure legislation, which have three different frameworks, right? So the first one is nuclear, right? There was billions of dollars put into the bipartisan infrastructure legislation to support the next generation of small modular reactors. Right? And advanced reactors.

Jon Powers:

Yeah.

Jigar Shah:

Well, you and I both know that those are very difficult things to do, right? You got Bill Gates with TerraPower, you got these other people with X-energy, you got folks like NuScale, you got GE Hitachi, you’ve got Holtech, you’ve got all these designs, right? And on the micro reactor side, you’ve got like Oklo and Radiant nuclear and all these like great designs. And we evaluated 40 designs in the Office of Nuclear Energy for the Advanced Reactor Demonstration Program.

Jon Powers:

Okay.

Jigar Shah:

And they picked X-energy and TerraPower, right? To get those first grants. Well, we have the ability within $10 billion or so that we have in the Loan Programs Office for nuclear to stand up the supply chain, right? So these plants are not going to be built until 2027, 2028, 2029, right? But the only way for them to get that done is for us to start building up the supply chain now-

Jon Powers:

Right.

Jigar Shah:

… so that they can start construction in 2024 and be completed by 2029, right? For the first one. And then we need to build like 10 of them in order to justify the supply chain.

Jon Powers:

Right.

Jigar Shah:

Right? And so we have been working tirelessly with NEI and all of the utility members and all those people to say, “Look, what would make you to want to buy a nuclear plant?”

Jon Powers:

Right.

Jigar Shah:

Right? Like, “Is it this grant program? Is it the tax credit that was announced? Is it something around nuclear waste? Is it around the fuel supply? What would cause you to want to do this?” And some of it is of course we have a lot of locations like coal power plants that are going to be shut down. And many of those towns have been power plant communities for 50 years, right? And they’re going to lose out on 50% of their entire town budget because the property taxes that were being paid by that coal plant was 50% of the budget, right? So that’s boy scout troops and girl scout troops and others that-

Jon Powers:

Yeah.

Jigar Shah:

… just don’t get money, right? And the secretary cares deeply about that and she has her place based initiative and she wants to figure out how to do this. Well, guess what? Right? Like when you look at flexible base for power plants, you could do advanced geothermal, you could do backs, right? With biomass.

Jon Powers:

Yeah.

Jigar Shah:

You can do low impact hydro, and you can do nuclear. Well, note, the other three technologies may not be relevant to all these coal sites, but nuclear often is.

Jon Powers:

Yeah.

Jigar Shah:

Right.

Jon Powers:

And the infrastructure there.

Jigar Shah:

And so when you think about that conversation and how to do it, it does require a $100 million of private sector deployment to be able to justify all the supply chain investments. So you need to figure out how to get to a $100 million dollars worth of nuclear deployment, no easy task. But it is something that the Congress has asked us to do, right? With the money that they’ve provided us in the bipartisan infrastructure legislation. And so that conversation is ongoing and they’ll be roadmaps created. And we’re excited about that conversation.

Jigar Shah:

The next sector we could talk about is hydrogen. Right? We have a lot of money for hydrogen that came out of the bipartisan infrastructure. Right. We have hydrogen hubs. We have demonstration projects. We have all these different colors of the rainbow that people want to talk about. We’ve got… And then you also have existing hydrogen infrastructure, right? Like air products as an existing like $700 million, 700 mile hydrogen pipeline in Louisiana and Texas.

Jon Powers:

Right.

Jigar Shah:

Right. And so how do you do that? And you’ve got the secretary who’s talked about her earth shot for hydrogen and getting $5 to a dollar. And so where does that go and how do all these people fit in? And you’ve got already very large bets that have been made by the private sector. I think there’s $500 billion worth of projects that have been announced already in the United States, right? Not all of them have been funded-

Jon Powers:

Right.

Jigar Shah:

… but you could imagine getting a $100 billion put together. And we have a lot of interest from international investors like from Korea and from other countries. And so how does one put that together? And what are the business models? Right? Is it just a green hydrogen facility that’s co-located with solar and wind? Is it a green hydrogen facility that’s put on top of a salt dome and then you store the hydrogen under the salt dome? Are you using that natural gas power plant as a peaker plant? Right? Is it using hydrogen for chemicals? Because hydrogen is a big component for chemical manufacturing. Do you turn it into ammonia, which is a much higher value product?

Jigar Shah:

And we import a ton of hydrogen or ammonia from the Ukraine. And it’s mainly Ukraine, it comes by ship into Tampa. We have ammonia pipeline from Tampa to Louisiana and then we have another pipeline from Louisiana up to the Midwest, which is where they get a lot of their fertilizer.

Jon Powers:

Right.

Jigar Shah:

Right? Could we do that locally instead?

Jon Powers:

Yeah.

