Financing the Energy Transition: RFF’s Policy Leadership Series

Notable Quotes

• Richard G. Newell: “One of the things that has changed a lot since the loan program was first established in 2005, and has even really changed in the last five years, is the tremendous increase in attention of the corporate sector [and] … the financial sector to climate change … [T]here’s been tremendous uptake, for example, of net-zero commitments by companies and financial institutions.” (6:56)
• Jigar Shah: “When you think about … all of the people who are losing their jobs from these retiring [fossil fuel] assets, figuring out how to give them a just transition, figuring out how to help those local towns with the property tax hole that’s going into their budgets, really requires a repositioning of these existing assets.” (24:34)
• Jigar Shah: “I think part of the underlying political equation under the passing of the Inflation Reduction Act, as opposed to the failed effort around Waxman-Markey, was that you got enthusiastic support for this legislation from labor, justice, and environmental groups. Those are the benefits that these groups expect. They expect there to be a thoughtful approach for the questions, How do we fill the million-person hole that we have in the trades? How do we train the next generation of electricians, and pipefitters, and all these other things?” (30:36)
• Jigar Shah: “I certainly believe that it is essential that Americans deploy at scale for us to meet our carbon-emissions targets by 2030 and then beyond. So, we stand here ready to receive these applications and process them as quickly as we can … But I do think that we’re not optimizing for putting all the money out the door as much as we’re optimizing for good-quality loans and making sure we meet that reasonable prospect of repayment that Congress has also reiterated with the loan authority that they provided to us.” (41:26)

The Full Transcript

Elizabeth Wason: Welcome to the Policy Leadership Series Podcast from Resources for the Future (RFF). In every episode, leading global decisionmakers speak to RFF President and CEO Richard Newell about big environmental and energy policy issues.

In this episode, Richard speaks to Jigar Shah, director of the Loan Programs Office at the US Department of Energy (DOE). Shah has been an entrepreneur in the clean energy space, book author, and podcast host. With the Loan Programs Office, he now handles hundreds of billions of dollars that go toward financing ambitious energy projects and accelerating the clean energy transition. The conversation took place on June 20.

Richard G. Newell: Just to set the stage, the United States has a 2030 target to reduce greenhouse gas emissions at least 50 percent below 2005 levels. And this is on a path toward a longer-range target by midcentury (or by 2050) to drive overall emissions in the economy to net zero.

There’s been a tremendous amount of policy passed. There was the Bipartisan Infrastructure Law, there was the CHIPS and Science Act, there was the Inflation Reduction Act. And alongside that, we’ve also had, particularly recently, a number of different regulations as well—regulations on methane emissions from oil and gas, proposed regulations on the power sector for greenhouse gas emissions, and also on the transportation sector on the vehicle fleet.

So, with that broader policy context, what is the distinctive role that the loan program plays in this ecosystem of policy and government action on climate change?

Jigar Shah: Thanks for the question. I think, when you think about the ecosystem that we operate in, there is this notion that regulation just forces better decisionmaking, capital-allocation decisions, et cetera. On this side, there’s a feeling that innovation R&D leads to this great set of technologies that will then get taken up by the private sector and commercialized. And I think the Loan Programs Office is a reflection of the fact that Congress recognized that that doesn’t quite work the way that everybody wants it to work.

And so, what you find is that the first through sixth deployment of a technology at scale tends to be something that has to be 100 percent equity financed, that the debt markets don’t want any part of it. And so, unless that technology has 20-plus percent returns, then it’s unlikely to make it past the investment committee of that firm, and it just never gets deployed.

And when we think about infrastructure—whether it’s electric vehicle charging, or transmission, or hydrogen, or whatever it is—20 percent returns is not something that infrastructure features; that’s more of a software thing. So, the Loan Programs Office plays that critical role of providing the senior debt required to help people take technologies across that bridge to bankability—so, first-of-a-kind deployment; second through sixth deployment; incremental innovations, so we continue to get these incremental breakthroughs down the learning curve; and then you get full Wall Street acceptance. And at that point, we’re out of the picture.

I think on the other side, with regulation, when you take methane regulation for instance, there is a lot of technology solutions already that pay itself off. I mean, the Rocky Mountain Institute and others have put out these big reports saying that, through regulation and through this thing, people will save natural gas and be able to sell that natural gas and make the money back. It turns out that that isn’t what most of these capital markets are solving for. And so, that’s another place where things don’t quite work as intended, but the entrepreneurs with the solutions need a debt-market solution to be able to roll out their technologies.

And so, we’re complementary on both sides.

Richard G. Newell: Let’s put a little bit of a time frame on this: short, medium, long. If I think of short term, the next one to two years; let’s call medium term between now and 2030; and longer term would be 2030 plus. And if you think about the role that the loan program is playing in the projects that you’re helping to secure, do you have that lens on the time frame that you bring to these?

