Cleaning Up: Leadership in an Age of Climate Change

⁠The Future of Clean Tech Under Trump — Ep198: Jigar Shah

Episode Notes

How can the U.S. government bridge the gap between clean energy innovation and large-scale deployment? Will the Trump administration accelerate progress or put up roadblocks for clean tech? And how can the U.S. stay competitive with China, which already holds a commanding lead in the sector?

Jigar Shah joins Cleaning Up fresh from his four-year tenure as Director of the U.S. Department of Energy's Loan Programs Office (LPO). Appointed in 2021, Shah transformed the once-obscure office into a clean-tech commercialization powerhouse, committing more than $100 billion in loans to U.S.-based companies. But with a new administration implementing sweeping cuts to the federal workforce, is all his work at risk? Or will market forces and the very real risk of blackouts keep clean energy innovation moving forward?

In this conversation with Michael Liebreich, Shah shares how he turned the LPO into a driving force for clean technology deployment, and what lessons can be learned by policymakers, investors and entrepreneurs. He also offers a candid assessment of the opportunities and challenges across key sectors—from advanced nuclear to sustainable aviation fuels.

Leadership Circle

Cleaning Up is supported by the Leadership Circle, and its founding members: Actis, Alcazar Energy, Division Kempner, EcoPragma Capital, EDP of Portugal, Eurelectric, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit https://www.cleaningup.live.

Links and more

DoE Liftoff Reports: https://liftoff.energy.gov
Episode 9 with Jigar Shah: https://www.youtube.com/watch?v=QJhhinSeh9I
Episode 193, Mike Headroom's AI Audioblog: https://www.youtube.com/watch?v=OwZ2iNh133A

Episode Transcription

Jigar Shah

When you think about what the US economy needs to continue its extraordinary growth, right? It needs a lot more electricity. The US government and the USA is now a voracious user of electricity, and all of the best developers in the world are doing clean energy. I don't think that the knowledge gap is that large. There's a culture gap, and so right now there are people yelling at each other on the cultural front. But at some point I think physics wins, and I don't think presidencies do that well in rolling blackouts.

Michael Liebreich

Hello, I'm Michael Liebreich, and this is Cleaning Up. Now, I fully accept that my news feed might be slightly different from the average, but there is not a day that goes by when I don't read about some incredible new clean energy breakthrough. There are people who think that we should not be rolling out the current clean energy technologies that we have, but should be funding more boffins to work in more labs, producing more such breakthroughs. But it seems pretty clear to me at least that the difficult bit is not the lab breakthrough, it's commercialization, getting those innovations into the market at scale. My guest today on Cleaning Up is the world's biggest expert on that commercialization route.He doesn't just analyze it. He's not an academic. He actually does it. He single handedly invented the solar as a service system, as we heard when he first came on Cleaning Up for episode nine in September 2020. So it was not that much of a surprise when just a few months after that first appearance on Cleaning Up, he was tapped up by the incoming Biden administration to lead the US Department of Energy's loan programs office, with a total loan authorization of over $400 billion, and that's a job that he's held until just last month. Please welcome Jigar Shah to Cleaning Up.

So Jigar, welcome back to Cleaning Up.

Thank you for having me back. I feel like I'm part of that distinguished multi-episode group.

Well, that's right. So there's a few people now we've had back, and you were actually one of the very first guests that we had. It was actually September 2020, if you remember, all the way back to then. And you talked about creating climate wealth. We had a fantastic conversation. So have you been doing anything interesting since then?

No, it's just been a whirlwind of fun travel and no... it's honestly been a huge change, right? I mean, at the time at which we talked last I had not been approached, nor did I think that I was going to be approached by the incoming administration at the time and so, so it was a very unexpected last four years.

So we're going to get into how they approached you, and, of course, what the last four years entailed. But the interesting thing is as I was reviewing that episode and having a think about it, in some ways it wasn't even a change for you, because you have been working on the commercialization of these new clean energy technologies for the longest time. So I think it was since 1995 really, it's just been a relentless ‘let's get these things out of the door,’ because it makes sense, and we create wealth. And that didn't change these last four years, did it?

No, my entire career has really been different angles to the same question, right? Which is: if these technologies are so great and they've been demonstrated and people think they work, why are they not scaling? Why are they not commercializing? What is it that causes them to stall? And the answer is different for every single sector. But what I've learned is that the process of getting to the answer is actually the same for every single sector. And so that is something that I have become quite good at.

And for those who want to know all the things you did before becoming director of the Loan Programs Office, there is another episode, right? There's episode nine. We'll put a link into the show notes, and they can learn all about SunEdison. Actually, they can learn about BP Solar and SunEdison and the Carbon War Room and Richard Branson. It's a fabulous episode.

I have lived a charmed life, and you can learn a lot about it in episode nine.

Excellent. Okay, so those, for those of you who've disappeared to listen to episode nine, welcome back. Now we'll continue with the last few years. So, how does it actually happen when somebody calls you to say, 'hey, would you like to join the administration?

Well, it's a weird thing, because I've never been political in my entire life. I think my top donation before that last election was probably like $500. And so, I think in December of 2020, I got a call that said, 'Hey, would you think about running the Loan Programs Office?' And I had the Energy Gang podcast at the time. And I think in October, Steven Lacey had done some rapid fire rounds and asked me about the Loan Programs Office. And I think I said the office was 'irredeemable' on the podcast. So it was not my natural instinct to say, 'Yeah, I'm in,' you know. So I think my first step was to write a white paper that said, 'Here are the 10 reasons I would never take this job,' which I phrased as, 'here are the 10 things you'd have to change in order to get me to take that job.' And to my surprise, the future Secretary of Energy at the time, Jennifer Granholm, and Ali Zaidi, who is the head of the climate policy office, and then Brian Deese, who was the National Economic Council director, came on the Zoom and said, 'Okay, we will change all 10 of those things if you'll do it.' And I was like, 'Well, crap. I guess I'm gonna have to take this job then.' You know, Generate Capital was just coming into its own, so I had to leave a lot of money on the table in stock options and all that stuff. But it turned out to be an extraordinary opportunity. And I wouldn't change it, obviously, for the world.