Jigar Shah:

Yes we can, right? So the question really becomes like, what is the business plan, and what is the private sector choosing? Like so to go back to nuclear, there’s all these designs. Does Jigar Shah get to pick winners or losers? No, the utilities get to pick winners or losers. Which design do they want to buy? Let’s say they decide to build a nuclear plant, do they want the GE Hitachi design? Do they want the TerraPower design? Do they want the X-energy design?

Jon Powers:

Right.

Jigar Shah:

Which one do they want to buy? Right? They have to pick it. And then we then will respond to the ones that they chose and then build the supply chain for those, right? And hydrogen’s the same, which application most interests them? Is it hydrogen trucks? Right? Is it hydrogen for fertilizer? Is it hydrogen for the Low Carbon Fuel Standard Credit Program in California?

Jon Powers:

Right.

Jigar Shah:

Right? What are all the models? Right? They have to decide. I could tell them what DOE thinks, but what DOE thinks only matters to a limited extent. They have to be the one who chooses which application they want to scale up. The last one is CCS. Right? We clearly have a lot of CCS already being done. Right. ADM has had those Class VI wells in Illinois where they take ethanol industrial processes, which is a pure form of CO2 that comes off that process, put it into a pipeline, it’s technically a Class VI well.

Jigar Shah:

We’ve been doing that for 10 years. Right?

Jon Powers:

Right.

Jigar Shah:

Then you have direct air capture. We have three and a half billion dollars that came out of the bipartisan infrastructure legislation with direct air capture. And you got folks like Stripe talking about how much their buy-in direct air capture credits and you got Microsoft and others, what do they want to invest in? Which approach they like the best? I think when I listened to the podcast of the day, that Shaw Khan has, he was talking about kelp.

Jon Powers:

Yeah.

Jigar Shah:

Nan, I think from Stripe was talking about kelp that they were bearing to the depths of the ocean after they grew it. Okay. I mean, like I could tell you what I think is the best idea but it doesn’t matter.

Jon Powers:

Right.

Jigar Shah:

We need a $100 million even in hydrogen and in carbon sequestration and direct air capture of capital formation. And then we use our three and a half billion dollars to facilitate and catalyze that. We also use the 45Q credits to catalyze that. Hydrogen is promised some credits in the tax bill. So when you think about those three sectors, which were given a lot of money in the bipartisan infrastructure legislation, they’re three very different strategies.

Jon Powers:

Three, yeah.

Jigar Shah:

So we got to figure it out.

Jon Powers:

How do you… If you had an advice for folks on the other end listening to this and they wanted to add their voice into this conversation, right? And they could be the CEOs of a company. They could be on the venture capital side. They could be on the investing side in general. Where do they begin to plug in? How do they become part of this dialogue so that they can make sure their voice is part of this commercialization conversation?

Jigar Shah:

Well, I mean, at the very least they should always contact us. The Loan Programs Office is talking to probably close to 500 CEOs a week, right? A week.

Jon Powers:

Amazing.

Jigar Shah:

Right. Some of them are obviously followups. So we’re talking to the same one, like eight weeks in a row.

Jon Powers:

Yeah. Yeah.

Jigar Shah:

But 500 CEOs a week, right? And so, we’re happy to add you to the list. And so if you have something to say and you think that us putting this money out the door differently would support your business better. We want to hear from you. Now, we may not decide that that’s the overarching consensus of the private sector voice, right? It’s just one company’s voice, but it’s important. And we’ll also send you to the folks who are leading the conversation on that sector. So for instance, we have very loud voices in the carbon sequestration and storage space that we could send you to and say, “This group is consolidating 10 different pieces of feedback from these companies.”

Jigar Shah:

Right? And this group’s doing the thing.

Jon Powers:

Yeah.

Jigar Shah:

So you should talk to them and see whether your ideas is the most compelling, right? I’ve got a bunch of venture capitalists who basically have very strong opinions. I was like, “Great. Write it up.” Well, I-

Jon Powers:

You always do.

Jigar Shah:

Well, actually, but a lot of the venture capitalists said, “Didn’t I just like give you my feedback verbally.” I was like, “Screw you. What is this verbal thing? I’m not your hand maiden. Write it up and send it to me.” They’re like, “Okay, fine.” So like, I mean, you have to write it up. It’s the way the government works.

Jon Powers:

Yeah, fortunately.

Jigar Shah:

You can make it six paragraphs in an email, but you got to write it up and send it to our office and we’re happy to engage with you on the phone and then we’re happy to send you to the right people within DOE who need to hear that from you or to the right nonprofits externally, they’re doing a lot of work in each one of these areas, to do that, right? And then I think the other thing that we’re finding is there’s a lot of folks who are putting together workshops. I mean, just to put this in perspective, right? The air stimulus bill was over &10 billion of new money to DOE which is great, right? The bipartisan infrastructure legislation alone is $62.5 Billion, let alone whether Build Back Better gets passed and how much more money we’re going to get from that.

Jon Powers:

Yeah.

Jigar Shah:

Right? And so like, this is a gigantion amount of money. If the private sector takes a libertarian point of view here, and doesn’t tell us how to spend the money, then you know damn well that three years from now they’re going to say that we wasted it all.