Jigar Shah: There is this confusion, I would say, between technology commercialization and emissions reductions. On the one hand, there’s a number of people who agree that we need, let’s call it, 20 sectors’ worth of technologies to be mature, to be able to reach trillion-dollar scale and reach gigaton-scale carbon reduction. On the other hand, we have four that are ready: solar, wind, lithium-ion batteries, electric vehicles. Everything else is in a various form of not quite accepted by Wall Street.

The Loan Programs Office’s job is really to do commercialization—not really to then create the trillion-dollar scale. That’s someone else’s job. So then, when you think about this short, medium, long term for the deals that we have in the queue now—which, we have 150 active applications received, seeking roughly $127 billion of debt matched with roughly $100 billion worth of equity—that’s roughly $250 billion worth of projects that we’ve already received applications for. And then we have another $250 billion of projects that are in pre-consultation, people are investigating whether we’re the right fit for them.

Those projects were clearly conceived of five to seven years ago; these projects don’t come up in two years. So in the short term, we’re taking deals that frankly needed what we have to offer to be able to get off the ground and helping them with that last mile that they need to get built. And that’s exciting.

In the medium term, I’d say that there’s a lot of projects that frankly people had in a folder somewhere in their desk, but would never in a million years pitch to their CFO. But now that the IRA has passed, they’re like, “Hey, let’s do this. We have 45Q for carbon sequestration and storage, we have 45V for hydrogen, we have all these things, so let’s get going.” So, those projects are now being green-lighted for development and final investment decision; that’s five years out. You start now, five years from now, they should be ready for construction. We’re monitoring those projects and giving people advice now, because they want to know that they qualify for the Loan Programs Office when they’re ready for us.

And then the long term, that goes back to venture capital. There’s a lot of projects, a lot of companies, a lot of concepts that have been left in the cutting-room floor because they’re what you call “deep tech,” where people said, “Well, there’s no way you can commercialize that technology, because we’re never going to give you more than $50 million, and you need a billion, so we’re not even going to get started to give you the early money.” And so, for the long term, a lot of those people are now getting money, because we’ve been revitalized. They believe that there’s a way to monetize that investment 10 years from now, and they’ll get started now because of our existence.

Richard G. Newell: Fantastic. So one of the things that has changed a lot since the loan program was first established in 2005, and has even really changed in the last five years, is the tremendous increase in attention of the corporate sector, and I would say the financial sector, to climate change. I don’t know if you would agree with that, but there’s been tremendous uptake, for example, of net-zero commitments by companies, by financial institutions. Given that, what are the criteria or features that make a project appropriate for the loan guarantee program as opposed to just being within the wheelhouse of the private sector entirely? How do you sift through that? What are the features, again, particularly given this very significant increase in interest on the part of the private sector? Or maybe you’ll say that it hasn’t changed that much.

Jigar Shah: Well, a couple of ways to answer that question. I’d say one is, no matter how much streamlining we’ve done at the Loan Programs Office, it’s still a more arduous process than the commercial banking sector. So, if someone can get money from the commercial banking sector, they will just do that. They will not subject themselves to the Loan Programs Office. I am very proud of the streamlining we’ve done, but we still have a lot more steps to go through than the commercial sector.

So, no one should be gaming the system and using us to save a little bit of interest. We wouldn’t allow that, either. We tell people actively like, “Please don’t use our office. We think you’re just trying to get a lower interest rate.” So, that’s one piece.

The second piece is you’ve got these big pronouncements from banks at the COP. Investment banks will say, “We’re doing $1 trillion,” or “We’re doing $1.9 trillion.” Ultimately, they are not interested in funding a bunch of projects that are “risky” from their perspective. So, that $1.9 trillion (or whatever it is) will only get realized if projects that meet their criteria get pitched to them; they’re not pushing that money out the door. Right now, there’s only, pick a number, solar, wind, electric vehicles, lithium-ion batteries that qualify, and they’ve said that publicly. I don’t even think advanced geothermal or hydro or some of these other things qualify under their current structure. So, those would largely come to us. And then hopefully by the sixth project, those other firms would naturally take the baton from us and scale it up.

On the net-zero side, I’d say that’s where we’re finding that we have to have the most in-depth conversations. So, when you look at these corporations who’ve made net-zero targets, there’s real hurdles in the way between them. So you take it by sector: In the steel sector, there are real solutions that we’ve all talked about, whether it’s the electrification of the approach that they’re taking, or whether it’s actually taking hydrogen out of the process, because hydrogen turns out to actually be a pollutant. They can sell that under 45V; they get more carbon monoxide and then turn that to carbon dioxide (CO₂) to strengthen the steel, and then take the CO₂ and bury it underground using 45V.

