It's Time to Jump In

Decarbonization is crucial to mitigating the climate crisis. But it’s also an immense ‘wealth-generation opportunity’ for businesses, according to alumnus Jigar Shah.

Fall 2022

It takes tons of money to remove gigatons of carbon from our global energy ecosystem. Money invested in battery factories, solar farms, nuclear plants, electric vehicle charging networks and carbon sequestration strategies. Efforts that will require trillions upon trillions of dollars.

Jigar Shah believes we can do it, and he’s responsible for a large chunk of the investments that can make it happen. Shah leads the U.S. Department of Energy’s Loan Programs Office, which is providing about $40 billion in government-backed liquidity to commercial enterprises that are working on green-energy infrastructure. Shah earned a bachelor’s degree in Mechanical Science & Engineering from The Grainger College of Engineering before launching a solar energy startup and then Generate Capital, a multibillion-dollar firm that builds, owns, operates and finances sustainable infrastructure worldwide.

“Decarbonization is the greatest wealth-generation opportunity the United States has in front of it. It’s really time for people to jump in and help,” he said. Shah talked to us in the Spring of 2022. His interview has been condensed and edited.

Let’s be sure we get a full understanding of the size and scope of the DOE Loan Programs Office as we start.

JIGAR: The Loan Programs Office has about $40 billion of resources available. It’s split up into renewable energy, nuclear and fossil. We’ve also got ATVM, which is the Advanced Technology Vehicle Manufacturing Program, and that’s where Tesla and early battery manufacturers got their loans. And today [it supports things like] critical-minerals providers, folks who are mining for lithium or graphite or other important minerals. And then we have the Tribal Energy Loan Guarantee Program, which is about $2 billion and helps Native American tribes be part of the decarbonization momentum.

We have about 170 people total on staff, many  of whom evaluate and process the applications  that come in. The goal of the program is to provide  liquidity. It’s not a form of subsidy. Our terms are expected to be roughly the same as what they would get with a commercial bank. Then we have a portfolio management group, which currently manages  $30 billion of loans.

Our largest loan that’s closed today is $5.9 billion. We have a $12 billion loan that’s coming for the Vogtle nuclear plant in Georgia. Our average loan size is about $830 million, and our median loan size is around  $530 million dollars, so pretty big projects, pretty  big loans.

The sectors we cover are all the sectors you’ve heard about. Applications from biofuels to nuclear to carbon sequestration. Hydrogen and electric vehicle charging networks. EV manufacturing and battery manufacturing. We’ve got some advanced fossil fuel projects. We’ve got methane detection, so we can reduce methane leaks.

We’re proactive in the sense that we can start  dialing up entrepreneurs and saying, “Hey, we want  to make sure you know that we exist. If you have a project, make sure you come to us.” We do that.  But ultimately someone’s got to have a project that’s ready for financing – say a manufacturing plant that they want to build – before we can help them.  We don’t provide grants.

Faculty who are reading this might be more familiar with that grants side of the DOE house.

JIGAR:And we complement that work very well. When I was at the University of Illinois there were, like, five or six professors I knew who had spun out technologies they had invented into companies.

Very different since then – lots more of that activity.

JIGAR:Absolutely. And the university supported them then and supports them now. What I find is that a lot of faculty members around the country do understand the technology side of what they’ve invented. And they certainly know who the first two or three customers are who could benefit from it, because they likely worked with them to demonstrate that there was market viability there before they started their company.

But when it comes to the next stage of growth, the vast majority of those customers really want to buy the service. Most people don’t want to buy solar panels. They want to buy solar power. The same thing is true with hydrogen or carbon black or any of these things that we’re doing. So what you find is that a lot of these innovators, particularly in the faculty context, don’t  have a clear level of mastery over commercialization, but the success of their company is based on a mastery over commercialization. So that’s a lot of what we’re doing at the Department of Energy and at the  Loan Programs Office.

We’re helping those same professors that we funded earlier in the process make it across the bridge to bankability, so that they can fully commercialize their technology. One, so they can create wealth for themselves and all their employees and all the people who join their effort. But two, so that we reduce greenhouse gas emissions. We’re in the position  where we need them to be at billion-dollar and  trillion-dollar scale to really save gigatons of carbon. But it starts with the $100 million scale – early amounts of money so we can get them fully bankable by commercial banking interests and educate them  on what that process looks like.

Some of these projects are first-of-their- kind deployments of the technology. Talk a little about those in terms of bankability and any examples you might have.

JIGAR: The Monolith deal we announced in December 2021 is a good example of this. The technology that they’re deploying is called a plasma torch. It basically uses electricity to break the bond between carbon and hydrogen in a methane molecule. You’re left – once you’ve broken the bond – with carbon and hydrogen. Both are super valuable. The carbon is carbon black, which we use to make tires and other things. And the hydrogen, well, it’s the future of decarbonization…

We’ve preliminarily approved them for an initial commitment of $1.04 billion. They’ve got to complete some things prior to closing before we’ll fund, but that will give them a roadmap. And that roadmap is hugely helpful for the equity that they’re raising, because equity is saying, “Gosh, if DOE has reviewed this and agreed and gone so far as to give you a conditional commitment” – which I can tell you is no joke, getting through us and the Office of Management and  Budget and Treasury – “then there really must be something here.”