Can we just go back to the reasons why you called it irredeemable? And obviously, you know, it had had a flourishing in the previous Obama administration, but then there had been Solyndra, and it had become this highly politicized, toxic thing. It had continued to exist through the first Trump administration, but it hadn't done very much. Is that right? Is that a fair sort of thumbnail of the story up to the point where that telephone call came through to you?

Yeah, I think that when you think about what we did at Generate Capital, and what Generate Capital continues to do: there are a lot of companies who go through rounds of financing and at some point they need a bigger check of non-dilutive capital, right? Similar to what Sun Edison's story was at the time that I started SunEdison. And figuring out how to get them that bigger check was something that we worked hard on at Generate. It's very obvious that the Loan Programs Office should have played that role, and could play that role in other places. The private credit markets, where Generate plays and other people play is sort of a 12 to 18% return type place.

Can I just cut in there just for a second? Because some of our audience will not know what non-dilutive financing is, and some might think it means grant financing. So let's just back up and make sure that we get the terminology out there.

Yeah. So when you think about the origin story of the Loan Programs Office, we had a whole bunch of technologies that we had invented at the US Department of Energy that were not commercializing. And many of them were going to Asia to get commercialized, or Europe to get commercialized. And the folks were tired in the US Congress of inventing everything in the United States and then not having it commercialized there. And you know, the challenge with it is if you look at the traditional way that things scale in the United States, it's through equity. And so people give you a billion dollars and they take an ownership stake in your company, right? Well, with clean tech, you're unlikely to get a 100x return on that money. And so ultimately, if you raise a billion dollars, your ownership stake basically goes to zero, and the investors, even if your ownership stake doesn't go to zero, get paid back first in an exit before you get paid anything. So if your valuation goes down, then you're really screwed. And so for a lot of companies, that formula meant that you didn't commercialize in the United States. And so non-dilutive capital means 'I will give you money for a specific manufacturing plant or a specific asset deployment.' Like in the case of solar panels, it's not the development company, but the solar projects themselves. And I won't take equity in your company, right? And so that way you can own more of it, and you would feel more confident scaling it here in the United States. And so the fact that Generate Capital existed and was so successful, but also the rise of private credit in the United States broadly, which is a very large asset class meant that the clean tech sector broadly was not looking to the Loan Programs Office at all. I mean, when I was active in Generate Capital, I don't think I once said to somebody, you know what you should do, you should unlock this latent potential in the Loan Programs Office. And so when you think about my joining the Loan Programs Office. It was not just the fact that the Loan Programs Office had this unused loan potential, which was roughly $40 billion at the time that I joined, but it's also why people were not using it? What was causing them to not want to use this dormant program, right? And you could imagine the number of answers and the number of questions were very long, and that helped me create the 10 point plan that I wrote, saying here are the things that need to be changed. And it went from, you know, like there were a lot of CEOs dragged in front of Congress and made to be embarrassed for using the Loan Programs Office in the 2011-2012 timeframe. And a lot of people said, I don't want to subject myself to that in the future. To, you know, like the US taxpayer requires terms that people didn't want to agree to, right? So there were lots of reasons why you could imagine people didn't use the Loan Programs Office and unpacking that was quite complicated.

And there are quite a few parallels with the time that I was starting New Energy Finance back in 2004, where there were programs, there was money available, governmental money of various sorts, but it was all so tangled with strings and hoops that you had to jump through, and implications that it was just very clear you did not go there. I have a feeling that, you know, Horizon programs in Europe are a little bit like that. You can have a very, very nice, I don't want to call it a pseudo-business, but you can go that route, but it's very unlikely that you'll then emerge as a red meat eating, fully commercial, rapid growth, hyper-growth, scale up. It sucks you in. So maybe there are some parallels there.

There are, and I think that the fact that Tesla came out of the Loan Programs Office, the fact that First Solar built a lot of their first solar farms using the Loan Programs Office and others... you know, showed that spark of potential where I said, 'Well if we're really going to solve this climate change thing, there really does have to be a bridge to bankability.' And right now that bridge only exists for certain asset classes and is non-existent for other asset classes, and that needs to be more universally available to all asset classes that are required to meet our mitigation goals. So I think part of my insight when I came into the US Department of Energy was that we had this program that actually had an original mission that was worthy and had proven itself from 2009 to 2011, but the second piece of it is that it was very apparent to me that that you could not really, with Brexit and all these other things that were going on, you really could not sustain this model where everything was invented in the United States, and then we give our technologies practically for free to China. China then scales it up with their expertise, and then we import it back. That is clearly something that the politicians have said we're no longer going to do, right? And so whether it was Trump's first election or whether it was Biden's election, they all basically said the same thing around that dynamic. But the problem is, you can't just say something. The question becomes, what are you going to do? Because the companies who are all rapacious capitalists, are going to do things that maximize the value of their company and shareholders. And if that means that the implicit strategy is to take your technology to Mexico or China or the places to scale it up, you're going to do that either way. You need to prove out the technology and get an exit for your investors. And so railing against that model without providing an alternative model was not useful. And so being a part of figuring out what that alternative model would be is what I opted in for.

Okay, now, just before we go into what you did once you joined, I just want to register that we talked about this question of non-dilutive capital. We talked a little bit about the needs for capital, but it's really important for the audience to understand that there is capital that you need for a company or solution, a manufacturer or a service provider that's providing the solutions. And then it's a completely different capital structure when you start to really scale that up, and you need, whether it's project finance or lease finance or some much bigger chunks of money that are required to get stuff out into the market. And so with those two kind of distinctions you've got, I mean, we often call it topco and assetco or corporate equity, and then infrastructure or project equity and so on. What did you actually do once you got behind the desk in your new job?