So, those types of projects are things that they’re thinking about doing, but the question becomes, What is the ecosystem around that? They can make the target, but do buyers of the steel want to pay them a premium for net-zero steel?

Certain people have signed up. Secretary Kerry has talked about the First Movers Coalition and getting all these large corporations to sign up to this offtake agreement, which is great. And then, once that offtake agreement’s there, we can provide debt, because we are not in the business of taking the undue risk, so we have this reasonable prospect of repayment. I think that now that these net-zero things are in the open, we can have very clear conversations with them about saying, “You’ve been doing this contract for differences with solar and wind, but you know you’re not going to get there unless you do that for nuclear or for low-impact hydro or for geothermal.” And you’re starting to see that. Google did that announcement with Fervo Energy on geothermal. Microsoft just did theirs on fusion, which is interesting. And so, we’ll see, but they’re starting to realize that to meet their net-zero targets, they have to be a little more bold.

Richard G. Newell: It sounds to me like a lot of the work is really around expanding the envelope of technologies that are still in a relatively early stage, at least from the point of view of mass commercialization.

Jigar Shah: Yeah. I mean, the other way to say it is that a good project has four major elements. You have a technology that we all think will work, which DOE is uniquely good at doing because we have 10,000 scientists, experts, and engineers on our platform who can determine that. You’ve got feedstock that goes into that process, so what’s the availability of that feedstock? You have offtake, which the net-zero corporations can provide. And then you have expertise on operations: Can someone actually run this plant and actually make it work? Those are the four things we’re checking for on every single project, every single thing.

Richard G. Newell: Is there something that you would incur private lenders to change in the way that they approach lending to the kinds of companies that you’re engaged in?

Jigar Shah: So when I started SunEdison a long time ago, this whole concept of project finance was foreign to most banks. They really only did credit finance. So they said, “Give me three years’ financials. Show me that your restaurant’s been profitable for three years.” You’re like, “Well, if it was profitable for three years, I wouldn’t need a loan from you.” So, you have this classic problem where people have to put up their house as collateral, and so if you don’t own a house, then you can’t do a business, and all these things.

Today, because solar is now a billion dollars a day—we now invest globally a billion dollars a day into solar, which is roughly $750 million a day for oil and gas as comparison. So, solar is now bigger than oil and gas on a day-to-day CapEx basis. You now have banks around the world, including your local credit union and other banks, who will do solar.

That opens the floodgates for them to think differently about how to actually finance local projects. Whether it’s an anaerobic digester, where Montgomery County, Maryland, says, “We don’t want food waste going into landfills. We’d like to force it all to get turned into renewable natural gas.” Well, how do you finance that thing? Maybe Forbright or some of these other local banks, EagleBank, et cetera, would do that. And so you start to see that people are open-minded to it, but they still operate at the speed of jealousy, so they don’t want to be the first. They’re like, “Tell me five of my golfing buddies that do this, too, and then I’ll do the sixth one.”

The Loan Programs Office, if successful, will not only do this in a physical way by processing these loans and then showing the banks how to do this, but also inspire them to move a little faster to this full-commercialization mode. And I think we’re getting there. I think it’s slow, but I think that we will have that impact, as well.

Richard G. Newell: You alluded to this a little bit earlier, but as I understand it, one of the ways that the Loan Programs Office differentiates itself from private lenders is the deep technical expertise that you can bring to this, being within the Department of Energy, having staff directly within the loan program, and then also more broadly within DOE.

Can you tell us a little bit about this review and assessment: how long it takes, what it entails, and how it gives (or does it give) the Loan Programs Office a type of security or knowledge that enables you to behave differently and have the confidence to do so in the kinds of loans that you undertake?

Jigar Shah: Yeah. So when you work in a commercial bank process, the way this stuff works is, you hire an independent engineer, and the independent engineer (Sargent & Lundy, Black & Veatch, these kinds of firms) will say, “There’s nothing wrong with this. This is easy, and the technology is mature. And if the operator that you’re choosing to operate this goes bankrupt, here are the three other operators that can do it.” That’s the report that they write.

At DOE, none of our reports come back that way. It’s always like, “There’s only one operator that knows how to do this. If that person gets hit by a bus, you’re screwed.” So, these are the things that we take risk on. But underlying this, the actual technology works. And frankly, many of the patents that they’re using were invented at the national labs 30 years earlier, so we can verify that it works. And we put in place an asset-management plan that says, here’s what we would do in the event of these types of issues presenting itself.