Jon Powers:

Exactly, yeah.

Jigar Shah:

And I’m here are to say that it’s their fault.

Jon Powers:

Right.

Jigar Shah:

This is the moment to actually give us the feedback to tell us how to do it right. And I’m here and I’m all ears, right? I think everyone knows that I don’t have a dog in this fight, I just want to make sure that that private sector capital gets formed, and so that we achieve liftoff for these sectors.

Jon Powers:

Jigar, this has been super helpful. And I want to come back a year from now and talk about where we are and where we can go forward. But I do have one final question for you as someone who has now crossed the threshold, like what has most surprised you/demotivated you from being on the public sector side now, working in government?

Jigar Shah:

Well, I mean, I look, I do think that everyone is more open-minded than even I knew, and I knew they were open mind because I talked to some of them before I took the job.

Jon Powers:

Yeah.

Jigar Shah:

But they were even more open in minded than I thought they were, right? Whether it’s state governor’s offices from red states and blue states, I’m talking to all of them and they all want to attract this level of economic development, but they genuinely don’t know how to. They’re like, “We don’t know what assets we have to bring to bear.” Many folks for instance, have state finance agencies. Did you know that the Clean Water Funds in all 50 states have been deemed by Fitch to have a AAA rating?

Jon Powers:

Yeah, I know.

Jigar Shah:

Right? The US EPA has already cleared the Clean Water Funds to provide credit enhancement. Like even if they don’t want to provide dollars to the companies, let’s say they say, “Well, the wastewater treatment plans don’t want a single dollar of that money to go to a clean energy company.”

Jon Powers:

Yeah.

Jigar Shah:

They can guarantee a loan on your behalf with Citibank or JP Morgan or whatever else with their AAA rating and provide you a guarantee, right?

Jon Powers:

Fascinating.

Jigar Shah:

And when I explain to people they’re like, “You’re the first person who has told that to me.”

Jon Powers:

Yeah.

Jigar Shah:

And I’m like, “Well, four banks have already done it before. And EPA has already said that this is allowed.” Right? So there’s literally all of this stuff right around workforce training, right? There’s tons of workforce training dollars and people don’t know where it is.

Jon Powers:

Yeah.

Jigar Shah:

Right? There’s a lot-

Jon Powers:

We’re getting to Buffalo Jigar, we’re getting to Buffalo. I’m telling you.

Jigar Shah:

Well, but we got to go to that mayor-

Jon Powers:

Yeah.

Jigar Shah:

… they got written in and say to him, “Hey.” Like, I’ll give you an example of, yeah. I’ll give you an example in Buffalo, right? You have smart surfaces issues, right? And so-

Jon Powers:

Yeah.

Jigar Shah:

… poor communities have a lot of dark surfaces and so as a result in the summertime, it’s 15 degrees warmer in those neighborhoods than it is in places that have green spaces and parks.

Jon Powers:

Yeah.

Jigar Shah:

We have money for that. Right? Through DOT and through the economic development in administration and through the weatherization programs at Department of Energy, right? And they’re like, “Well, we didn’t even know to ask for that money.”

Jon Powers:

Right.

Jigar Shah:

And I was like, “Yeah, but you got people who are in these heat waves suffering from… They’re 15 degrees warmer than the rest of the community.”

Jon Powers:

Yeah.

Jigar Shah:

Which is unconscionable, right? So the air conditioning costs are higher. Like they’re breathing all sorts of volatile organic compounds that come off of the asphalt because of the temperature. We care deeply about making sure these communities have a fair shot, and we have money for that. But there’s a lot of these things where folks are saying, “Well, we’re waiting for Build Back Better to pass.” I was like, “Yeah, I want Build Back Better to pass too but the money’s already there.”

Jon Powers:

Right.

Jigar Shah:

“You can apply for it next week.”

Jon Powers:

And my message to the audience is apply. Let’s figure this out.

Jigar Shah:

Yeah.

Jon Powers:

So-

Jigar Shah:

And let us help you get through it.

Jon Powers:

Absolutely.

Jigar Shah:

We’re happy to help.

Jon Powers:

Jigar, thank you so much. And thanks for the leadership you’re bringing into this issue because it’s going to be… To really get to where we need to be on climate and clean energy, it’s going to take that American approach to commercialization. So, thanks so much for being here today.

Jigar Shah:

Well, you are one of the major forces that inspired me to serve. So, thank you for-

Jon Powers:

I appreciate that.

Jigar Shah:

… what you’ve done and what you continue to do. Thanks for having me.

Jon Powers:

Thank you. Thanks. And thanks to Jamie Nolan and the team of DOE for helping to put this together. As always our producers Colleen Young and Carly Battin, and you can get more episodes @cleancapital.com. Looking forward to continuing the conversation. Awesome. I’m just going to stop this. That was great.

Jigar Shah:

My appo-