Well, so if you think about LPO 1.0 — putting Tesla to the side because the Advanced Technology vehicle Manufacturing Program has a slightly different mandate. But the rest of the loans were really power purchase agreements with electric utilities. So what the office was good at at the time was taking a 20-year, 30-year power purchase agreement with a credit worthy utility who's buying solar power at 17 cents a kilowatt hour at the time, in 2008 and, you know, financing that asset. Well, that wasn't the reality of 2021 right? The reality of 2021 was green chemicals or sustainable aviation fuels or clean hydrogen, or the other things, right? And these are sectors that did not sign 20-year power purchase agreements. They did not sign these 20-year off take agreements. And so the question becomes, first, let's survey the marketplace. Who's likely to use the Loan Programs Office? I called 300 entrepreneurs and innovators that I knew, and I said, 'I think you probably need a billion dollar check to do your asset co.' And where are you going to get that billion dollar check? Oh, nowhere, likely. Well, then how about you consider this place? So once you've gotten 300 entrepreneurs and innovators, many of which, of course, are like, 'there's no chance I'm going to use the Loan Programs Office,' then you find your 20, 30, 40 companies that might use it and say, 'what level of flexibility do I need to be able to serve these companies,' if they made any sense at all, to serve right? And it turns out that the loan programs office had artificially restricted itself to these 20-year power purchase agreements. And so when you read the original text of how the loan programs office was formed, none of those were pre-ordained by Congress. It was more about 'here's who we're serving.' We might as well be more risk averse and put in all of these protections in our program.

And to be fair, go back to 2008-9, or whatever, that was what was needed, right? But yeah, of course they'd been very successful. So now there were lots of commercial players. You have a 15-year offtake power purchase agreement. It wasn't that difficult to raise debt anymore from the private markets.

Oh, I think that's right. I mean we effectively were the bridge to bankability in the United States for those projects. We did the first five 100 megawatt solar farms in 2010 and as you know, there were no buyers of those projects at the end of 2012, and that's why Berkshire Hathaway bought them all. And Berkshire Hathaway always gets a good deal, so you can imagine how good a deal they got. And it wasn't until 2019 that Bank of America fully approved solar as an asset class, right? So it took a long time for the big banks to say that solar was an acceptable asset class. In the meantime, there were Brookfield and others who came in with various levels of risk measures, right? But it was not a fully accepted asset class across the bridge to bankability, and now we had to identify what were the next users of the LPO that wanted to get onto that bridge to bankability.

I looked at all these new sectors, green chemicals, green hydrogen, etc, etc. Before we go further, just give us a thumbnail of how much money you put to work? Because when you came in, there was $40 billion unlent that was just sitting there. But you did more than that, didn't you?

By the end of our tenure, we had obligated $107.5 billion dollars worth of loan authority, and had already wired out the door $10-20 billion of that.

Now, when you say obligated, that is going to lead on to conversation about how obligated is obligated? Because if money is still sitting not drawn down, I guess there's a question, is there a risk that it will never be drawn down given the priorities of the incoming administration?

Maybe, but I don't think that's a good place to start. I think the right place to start probably is what we accomplished first, and then I'm happy to go through that, because ultimately, I think what we accomplished at the Loan Programs Office, through really painstaking work, was to develop a level of trust between the private sector and the Loan Programs Office, right? And so, by the time we left office, our conditional commitment was a golden ticket to the equity markets. The equity markets had so much respect for the 10,000 engineers, scientists and experts on the DOE platform, plus our underwriting, that they said, 'You know what, it's so hard to get through the Loan Programs Office, and they do their job so well that if they have a conditional commitment, we should spend 500 hours on this deal.' And they did, and every one of the folks who got a conditional commitment from us was able to successfully raise equity. And so I think that's important because I think if they don't respect those conditional commitments. Well, then the next set of companies may not spend the money to go through the loan programs office and be evaluated, because they might say, 'at the end of the process, somebody could be arbitrary and capricious about how they actually treat the sovereign guarantee of the US government.' And, you know, once you start assuming that people are going to disrespect agreements by the US government, then all hell breaks loose.

So you built a kind of machine for evaluating these technologies, these opportunities. What did you have to do to get to that point?

It was a multi prong strategy. When I first came in, right, I figured out which sectors had any interest in using our office, right? Because there's no reason to figure something out theoretically, if nobody was interested in it from that sector. And so you got critical minerals companies, right? You have battery manufacturing companies, etc. So once those companies came together, then we said, 'Okay, what is the framework for evaluating these companies?' Because the framework from Congress is very clear, they need to have a reasonable prospect of repayment, right, which is different from some of the other lending institutions in government, which is a reasonable assurance of payment. 'Reasonable assurance' in government speak, means investment-grade credit and 'reasonable prospect' allowed for a much wider amount of losses. And then Congress said, 'here's money that you can put to the side as loan loss reserves for potential losses.' So you can have losses, just make sure you reserve for it properly. And so then we went down the road and said: okay, if we're going to do this critical mineral thing and lithium thing — and lithium right now at the time in 2021-2022 was at an all time high — but that's unlikely to stay there. If you hire this outside firm, because we were not allowed to use our own judgment around commodity curves, we had to have a third party validate these commodity curves. What is a third party saying? And they were all saying, Look, we're unlikely to stay at this level. There's plenty of lithium in the world. A high price will mean more lithium will come online. And therefore lithium prices will probably come to this level. And so then we had to say, 'well, is that actually still profitable for that company if lithium comes down to this level.' And so for each sector, we had to come out with that framework.

And can I ask, it's kind of the obvious question, would Solyndra have gotten through your process?

No, of course not. They failed two big things. One is that the panels never worked. I think, as you know, they didn't last 20 years at least. And two was, we put our money in first. We would never do that again. In our business now we're providing debt, so you've got to raise the equity to match our debt, and the equity has got to come in first. They can't have a free option to be like, 'well, we might put the money, we might not put the money in.' And so had those two things been applied to Solyndra, they would have never gotten through the office.

Okay, but then kind of halfway through you're doing all of this, suddenly there's the Inflation Reduction Act, and all of the numbers change, and all sorts of things become viable that weren't viable 10 minutes before. Does that mean you have to throw everything out of the window and recalculate? You've got these, I think in the end it ended up being 12 liftoff reports. They all need to be rewritten, because now everything works right?