That being said, we’re taking real execution risk, because by definition, this hasn’t been executed well in the past. This is the first time it’s happening. And I think one of the things that I think is hard to convey is that Congress, in its wisdom, provided us the ability to take this risk. So, when you look at the first version of the Loan Programs Office from 2009 to 2011, we set aside something on the order of around $6 billion for potential losses. Congress gave that to us in the form of what they call credit subsidy. So we said, “This loan is risky. There’s a 12 percent chance we’ll lose money.” So, on a billion-dollar loan, we have to put $120 million (12 percent of a billion dollars) to the side. We did that over and over and over again, and we fully realized about a billion dollars of losses. So, again: $6 billion that we put aside, we’ve realized a billion of losses. Today, we make roughly $522 million worth of interest income every year for the government. So, it’s weird, because when we go to Congress, we have a negative score, because we actually make money for the government.

Now, the fact that we lost roughly 3.1 percent in that first portfolio doesn’t mean that we will lose 3.1 percent in this new portfolio. It means that each deal that we do, we have to calculate what the chances are of a loss, and we have a whole framework for that which has now been vetted and people believe in, and we have to put aside money for those losses. So, if we do a bunch of risky deals, we might have a 6 percent loss in this next portfolio. And if we have very low-risk deals, then we’ll have maybe half that in terms of losses. But the goal is to be accurate in the way in which we’re calculating what exposure we are taking on on behalf of the American people and to be able to accurately report that to Congress, so that they believe that we’re doing things in the way that they intended.

So that process, I believe, today works. And I think if you talk to the Inspector General or the GAO or others, they’ll tell you that we’re probably best in class now within the government in the way in which we do that.

Richard G. Newell: So do you view yourselves as taking technical risk?

Jigar Shah: Never. We take perceived technical risk all day, but we don’t take actual technical risk. If we’re taking will-it-or-won’t-it-work risk, then that’s another part of DOE. That’s a demonstrations group at the Office of Clean Energy Demonstrations, or the manufacturing-supply-chain group, or those other groups that got grant dollars, and their job is to take this will-it-work-or-won’t-it-work risk.

Elizabeth Wason: Each episode of RFF’s Policy Leadership Series Podcast is made possible by listeners like you. This series provides thoughtful conversations with leading experts to better connect and inform our community on the latest environmental and economics issues. And you can help us. By supporting RFF, you join us in our mission to improve environmental, energy, and natural resource decisions through impartial economics research and policy engagement. Learn more about contributing to RFF today by visiting rff.org/support.

Richard G. Newell: Just to make sure I get this: So, you’re not perceived technical risk, because you have better knowledge to understand the true technical risk relative to a private lender who might not have that capability. So, you can solve for that problem. And I also hear you taking—there’s also execution risk, and you have just a higher willingness to take that on than …

Jigar Shah: We’re being asked by Congress to take that risk.

Richard G. Newell: That’s very helpful.

All right, I want to dig into some of the specific buckets of loan authority that you have, which are numerous now in the loan program, and also how they’ve evolved and increased through the provisions of the Inflation Reduction Act. For example, there’s programs for Clean Energy Financing, which itself has a number of sub-programs, there’s Advanced Technology Vehicles Manufacturing, Tribal Energy Financing, and Carbon Dioxide Transportation Infrastructure. If you could just give us a big-picture overview of these different loan authorities and how they’ve evolved, particularly over the last few years.

Jigar Shah: We have two main authorities that we’ve had for most of the Loan Programs Office’s life. That’s the Innovative Clean Energy Program 1703, and then the Advanced Technology Vehicle Manufacturing Program, which was famous through our loan to Tesla and Ford and Nissan. Those two programs are the bulk of all of the loans we’ve made in the past, like Vogtle nuclear plant, and innovative clean energy, et cetera.

And then the ones that we have the most applications for now. The Carbon Dioxide Transportation Financing Authority came through the Bipartisan Infrastructure Law, so it is most recently provided but has not yet issued its first loan to build the trunk lines across the country, so that people who create carbon dioxide emissions don’t have to become experts in the entire process of securing it and depositing it under the ground—they can just inject into a CO₂ pipeline. So, that’s the point of that, is to add to the mileage of CO₂ pipeline that we have in the country.

And then we have this new program called the Energy Infrastructure Reinvestment Program, which is housed within the Title 17 programs. We have 1703 and then this new one, 1706. And that one is designed to take infrastructure that is basically at the end of life, ceased or operating infrastructure within electricity, and/or petroleum and coal, et cetera, and figure out how we reposition that infrastructure to have a longer life but decarbonized. So, taking a coal plant that ceased operations, turning it into solar-plus-battery storage, or a nuclear plant, or something like that, taking a refinery and turning it into a biorefinery or a hydrogen facility or something like that. Or, for instance, we have applications in for taking old natural-gas pipelines that have now been made more efficient by another set of pipelines and resleeving them for ammonia, or CO₂, or other things. That’s the 1706 program.