So it’s been really helpful to them in raising their equity, which is one of the conditions of our closing  on the commitment. The project will probably take about two years for construction and then it’s probably three years of ramp-up to get to full production.  That puts you into 2025, 2026, for a full proof point. That’s how long it takes to commercialize a  first-of-its-kind deployment.

And billion-dollar investment from DOE is a way of nudging the capital market into all kinds of decarbonization solutions?

JIGAR: I think that’s right. And it’s a very natural phenomenon. If you don’t know something about an area, and your friend who’s an expert in that area says, “Well, I invested $5,000 of my own money into that restaurant, because it’s in a great location, and they’ve got a great team and they’re going to succeed,” you might say, “I don’t really know anything about the restaurant business, but I trust my friend. Therefore, I’ll put money in too.” You want someone who you perceive to be more knowledgeable than you are to go first – to do all the work, review the business plan and make the decision to invest.

You got your start in the solar industry. What did you learn about that sort of hustle for investment in a technology company from those early career experiences?

JIGAR: I grew up in Illinois and attended the University of Illinois and already knew at the time that I wanted to work in solar power. Worked with Professor Ty Newell who’s since retired. Part of my learning was that I was sort of trying to figure out: Once a technology is proven, and you’ve got hundreds of deployments and you know that you can do it, why is it not taking off? And I would say that that’s been my journey for my entire career. Whether it was at the University of Illinois or whether it was at the University of Maryland where I got my MBA. I worked at Energetics, which is a consulting company for the Department of Energy, and I worked at BP in their alternative energy division.

Then I wrote the business plan for SunEdison while I was working for BP and was at the University of Maryland. It’s not the Fred Smith story where he got, like, an F from his professor. I actually got an A from my professor.

At least one other person thought it was a good idea.

JIGAR: Yeah. Exactly. So I left BP and started SunEdison. We quickly signed a contract with Whole Foods and Staples. Good companies. A lot of folks were concerned. These were folks who used to work at DOE. A lot of firms I went to were political appointees in the Clinton Administration. They were like, “Ah, I don’t know. Solar just seems really risky. You’ve got a 20-year power-purchase agreement from Whole Foods and Staples, but what happens if it doesn’t work?”

Along the way, you pick up these nuggets from people. Some of it’s logical, right? “Hey, it may take a 20-year bet on this technology for it to get paid back.” And some of it’s illogical. Some of it’s “Well, I can kinda hit my numbers to get my bonus by doing this thing that everyone’s already bought into. If I bring in this new technology, I’m going to have to spend 50 hours writing white papers and explaining it to them.”

Those sorts of insights brought me to the Department of Energy. The Loan Programs Office has been largely dormant since 2011, and Secretary Granholm made it a point at her confirmation hearing to say she’s going to revive it. She and President Biden recruited me to help revive it, and it’s been an extraordinary amount of fun doing that.

I want to be sure we have the chance to talk about job growth within the climate sector and DOE. Seems like a fascinating and important part of what’s going on too.

JIGAR: It’s a great area of focus for us…We have a huge shortage of qualified workers to make [decarbonization] happen.

We’re short 15,000 people in the solar installation industry right now. We’re short electrical engineers and engineers of all sorts, in all specializations. When you look at companies like Burns & McDonnell or Bechtel, they’ve got a lot of job openings. We’ve just received the largest amount of money that DOE has ever received through the Bipartisan Infrastructure Legislation – $62.5 billion that we need to spend over the next five to 10 years to invest into really achieving lift-off of capital formation, of private-sector interest in all of these sectors at trillion-dollar scale. So we’ve got a lot of work to do and that we’re planning to do. So we’ve got 1,000 people that we’re hiring at the Department of Energy. It’s all sorts of people from entry level to folks that have 20 or 30 years of experience.

We need to figure out how to move faster and get these projects fully formed. Even when you have a technology that you know works, local buy-in from the community and getting all the pieces in place is really hard. We need people from all sorts of backgrounds.

Wealth creation, job creation, an opportunity to mitigate the climate crisis. A win-win-win. This is a sweet spot you’re describing.

JIGAR: It’s also a ladder for skilled labor. I grew up in Sterling, Illinois, which had the seventh-largest steel mill in the country at one point. When I was graduating from high school, the steel mill was shutting down. There were a lot of people I went to high school with who thought they were going to get a good-paying job at that steel mill and didn’t…

Now, you can get a certificate in high school and when you graduate and turn 18, you can immediately start installing solar or fixing electric vehicles. Doing all the really important work we need, and the better you get at that skill, the more you get paid. It starts to create these good-paying jobs that people were expecting but that we didn’t see the promise of in the early ’90s when a lot of industry was being shut down.

We have the opportunity to give people meaningful work that is essential to solving a global problem at every level of the education spectrum.

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This story was published September 20, 2022.

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