Well, we had not yet written the liftoff reports. So the liftoff reports started in early 23 in terms of publishing them. We had certainly started working on the framework of them before then, but the Inflation Reduction Act passed in the summer of 2022 so we had time to update the first versions of liftoff reports to include the Inflation Reduction Act. But what I would say, the bigger thing is that for most policy makers, you have a set of tools, right? Those tools don't really turn into industrial strategy without the framework that we created at the Loan Programs Office. So when we created a framework for clean hydrogen, which you obviously know a lot about with your hydrogen ladder, but also for other things, we said, look, what things are likely to meet this reasonable prospect of repayment, and what are all of the tools that we're assuming that they're going to use? Because in the loan, we're one tool, but there's a tax credit, there's mandates that could be out there, where a state has passed a law saying you must buy renewable energy or whatever it is. There's the 24 by 7 clean firm mandates that the hyperscalers have put on themselves. There's all of these procurement things, right? So there's 10 or 12 different layers of things that the federal government can do to support a sector, right? There's tariffs that the Department of Commerce puts on imports, there's all sorts of things. And so when you look at the totality of how a sector is supported, right, what is the likely outcome of whether this investment would succeed in the totality of all those tools, and is there any feedback that we can provide around, hey, you're making the Loan Program do a little too much work, right? We probably can't solve this particular problem. I'll give you an example. So if you look at clean cement, the only standard in the whole world for clean cement is Portland cement, right? And it's doing a lot of work. Now, if you think about lots of the clean cement industry. Some of them cannot meet the Portland cement standard, but they can meet the standard for road barriers, and they can meet the standard for pavers, right? They can meet the standard for all sorts of things. But who's in charge of setting those standards? It happens to be the US government, through NIST, the National Institute of Standards and Technologies. And so we would go to NIST and say: Look, these guys want a loan from us, but we can't in good conscience give them a loan, because how would someone even spec using their cement, unless you've created a spec? And so we would learn so much out of all of these sectors. And when we went through the loan and we would go to our counterparts in the Department of the Department of Transportation, it turned out that 50% of all cement used in the entire United States is driven by the Department of Transportation and road building, right? And so we're like, 'well, if we're going to be the largest user of cement, we should also create the demand for clean cement, right?'

But doesn't that mean that in some way, you've become responsible... I mean, the US doesn't have an industrial strategy, per se, but you do have now these 12 really critical sectors where there is the lift off reports and all of the work that you say is happening or going off and talking to the standards agencies, or whoever it might be. Have you kind of written the industrial strategy for the US?

We certainly started the intellectual framework of it. And I think because the Inflation Reduction Act took so long to pass, right... So had it passed in the summer of 2021 when I was still figuring out what the heck I was doing at the Loans Programs Office in the summer 2021, but by the summer of 2022 I had already had all these insights, because when the companies pour their heart and soul into the loan programs office, I mean, these are thousands of hours of work in part of the companies, right? I mean, our average loan size was $2 billion right? And so when you're giving someone a $2 billion loan, you have a very large and well stocked data room that they're filling with real documents. So nobody was lying to us using some sort of spin. And even if they were, we would catch it in the diligence process. And so we now had a source of fundamental truth, right, which is not true for most of the people in Congress. They were being lobbied by this group and that group, and we need this money, and we need that money, and this clean hydrogen is going to work, and all mobility is going to be doing this stuff, and hydrogen is going to go into natural gas pipes, and whatever it is that people were telling people, and we were saying, 'Sorry, we don't see any of those applications coming through.' No capitalist is pursuing those solutions, but I appreciate that they're trying to get public money for it. And so we were able to give people hard truths around, here's what we're seeing. And this is why we used to do that monthly application activity report that we published, because while we were covered under the trade secrets acts, there was some information that we could supply to people saying, 'Here's where the private sector is finding some deal flow.' And as you know, many banks don't want to get out of bed unless there's probably a $10 billion effort going on here, like a $500 million effort doesn't get them involved. And so that data that we were creating was helping people get to an industrial strategy. And I don't know that we've completed that work. Had we had another four years, maybe we would have been able to cement it, but we certainly started that effort.

Cleaning Up is brought to you by members of our new Leadership Circle: Actis, Alcazar Energy, Davidson Kempner, EcoPragma Capital, EDP Portugal, Eurelectic, the Gilardini Foundation, KKR, National Grid, Octopus Energy, Quadrature Climate Foundation, SDCL and Wärtsilä. For more information on the Leadership Circle, please visit cleaningup.live, that’s cleaningup.live. If you’re enjoying Cleaning Up, please make sure you subscribe on Youtube or your favourite podcast platform, and leave us a review, that really helps other people to find us. Please recommend Cleaning Up to your friends and colleagues and sign up for our free newsletter at cleaninguppod.substack.com. That’s cleaninguppod.substack.com.

Can we do the following? You've got these 12 liftoff reports. I've got a list of them here. I wonder whether we could do a rapid fire round. You know, take a step back, you've done all of this work, you've been in that role for four years. You said, the first year, you didn't know what you were doing, but you do now. I want to keep it quick, so it really needs to be like optimism on a, I don't know, one to five scale — this is nailed, and it's gonna just absolutely fly or, you know, after all that we've done, I don't really see it. And one line or two lines on why. Can we try that?

Of course.

Number one starts with advanced nuclear.

Yeah. So I think that what we said in the advanced nuclear piece is that if it's going to take off, you need a minimum of 10 orders of any one design before the first one is built. And so do I think that's going to happen? Unlikely, right. But I think that we have said this is what you have to believe if you believe in a renaissance of nuclear right? And so I believe the hyperscale data center companies are willing to sign off take agreements for 10 reactors. I believe that the utilities want them to be built, but I don't believe that anyone has figured out exactly who's going to carry the cost overrun risk. And until we've solved that problem, whether it's an EPC (Engineering, procurement, and construction) contractor or a rate payer, then we're unlikely to have liftoff. So, like, we're probably at a two right now.

At a two? Well, a two is a lot less than if you read the press about Google ordering from Kairos etc, etc. And we've seen NuScale fall foul of exactly what you're talking about. So you think that that's going to be a two?

Yeah, I think unless you figure out who's going to take the cost overrun risk, it's a two. Once you've solved that, I think it immediately jumps to a four.

And that is beyond what the Loan Programs Office, certainly, as you set up the conditional...

That's right, we're not taking cost overrun risk. That's an equity problem.

Okay, let's go. Let's try and keep this rapid fire: carbon management. First of all, what is it, and what's the optimism, pessimism, and why?

So, carbon management is the act of taking carbon dioxide right out of the air and putting it under the ground. In some cases, it is a concentrated form of carbon dioxide, right? So, out of an ethanol plant, you have a 100% pure stream of CO2 that comes out of that process. And sometimes it's a diffuse process, right? Like direct air capture or a coal plant or a natural gas plant. What we found in that report is 100 million tons of CO2 is pure form, right? And so that is remarkably profitable to capture and stick under the ground, because it costs you $27 bucks a ton to capture it, and you get paid $85 from the 45Q (tax credit), so that's going to happen.