And then you’ve got the Tribal Energy Loan Program. That program was conceived of in the original legislation, but not really funded until 2017. That program, we had to redo all of the solicitations and rules around that program. We reissued that late last year. We’re now getting a huge number of applications that are coming in under the Tribal Energy Loan Program. We have yet to do our first loan there, but we have received a lot of loan applications and have a lot that are being prepared. That program, like the 1706 program, has no innovation requirement. So, some of the programs in that Tribal Energy Loan Program is standard solar and wind projects, for instance, on tribal land, or some of that kind of work.

Richard G. Newell: You already dug a bit into the Energy Infrastructure Reinvestment (EIR) Program; we also got a couple advance questions on that. So, I want to dig into that a little bit more. One question says, “I understand the EIR loan authority expires in 2026.” First of all, is that right?

Jigar Shah: Yeah.

Richard G. Newell: And that would put a very short time frame on getting the projects going. So, how’s it going? Anything you can tell us about the vision for that program and how it’s going?

Jigar Shah: Yeah, so the additional loan authority we received for the Innovative Clean Energy Program 1703, and the EIR Program 1706, both have an obligation date of September 30, 2026. That doesn’t mean the projects have to be completed by then, but we have to obligate the funds to somebody by then. And then they have five years after that to draw the capital, so until 2031.

So, under that, we have received our first few applications already under EIR, which has been great. When we first launched the EIR Program, I think everyone told us we didn’t need the money—like, “You’re wasting your time.” And then we hired some great people to run it, and they have unearthed all sorts of projects that the people needed us for. We now have probably $40 or $50 billion worth of projects that are actively being prepared, applications being prepared by utility companies. We also have independent power producers who put in applications. We have others that are putting money applications in.

We’re very excited about the prospects of that program. It’s hard for me to tell you whether we’re going to obligate all of those resources by September 30 of 2026, but we certainly are working hard to make sure we know where all of those loan applications could come from, and we’re proactively talking to all of those potential applicants; I had two of those meetings this morning. It’s definitely a press-the-flesh type of approach.

Richard G. Newell: Interesting. So this is all about providing the financing needed to get what are really pathbreaking projects built, in many cases—projects that would not otherwise be built due to their technical risks or might not get built anytime soon.

Jigar Shah: Yeah. I would say that 1706 EIR doesn’t have an innovation requirement. It’s more that, when you take existing infrastructure, there is some additional hassle that comes from that, because there’s usually a brownfield component, a remediation component, and some of those things. It’s about using our money to overcome the hassle. So, the projects wouldn’t otherwise be built, because it’s sometimes easier just to do a greenfield project.

But when you think about the president and the secretary’s place-based initiative and all of the people who are losing their jobs from these retiring assets, figuring out how to give them a just transition, figuring out how to help those local towns with the property tax hole that’s going into their budgets, really requires a repositioning of these existing assets. The additionality here is really around helping private-sector developers choose these sites over maybe a less difficult site.

Richard G. Newell: That’s a different kind of hurdle, for sure.

Could you give us some examples, from the different loan programs, of projects that are being supported, or being considered, or even types of projects that you can’t go into detail that are exciting and that you think illustrate the distinctive role that the loan program plays?

Jigar Shah: Sure. All of the data provided to the Loan Programs Office is covered under the Trade Secrets Act. That means that even the existence of their loan into our office is business confidential, including everything they’ve supplied to us. So, while some folks will acknowledge their presence in our office, and some publicly traded companies have said, “We’re an active applicant in the Loan Programs Office,” we can’t acknowledge their presence in the Loan Programs Office until they hit the conditional-commitment phase and become public to everybody. So, we try not to do that.

In terms of some of the interesting projects: the Monolith Materials one is public. We put that conditional commitment out in 2021. It takes natural gas and splits it. (They call it turquoise hydrogen; there’s way too many colors!) They split it into carbon black and hydrogen. Carbon black goes into tires, and you saw maybe the most recent announcement that they made with Goodyear or Michelin, where they’re making a separate tire for Tesla Model 3s that are made of this carbon black, which is great. That is very strategically important, because methane pyrolysis, which is what this is called, was invented decades ago. It was attempted the ’90s and failed miserably. They have found a better and more confident approach to this. We’re supporting it. And from a national security standpoint, the largest exporter of carbon black in the world is Russia. A lot of these tire companies are trying to separate themselves from that supply chain, so that provides a shortage of carbon black.

