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 shit 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.