And this is things like cement, presumably cement manufacturing, and ethanol, and where CO2 is just a byproduct.

It's a byproduct. And so it's very easy to capture, very easy to pump under the ground. And if you can get a Class VI well permitted, then you can stick it into permanent storage, right? So those are a hugely profitable 100 million tons. Then we identified the next round, which is probably more like, you need the full $85 to make it work, right? Then the next round was like, that's probably like $150 a tonne right now to capture that. The next round is like $600, like direct air capture or $1000, right? And so there were rings of profitability or lack thereof. And you could imagine, if the first 100 million happened, the cost could come down such that the next ring could be more profitable.

And what I like about these reports is that you did slice and dice the bit that will work and the bit that doesn't work, which brings us very nicely onto number three, which is clean hydrogen. That's a report that I'm very familiar with, as you can imagine. What did you find there?

Well, I think we were very clear about where the willingness to pay was by sector, and we were very clear about what we thought the current costs were, and they changed, obviously, since the first report. And then the second report came in due to inflation and due to more experience that people had and so some of the optimism was taken out from between the first and second reports. And I think it says very clearly that we're likely to see that all clean hydrogen is likely to transfer over to blue, away from green and maybe turquoise, right? Which is that methane pyrolysis, which is interesting, because it has several different cash flows. There's some real optimism around nuclear, just because, you know, nuclear is sort of an unyielding asset. You never want to really turn it down, even if you can. And so dumping it into hydrogen is actually useful in some parts. But also I think we identified where the clean hydrogen could be used profitably, right? And fertilizer was number one on the list. And you saw that the deals that we did were fertilizer related. And then there was long duration energy storage, which has its niche, which is the Delta, Utah project, which is going really well. And then there was this obscure sort of forklift market that plug power is doing, which is hugely profitable on the project basis, right, not the corporate basis. And Amazon and Walmart today, like 50% of all packages in the United States travel on one of these hydrogen forklifts.

Okay, we're not going to litigate that one, because I know that millions of battery forklifts are sold, and only a few tens of thousands hydrogen forklifts.

There's almost 200,000 hydrogen forklifts.

That's news to me.

They're by far the market leader for Amazon and Walmart.

Let's move on, though, because we've got some other ones. I want to come back to number four, the demand growth, because it's kind of a bit different: geothermal heating and cooling. Was that ground source? Or is that really geothermal? I mean, as we would know it.

It's both. I think that on the geothermal electric side, we were talking about electricity production on the geothermal heating and cooling side. What we were saying was that there is this fundamental belief that the natural gas sector is not able to be decarbonized, right? And that it's just so damn cheap that you just can't do it, etc. And you know, what we showed was that, again, like carbon management, that there were these niche applications in geothermal heating and cooling, where it actually could be profitable to instead of extending the natural gas grid actually using geothermal, because, frankly, extending the natural gas grid is not very profitable. And so what we found was that for a lot of these extensions, the geothermal heating and cooling industry was actually a far lower cost. And then we went through the technologies, everything from Eavor-type folks to traditional geothermal heat pumps to district heating and cooling to other types of things, right? And I think it's the first time that people really tried to quantify, from the Department of Energy standpoint, where some of these profitable niches are.

So we haven't been doing the numbers, your kind of one to five, excitement versus versus yawn: Geothermal heating?

So I'm close to a four or five on that one, because there are certain states that have basically forced the natural gas utilities to figure this out, not dissimilar to the renewable portfolio standards we had 20 years ago. And so all those utilities called us as soon as this report came out and said, 'Okay, we need to figure this out with you at DoE, because we're being mandated by law.'

And what about... Then there's one of the other reports, which is next generation geothermal power. So that's companies like I was an advisor to Eavor the Canadian company. There's also Fervo, Sage Geosystems there. We had a great episode with Sage.

We're firmly at a five on that.

A five? That's interesting.

Because that is clearly happening, right? I mean, I think they're going slower than I would like, but it is very obvious that the data center companies are willing to pay whatever it takes to sign those PPAs and the companies are achieving extraordinary learning curves already, right? It took 75 days to do the first horizontal drills. Now it's down to 17 days. I mean, the costs are much lower. And fracking is even better than they are. So you can see how much improvement they could make by just matching the fracking industry. I'm quite bullish. I think it's going to happen. Hopefully it happens faster than I think it's currently on track to happening.

But okay, what about just to take a couple more: sustainable aviation fuels? You've done so much work on this over the years. Where are you? One to five.

I guess it's a three, right? It's the exact same thing as ethanol, right? It is very clear that it will never be profitable. So sustainable aviation fuels will always be more expensive than aviation fuels, always. There is actually no pathway for it to become cheaper.

By what factor, when all is said and done. I mean, now it's like, if you look at that project in Chile, the Porsche project, it's kind of 100x or something crazy.

Around $2 a gallon more expensive, right? So you're at like $3 a gallon for aviation gas, and you're at like $5 a gallon for SAF.

So that's nearly double, but not more, right?

Yeah, but it's never gonna cheaper

But is that a bio based fuel? Is that an eSAF is that...?

No, it's not. E is very expensive.

So the one in Chile is direct air capture of carbon, and it's kind of crazy expensive.

And we go through that in great detail in the SAF liftoff report. But I think it's important for everyone to recognize that it's never going to get below $5. Maybe it gets to $4.80 but it's not getting to $3 right? And so I think that the reason it exists is because the EU is mandating SAF. Japan is mandating SAF. And so now you have a market by which this blending occurs. You know, California has mandates, Illinois has mandates, etc. And so we go through that in great detail in the liftoff report and say, here's the demand drivers, here's why these projects are profitable, or can be, but it's a completely constructed market. And we also go through the calculation of saying, if you were to say that, forget about all this stuff, we're just going to mandate that these corporations buy DAC credits instead, right? Just burn the av-gas and put carbon in the ground. It is cheaper to make the SAF than to buy the carbon dioxide credits to put it in the ground. So that is an evaluation we made, because people were asking, 'what is that threshold?' The threshold is about $150 a ton. And SAF is less than $150 bucks a ton.