All the carbon-black facilities in the United States are under a consent decree with the Department of Justice and the US Environmental Protection Agency, because they’re horrible polluters. All the communities around them have justice issues. And so, if this works (technically we know it can work), but if they’re able to operationalize their first project in Hallam, Nebraska, then there are 50 facilities around the country that are desperate for this particular technology, where they have either natural gas or ethane that they can use. They have brownfields where these types of workers are the ones who need a just transition, old refineries, et cetera. So, you can imagine it has a national-security component. It has the benefit of using the excess natural-gas capacity and ethane capacity that we have in the United States and use it in a way that doesn’t create pollution, but instead separates the molecule. So, you can imagine that there’s no place else for them to go. I mean, this is not something that the commercial banking industry wants to do.

But the other area that we play a huge role in is nuclear. When you think about our participation in the Vogtle nuclear plant, which should turn on with Unit 3 in the next month or so, and then you’ve got Unit 4 that’ll turn on soon after that. Everyone complains about the fact that it’s over budget and certainly over schedule. But we trained over 13,000 International Brotherhood of Electrical Workers and line-unit workers at the site. We had lost the ability to build nuclear reactors because the last one we built was really in the private sector, the Byron nuclear plant, which I grew up right next to, or the Watts Bar project at the Tennessee Valley Authority. We lost that ability, yet we have the best nuclear technology in the world—everyone agrees.

And you see with the Ukraine conflict all of the Eastern European countries signing MOUs with our reactor designs. Not French, not Korean, not Russian, not Chinese, but our reactor designs—but they want us to build them first. They’re like, “We would like for you to build them first and then for us to build them.” And when you think about the national-security implications of nuclear: When you lend your nuclear technology to another country, that’s an 80-year relationship. That’s something that we want those countries to have with us, not with other countries. And when you look at the just transition, we have 85,000 International Brotherhood of Electrical Workers that’ll be losing their jobs in power plants across the country as the coal plants and natural-gas plants they work in hit end of life. So, it’s not necessarily the regulation that’s shortening their life—it’s just that a lot of these coal plants are 50 years old, and it costs a lot of money to keep them going.

So, when you think about what these workers and these towns want: They want a nuclear plant, because the average worker that works there gets paid a lot of money. They pay a lot of property taxes, and they’re clean, firm base-load power. Our office is at the center of doing that. There’s no commercial bank that’s going to give a loan to building a new nuclear plant—that comes out of our office.

And I could go to a lot of other examples.

Richard G. Newell: One of the things that struck me in this example, and also maybe the prior one, is that it’s not all just about carbon. You’ve mentioned national security a couple times, you’ve mentioned transition issues in communities when it comes to brownfield sites, and there’s other aspects of environmental remediation. How typical is that in the projects? It sounds like there’s multifaceted challenges, but also on the flip side, the benefits can be multifaceted if the project works out.

Jigar Shah: I think it’s pretty typical. There was that famous cartoon, 15 years ago maybe, where there’s a room full of scientists and they’re like, “But what if we improve the water quality and air quality and all these other things for nothing, because climate change isn’t real?” And you’re like, “There’s all these other benefits to these technologies!”

So today, obviously with the great heat wave in Texas and other places, I think there’s very little argument around the need for us to move more quickly. But I think part of the underlying political equation under the passing of the Inflation Reduction Act, as opposed to the failed effort around Waxman-Markey, was that you got enthusiastic support for this legislation from labor, justice, and environmental groups. So, that is the benefits that these groups expect. They expect there to be a thoughtful approach for the question, How do we fill the million-person hole that we have in the trades? How do we train the next generation of electricians, and pipefitters, and all these other things?

Separately, you saw that with the link for apprenticeship programs as well as prevailing wage that were part of the IRA. So, there’s a level playing field now, and the question becomes, What is the most practical way to get all these folks trained?

But the same thing is true with the justice communities. For a long time, there were a lot of folks who were making these multi-decade bets on a place: When you build a manufacturing facility, you’re there for 20, 30, 40 years. What relationship do you want with the local community? What support do you want from the community? How do you express that support? How do you have those conversations? And honestly, I don’t think any of our applicants, at least, are ill-spirited about these things, but they don’t actually know how to have these conversations. And certainly, the groups that are there locally have had a hard time consolidating all their asks into, like, “Of the 45 things we brainstormed, here are the five things we want in partnership with the company.”

Figuring out how you actually facilitate those conversations is something that is important to de-risking the projects for us. We’re not mandating how that happens, but we are saying that we’re taking a 20- to 30-year view of these projects, because that’s how long our debt is. We want to see some of these best practices being put forward so that we’re de-risking the projects. And oftentimes, that is why you have enthusiastic support from the local community for these projects coming to their communities versus a more traditional NIMBY approach that might happen in a lot of communities.

Richard G. Newell: We had a couple questions also from the audience in advance that were about your engagement with smaller companies. Do you engage with smaller companies, smaller projects, or is that a different program?

