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 ind