That's interesting, because I'm not seeing that. I'm thinking that especially if you have to... maybe, yes, if you're talking about a biofuel, so just using a plant oil or animal fat or whatever, yeah, that's the cheapest. But by the time you start having to make use of biogenic carbon, but then adding hydrogen to make a SAF... to me, that's going to be more expensive than just a carbon credit.

Well we say that in the liftoff report. I mean, I think playing God and basically saying we're going to allow combustion to occur, and now we're going to go recapture all of those pieces and put them back into fuel. By definition, will never actually pencil, right? The only way that pencils is if you have massive government subsidies. I think we all agree.

Okay, and then long duration storage. And I want to finish off with offshore wind, because that's the controversial one. But first, long duration storage. Where are we?

Long duration is extraordinary. I mean, the problem with long duration energy storage is not the technology. When you look at the zinc halide stuff, where I don't know if it's long duration short, but it's like eight to 12 hours, 15 hours, right? And then you've got the Form Energies and the people like that, that's like 120 hours or more. The technology works. The cost covers are working. All of it's amazing, right? The real problem with it is that the market design doesn't allow for it. And we're very clear about that in the liftoff report. I'll give you an example. Like, if you take an electric utility company and they want to site a data center, they're very clear that actually, we have plenty of capacity on this line, except for 240 hours a year we don't. And when I go to them and I say, you could put on a long-duration energy storage battery from Form in there and solve it, because then that gets you to bridge the 240 hours. They're like: Oh, we never even thought of that.That's fascinating. Maybe we should do that. But it's just not the way anyone thinks. And so then where's the market for a long duration storage if no one is thinking that way? They're like let's just spend 10 times more money and actually just upgrade the substation and do all the stuff. Part of what we had to do there was acknowledge all of the challenges and then figure out where it would make financial sense and now, how do we educate all the utilities and the public service commissions and others to actually start making the changes in the market design to value what they were offering? Because this really is 1/10 the cost of some of the solutions that they're deploying now for these applications.

So I had Mateo Jaramillo on.

He's amazing.

And I've got to be honest, in the end, I couldn't see the business case. Because it charges so slowly that it's all very well to say sometimes there's surplus power and the power prices drop and whatever. But if you can only charge your battery to 5% before boom, the price has changed again... I think maybe the UPS for a data center might work, but you know...

I mean, the beauty of being at the Department of Energy is that I don't have to support any one company. But I will say that I think it is very obvious to me, after reading the liftoff report and doing the work, that storage as transmission is a thing, right? Like using battery storage to get way more capacity out of the transmission you've already paid for is a thing. Now in some cases, that could be 120-hour battery storage, which charges very slowly, and does not really participate in intraday revenues. It really only participates in these emergency revenues. And then in some cases, it's 8-12 hours of battery storage where it does participate in all of these things. But it is very obvious from the modeling work we've done and the real world work that we've done that transmission is going to be very expensive forever and depending on the circumstances of that transmission project, storage can be way cheaper to get more capacity out of that existing line.

Okay, so we're gonna finesse the numbers for long duration storage. I mean we've gone a bit more into the detail, and not quite done rapid fire. I'm assuming some of that you're very excited about. But you know, offshore wind, it clearly works, it's not the cheapest thing, but it is highly, highly political. So I'm sure you've done lots of good analysis, but right now, it's come to a screaming stop with the change of administration, right?

Yeah. I mean, maybe. Obviously, the Biden Administration approved 11 offshore wind farms and so those folks have all the permits and everything else they need. Obviously, they could need some sort of modification to a permit. If they do that, the current administration is unlikely to give them a modification. But I would say that look, I have always been skeptical of offshore wind, not because I believe the technology doesn't work, but because I believe that people have alternatives. And so the question becomes, what is the framework by which you make decisions, right? I mean, if the bids are coming in above $100 a megawatt hour, which many of them are today, then for those northeastern states, what are the other alternatives that they have? Some of them have very little alternatives. From a political standpoint, they don't want to build new natural gas lines. I don't think they want to build a new nuclear plant. But I think maybe some of them are actually rethinking that now. And I think that you've got all the population on the coast, and so the transmission grid piece is there. I think separately, when you think about offshore wind, in some ways, it was a back door to building Atlantic transmission line that connected the northeast to New York, to the PJM RTOs (regional transmission organizations). And that line would cost roughly $20 billion to build and save consumers $6 billion a year. And so you know, if they just built that line without the offshore wind, then offshore wind would be cheaper, because they'd be able to connect to that line without paying for it. So, I'm not suggesting offshore wind is dead, but I am suggesting that the thought process behind offshore wind needs more work.

Yes, that's that could well be the case, but right now, as you say, some of them have got all the permits, but it's extremely risky, because every project needs some permit variation at some point between when it's all signed off and when it actually gets built. And those are not going to be forthcoming. And it seems unclear even that the administration will honor commitments made. I mean, you've said that they need to, because it's the US government. But we're already seeing, as we speak, we have Elon Musk and his 20 somethings in department after department simply stopping payments, probably illegally. They'll probably get challenged legally. But nevertheless, that is what's happening, right?

Well, as of today, we're recording on February 13. I mean, they've been in power for three and a half weeks. So I think let's see where this goes. I think that when you think about what the US economy needs to continue its extraordinary growth, right? It needs a lot more electricity, and natural gas is not fast or cheap. So today, when I looked at Public Service Commission filings, it looked like $1,700 to $2,000 a kW. I just talked to a friend specking out a new natural gas plant. He's at $2,400 a kW installed now, and most of the big players with combined cycle gas turbines are sold out through 2031, so it's not even fast. And we have a lot of congestion in our local pipelines, so you can't just put them anywhere. And so we'll see, right? I think that we need electricity. The US government and the US of A is now a voracious user of electricity. And all of the best developers in the world are doing clean energy and so in the same way that the Biden administration made a massive mistake by pausing oil and gas leasing and all the things that it did when it first came into office in 2021, I think that the Trump administration is making a massive mistake on messing with, you know, a $500 billion a year industry that is saving the US grid. And I think they'll probably change their mind, because they want that stuff to continue to get built.