Jigar Shah: Well, it depends on the definition of “small.” Our average loan size in the Loan Programs Office is roughly $800 million.

Richard G. Newell: I wouldn’t call that small…

Jigar Shah: Well, you’d be surprised. I mean, I’d say the vast majority of the enthusiastic users of our program are startup companies. They’ve now gone through a C round and a D round, so they’ve raised over $100 million of equity capital, Monolith Materials being one of them. So, maybe they’re not small anymore, but there certainly are new companies that have been around for maybe seven to nine years, and they’re now ready to build their first-of-a-kind plant, which happens to be a billion dollars in size, and they want us to put up 80 percent of the capital as senior debt. We certainly work with all of those companies.

Separately, I’d say, within the financing structures … Well, if you look at that Sunnova Hestia deal that we announced recently, which is $3 billion of loan guarantees … In that case, we’re not providing the capital as much as we’re providing a guarantee from the federal government of the capital that they’re raising. They have over 800 companies that they’re supporting. So there are many companies—from more traditional solar-installation companies to folks who are focused only on justice communities—they’re the largest originator of projects in Puerto Rico. You’ve got all sorts of communities that they’re serving.

And what you found was, we had 30 years of data out of the Loan Programs Office around how energy loans operate, through Michigan Saves or NYSERDA or Connecticut Green Bank, and S&P and Moody’s and Kroll and some of these other credit rating agencies refused to use that data. They were using credit card receivables and healthcare receivables, which have much higher loss rates. As a result, they were sending the signal to Sunnova, “Please don’t serve those communities, because we won’t give you much credit for the loans that you originate there.”

With our guarantee, we were able to use the federal government’s data, and the rating agencies went along with it because they got the federal government guarantee. And now S&P and Moody’s and Kroll’s, after the deal is done, are saying, “Actually, you’re right. We were probably using the wrong data, and you sort of forced us to start using the right data, and so maybe we’ll improve.” So, from that perspective, we’re helping the 850 or so small companies that Sunnova’s supporting, but also the thousands of additional companies that Sunnova isn’t supporting that might be working with Sunrun or Mosaic or GoodLeap or some of these other companies, because we’re improving the ecosystem as a whole.

Richard G. Newell: Greenhouse Gas Reduction Fund at EPA: Something you said about Green Banks triggered that. Do you guys have any engagement? Have they sought advice from you?

Jigar Shah: Well, we certainly do talk across the government, although I think we’re accused of otherwise. So, we do talk across the government, and Jahi Wise (who runs that program very well) and I talk fairly regularly. In general, I’d say that they have different purposes.

The purpose of the Greenhouse Gas Reduction Fund is to provide liquidity to markets that are currently underserved. So, there’s a lot of markets where people have good ideas in the local context, but there’s no place for them to take that idea for processing.

In our case, we have a very firm commercialization mandate. So really, our North Star is making sure technologies the DOE has spent 45 years inventing actually get across that bridge to bankability. And in the past, frankly, we were forced to take a lot of those technologies to other continents to get them commercialized and bring them back here. We don’t want to do that this time. We want to make sure we link them to the American worker. So, we have a slightly different mandate. Now, the Venn diagram might have some overlap, but I think they have a different mandate out there.

Richard G. Newell: Totally different question, but related to EPA and regulations: I’m wondering, Do you see any interactions between what you’re doing in the loan program and changing regulations?

For example, hydrogen and carbon capture and storage were proposed as the best system of emissions reduction, or BSER, to the folks engaged in the proposed power-plant regulations. One could think that that may decrease the need for LPO to work on those, or maybe it has a flip—maybe it increases the importance of you working on those to bring those technologies to commercial scale. Does that come up? And if it doesn’t, what do you think on the fly about that relationship?

Jigar Shah: It’s definitely the latter. It’s tied to your question before on net-zero commitments, et cetera. It definitely has increased the amount of interest in the Loan Programs Office—not decreased.

In general, in this particular case, I would say it’s a little bit separate. I can understand why people conflate the two. But the Loan Programs Office has been a part of this overall effort within the Department of Energy around these lift-off reports that were published. We published a carbon management lift-off report and a hydrogen lift-off report. And in those reports, they’re not DOE strategy or policy, but it reflects what the private sector is saying that they currently feel comfortable chasing and allocating capital to.

In the carbon management report, it talked about, I think, 15 different use cases for carbon management and the 45Q program, et cetera. Where the most interest was in there, not surprisingly, is in the industrial sector, for ethanol, ammonia, and natural-gas processing, where they’re capturing the CO₂, burying it under the ground—it costs them $31 a ton to do that. They’re getting paid $85 a ton. So, it’s a pretty good spread; they’re making good money. But what happens is, we’re actually training a whole bunch of subcontractors and contractors to do this work, which then makes it easier for the EPA regulation to come into effect later, because you’ve got a bunch of people who know how to do this and have fresh experience on how to do it, so it’s less scary.