A recent episode that I didn't record, I actually got an AI to do it. The name I gave it is Mike Headroom. I made an AI with my voice, and I recorded on AI and data centers. And, you know, I went through all of the different things that these hyperscalers are going to try to do: nuclear fusion and space solar and whatever. And I concluded, in the end, they're going to come back to exactly the same as the utilities and say, 'This is what works. It's actually hybridizing a bunch of renewables with some gas and a grid connection.' Basic, boring stuff, but it's not clear that they're going to get there quickly.

I think they'll get there quickly. Look, I think that in general, everybody knows what the answer is, because we made them start working on it in 2022. We knew this was going to happen in the Biden administration. And so we started doing all these reports in 2022 and forcing everyone to read them, and putting together these public-private partnership meetings and all this stuff. It was all secret, but it was all happening. And so Nucor, Google and Microsoft have been doing this RFI for a year, they know exactly what everyone's bids came in at. When you look at all the different players, from the data center developers, etc, they may have started out slow, but they're not slow now. I mean, that's why we published this lift-off report on AI load growth. That's why we have an entire website, which the Trump administration has kept up with all the load growth resources at the Department of Energy, we made everyone read them. So I don't think that the knowledge gap is that large. There's a culture gap and so right now there are people yelling at each other on the cultural front, but at some point I think physics wins, and I don't think presidencies do that well in rolling blackouts. So I think we all need to recognize that either we're going to give up on AI load growth, or we're going to say we're going to meet the moment. And here are the near term solutions that are available, which happen to be clean.

It's not just AI load growth. I mean, you've got four states, maybe some of it is AI related, North Virginia and so on. But you've got states that are on the NERC...

The National Electricity Reliability Council. For sure, they're predicting blackouts in two regions if we don't get on it right. And we have 950 new manufacturing facilities that have been announced, most of which are under construction already, which the Trump administration will do ribbon cuttings for. And we still have tons of people buying EVs and heat pumps and all of that stuff.

So I wish I had your confidence in, you know, 'presidencies don't do well under rolling blackouts,' because we've just got inflation starting to be driven already by the Trump tariff threats and and so on. And that's apparently Biden inflation. And so it just feels like even if there's a power cut, it's going to be a Biden power cut, even if it happens two years into this presidency.

Well, I'm not as good as other people are at politics, but I am very good at physics, and I'm very good at capital formation, right? And I can tell you right now that all of my friends who are investing in power assets are scared out of their minds around what the 20 year economics are going to be for a new natural gas plant. And so if they build a new natural gas plant, they want to get paid back in four years. And so that cost, according to NextEra, is close to $100 a megawatt hour. That's not cheap. So fine, feel free to build it, you know. And having a ton of excess natural gas capacity is not terrible, right? As we do the energy transition, if you then catch up with clean energy resources, then it's just backup, and it's a pretty cheap backup once you've paid for it. So fine, but I don't know that the people who are investing in that are going to get a bunch of people that want to pay $100 a megawatt hour for new natural gas. So we'll see where it goes.

Now, you have previously come across and interacted with the new Secretary of Energy, Chris Wright. To what extent do you think he understands this? Is he on the cultural side? I personally think he's a very smart guy and understands it, but is he going to be allowed to do the things that are necessary?

I mean, that's politics. You and I can answer that question in whatever way we do. And then he's going to have to interact with Doug Burgum, and he's going to have to interact with the incoming interior secretary — former governor of North Dakota. And he's going to have to interact with Russ Vought, who's running the Office of Management Budget, and he's going to have to interact with the President. And we'll see whether he has good interactions or bad interactions. I think people's stock goes up, people's stock goes down. I think his intellectual capacity is extraordinary, and he was on the board of Fervo and Oklo, and he was a big investor through Liberty Energy into Natron Energy, which is sodium ion batteries.

Just to be clear: Fervo, that's the geothermal company we've already mentioned. Oklo is one of the new nuclear companies. So he knows those two, and I think he did post graduate work on solar. He does know the terrain.

And he believes very strongly that we need a robust electricity grid. I mean, he said so in his confirmation hearing. So we'll see where it all goes. There's the intellectual prowess, which I think he's very, very strong in, and then there's the political prowess, which we'll see how well he does. In the first Trump administration, I really thought that Rex Tillerson was going to do a good job, and he didn't do a good job at the State Department.Politics, as you know, requires a real savvy and we'll see how well he does. But I wish him the best of luck. I want him to succeed.

Are you waiting by the telephone in case he calls to say, 'hey, you know, Jigar, you were never political, and I like your style, would you come and help out in some way?'

Well, I mean, I'm really not very political. I care deeply about the commercialization of technology. I'm not waiting by my phone. I don't think that call is coming, but if it does come, I am a patriot. I want to be helpful. So if somebody needs my assistance, and it helps a lot of these companies that I care so deeply about, then I'd be happy to help.

I'm slightly tongue in cheek, because it strikes me that nobody from the previous administration is getting that telephone call, kind of on principle. But when you say you're a patriot. There's this other issue going on, which is US-China rivalry. Europe seems to be almost out of the game in terms of innovation and driving technologies across what you call the bridge to bankability, but there is a really fierce struggle for that between the US and China. What is your sense? Is the US going to be taking a lead? Can it take the lead given not just what you've got in these liftoff reports, but the political situation. Or is the way just simply clear for China to continue to dominate?

The underlying tension here is a technology tension, right? It's very obvious that China knows how to manufacture at scale and cut costs and do all that stuff. What's not so obvious is whether the technological prowess of the United States can overcome that. So take lithium ion batteries where we have under construction or have already built 400 gigawatt hours worth of battery manufacturing facilities. What people don't know is that our next generation anode and cathodes are twice as good as China's best next generation anode and cathodes, right, all of which got grant funding out of the manufacturing energy supply chain office. So people like Sila Nanotechnologies or Group 14 or others. If those technologies succeed by 2029 we will be far and away better at energy density than China will. I mean, far and away better. And so we'll see. If we achieve that goal by 2029 then we will be dominant. If we don't achieve that technology goal, we won't be but I don't think that we're going to compete with China based on lowering our human rights standards, or anything like that, right? We're going to compete with China because we're going to stop giving away our technology for free, and we're going to start commercializing it here.

But meanwhile, China has become the number one nation for exporting cars. Those are not all electric, but a bigger and bigger proportion are. So they're out there with very cheap solar, very cheap batteries today, and very cheap and, frankly, superior quality cars. And they're just going to be pushing in three years time, or however long it takes for the US to even think of catching up. Are they just, I don't want to say over the horizon, but do you think it is realistic to think the US is catching them up?

I don't know. I mean, we have 20 sectors that we're talking about here, and in each sector, that answer will be different. It could be that you say, well, in solar panels, we're not going to get to 40% efficiency. So we're sort of done, we maybe have lost that battle. I don't know. Maybe we've got a lot of manufacturing now in the United States, which is great in batteries. I think there are a number of additional breakthroughs that are coming over the next 10 years, and I think we have way more of those than they do. And so we'll see whether we're able to retain that specialty, but in the next generation. I think our nuclear technologies are far superior to theirs. We just don't seem to build them. And so we'll see whether we do that right. And then geothermal, I think we're far and away better than they are on the enhanced geothermal side. I think when you look at the next set of technologies, each one of them has a different story, and we can go through those, but my point to you is more that the way this works is we all want to decarbonize the world, right? I think the US and China need to figure out how to have peace, and figure out how to break this up and be partners again. But we do it in a way that means that we have a lot more blue collar work in the United States. They continue to do what they want to do, but we live in harmony. I don't know if that's possible this week, but hopefully we can plot a course that can get to better harmony in the future. But either way, I don't want to write off Europe. Europe, the Middle East and India have a massive ability to partner with each other to actually create the same level of commercialization. What we need is a real discussion not about innovation, which is the warping of the conversation that Bjorn Lomborg and all those people did for years, but instead to move to, what does commercialization look like? We clearly have proven that in solar, wind, battery storage, EVs, what does it look like in the next 20 sectors, right? And how do we make sure that everybody's incentivized to benefit from it? There is clearly a political moment right now where people don't want to transfer all their technology to China, have them scale it up and import it back into their countries. That is not a politically stable solution. If we want to solve climate change, you and I have to figure this out.

I think, sadly, it is kind of you and I, well, it's not over here. There are lots of people doing it. But you've said a couple of times, 'we all want to decarbonize, and we've got to figure out how to.' But you know, you have an administration that not only is not wanting to decarbonize, but is actually sort of stopping people from using the word climate or climate change, and dismantling large parts of the architecture even to track where emissions are coming out. And that feels pretty threatening from here, sure.

But I think that the underlying science behind climate change is not changing, right? And so we will continue to have a greater amount of disasters, a greater amount of stuff. I mean, as somebody who is born in India and is of Indian origin, I do think that a percentage of the Indian subcontinent will be uninhabitable over the next 10 years, just from heat. When you're at 107 degrees in the shade, I'm not sure humans can survive that, right? And so I think that we all need to recognize that having a World War 2 footing means that when everyone recognizes that we need to scale all this stuff up, the technologies have to be commercialized. I don't know whether everyone has the political moment right now to want to convert all of our car manufacturing facilities to making planes and tanks like we did in the 1930s and 40s, but that moment will come, and when that comes, my job is to make sure all the technologies are ready for that scale up, and ready for that commercialization.

Now, interestingly, just to finish: you said your job is to make sure these technologies are ready. You didn't say your job was. So you're clearly referring to some kind of new role. So what is next for Jigar? You're going to stay close to this, doing clean energy and climate related solutions, but doing them economically and creating wealth whilst doing that. But what is that going to look like for the next few years?

I don't know. Obviously I think, as we've discussed previously, my entire career has been about commercialization of technology. I don't think that's going to change, for no other reason, that I'm an old dog at this point and have a hard time with new tricks. But right now I'm a senior fellow at the World Resources institutes. I've joined them, and they have 2,100 employees worldwide, mainly in India and Brazil and Indonesia and China, many countries that matter to this effort, and a lot of the countries who actually want to take the torch from the industrial strategy the Biden administration, and see if these tools are going to work in their country. And so I think that's amazing. So if I can do tech transfer or policy transfer, saying: Here's what I think worked... you guys should do it for the sectors that you care about, in Brazil and Colombia, Mexico, South Africa, etc., then I think that's a useful exercise for now. And then we'll see what I do next year.

And I will say, because I'm also an old dog by this point, and I've been doing this specific thing, not podcasting, but analysis and so on, on clean energy for 20 years. And what I would say is, it doesn't matter how bad things look, it's never as bad as you think. When you think it's great, it's never as good as you think. And there's always sectors and geographies with incredible dynamism and opportunity for the stuff that you do.

Yeah, and they want all of these innovators and entrepreneurs. I mean, that's the thing that the Trump administration, I think, will see, is that if we don't support these innovators and entrepreneurs, they will move. They are so dedicated to their companies that they will just up and move their entire company with their technology to a country that wants them and that's willing to support their wealth creation.

And now all you need is that, H, whatever it is, visa systems, H1b, whatever it is, and get that fixed, and we're back in business. What a great place to end.

Yeah, exactly. But I have always believed in the power of entrepreneurs and innovators. I do think that they're just unstoppable. If you put them amongst four brick walls, they'll figure out either how to scale them or carve a way through them, right? I mean, they are just unstoppable. That's just how they're built. And so I that's why helping them succeed is something that I think is the highest and best use of my time.

Fantastic Jigar, it's such a pleasure catching up with you. Thank you so much for your time coming on Cleaning Up today, and I wish you luck with whatever it is, the World Resources Institute or other roles that no doubt you'll be taking on over the next however many months.

Well, it's always a pleasure to be with you, and I'm sure we'll be up to no good very quickly.

I'll second that absolutely.

Thank you. Michael,

Thanks, Jigar.

So that was Jigar Shah, until recently the director of the US Department of Energy's Loan Programs Office, who, over the last four years, has supported the rollout of clean energy technologies in the US to the tune of over a 10th of a trillion dollars. And, as always, we'll put links in the show notes to resources that we mentioned during our conversation. So that's Jigar's first appearance on Cleaning Up that was episode nine in 2020 entitled "Creating Climate Wealth." My episode, no 193, which was written by me, but read by an AI pretending to be me, and that was called "The Power and The Glory." We'll also put in a link to the 12 pathways to commercial liftoff reports, which were produced by Jigar and his team at the Loan Programs Office. And although the incoming administration may not be exactly following those pathways, the reports bear very close reading even today. It just remains to me, as always, to thank the team behind the scenes and to invite you to join us this time next week for another episode of Cleaning Up.