And for the hydrogen piece, it’s similar. You’ve got the Delta ACES [Advanced Clean Energy Storage] project that we provided a loan to in Delta, Utah, where those are huge salt caverns that are taking the largest electrolyzer bank in the world and taking excess wind and solar production in the western grid, converting it into hydrogen, and burying that in the salt cavern. Each salt cavern will store 150 gigawatt-hours’ worth of energy.

To put that in perspective for you, we currently don’t have 150 gigawatt-hours of cumulative battery storage in the United States that’s been deployed. So, each cavern—and they’re building two caverns, at least—and they’ve got 11 more if they wanted to expand it.

Richard G. Newell: So, this is basically the same approach you use for natural-gas storage, but applying it to hydrogen.

Jigar Shah: Exactly. And because of the dynamics of how salt works, that gets trapped there. They are building a CCGT—combined-cycle gas turbine—there. And in emergency situations, they will burn the hydrogen in that CCGT to supply resiliency to allay. So, the fact that they have that system, and they’re thinking about it, and all that stuff certainly provides data to independent engineers and others on how that might work. Mitsubishi’s a part of that, and they’ve been a real leader around co-firing their turbines with hydrogen and natural gas.

The fact that we’re commercializing these technologies out of the Loan Programs Office does make it available technology, which then EPA gets to use for their thing. It wasn’t coordinated, but it does have some relevance there, the way we work together.

Richard G. Newell: Interesting. So I want to come back to something we started talking about earlier, which is, in 2022, with the passage of the Inflation Reduction Act, the magnitude of the authority at the loan program is now, I think, more than $400 billion, whereas it used to be maybe $40 billion. Have I got those facts right?

Jigar Shah: I mean, just throw a number at a dart board, and that’s what it is.

Richard G. Newell: It’s a lot.

Jigar Shah: It’s a lot; let’s put it that way.

Richard G. Newell: And the question. So we have less than a year and a half to 2024, and there’ll be some elections at that point, and things can change. How are you taking on the challenge of disbursing what is just a tremendous amount of capacity there? How are you approaching that and, at the same time, doing the due diligence that you need to do?

Jigar Shah: I’d say the latter piece is the governor. On the one hand, we have a lot of new people that we’ve brought in from industry—frankly, a lot of retired CEOs and others to help make sure that we’re uncovering every rock or stone to make sure that all the potential applicants know about our program, have their questions answered, and can make a decision to come in. On the other hand, we put them through the ringer because we have to. We can’t be loosening our standards to get people through.

So, I don’t know whether we’re going to put all that loan authority out the door. I certainly believe that it is essential that Americans deploy at scale for us to meet our carbon-emissions targets by 2030 and then beyond. So, we stand here ready to receive these applications and process them as quickly as we can to be able to facilitate these loan applications. But I do think that we’re not optimizing for putting all the money out the door as much as we’re optimizing for good-quality loans and making sure we meet that reasonable prospect of repayment that Congress has also reiterated with the loan authority that they provided to us.

Richard G. Newell: Interesting. My sense is that the loan program has had political staying power. I mean, it was first put into play in 2005. Do you have a similar sense?

Jigar Shah: Well, I do think that the fact that we have so much diversity in our loan applications—we’ve got $10-billion worth of carbon sequestration and storage applications, we have $14 billion of nuclear applications. We have so many applications for different sectors that different constituencies care the most about, and that certainly wasn’t planned. We try really hard to get as many applications that qualify as possible. Makes it, I think, have better staying power than otherwise.

Richard G. Newell: We’re going to have to leave it at that. Let’s all thank Jigar Shah.

Jigar Shah: Thank you. Thank you so much.

Elizabeth Wason: That was Richard Newell, president and CEO of Resources for the Future, in conversation with Jigar Shah, the Director of the Loan Programs Office at the US Department of Energy.

If you like what you heard, remember to like or favorite RFF’s Policy Leadership Series Podcast on your podcast platform of choice, where we will release new episodes with leading environmental and energy policy decisionmakers. You also can find recordings from our Policy Leadership Series events at rff.org/pls and receive updates about RFF’s events and podcasts at rff.org/subscribe.

The live event was produced by Holli Jones, Justine Sullivan, Donnie Peterson, and Luna Jinks. Music is from Blue Dot Sessions. RFF podcasts are managed by me, Elizabeth Wason, and made possible by you, our listeners. You can contribute to RFF today by visiting rff.org/support. Thank you for joining us.