Jigar Shah has a new strategy to boost climatetech through DOE loans

The serial entrepreneur, who now leads the loan program at the Department of Energy, has $46B to invest in long-shot decarbonization bets.

Jigar Shah, director of DOE's Loan Programs Office (Miljøstiftelsen Zero/CC BY 2.0)
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Jigar Shah has spent his private-sector career working to bring once-unfinanceable long-shot clean technologies to multibillion-dollar commercial scale, from utility-scale solar at SunEdison to community solar, electric buses and other sustainable infrastructure” projects at Generate Capital.

Now as the head of the U.S. Department of Energy’s Loan Programs Office, he’s in charge of what could be the federal government’s single biggest catalyst for pulling the same act on the next generation of climatetech. 

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Shah has gone on a public relations blitz since taking the helm of the LPO in March, promoting the 16-year-old program’s capacity to put its $46 billion in current lending authority — an amount that could nearly double if the budget reconciliation package being debated in Congress passes in its current form — to work in bringing a broad swath of technologies to commercial bankability. 

As of late October, LPO had collected more than 110 applications adding up to more than $80 billion in requests for direct loans or loan guarantees from the federal government. Publicly revealed applications range from massive carbon-capture, clean-hydrogen and biofuel projects to electric-vehicle and solar-panel factories, along with several next-generation nuclear reactor technologies.

In a September interview with Canary Media, Shah underscored LPO’s openness to applications across a wide array of technology that we think is ready to scale [proposed by] an entrepreneur who’s ready to manufacture and deploy it at scale.” The key for LPO is to pick projects where it believes the cost isn’t going to come down unless we fund it.” 

LPO is moving quickly to vet proposals and expects to make its initial funding announcements at the end of this year or the beginning of next, he said. Speed is of the essence, given the enormous gap between current investment trends and the country’s need for solutions to mitigate climate change.

The United States is at maybe $200 billion a year of climate-change solution deployment annually,” Shah said during a July event hosted by analysis firm IHS Markit. That number has to probably be a trillion dollars a year” to meet the Biden administration’s goal of halving economywide carbon emissions from 2005 levels by 2030

Individual technology sectors must reach at least $100 billion in scale to stand a chance of making a dent in these targets, he said in an October interview on The Energy Gang, the podcast he once co-hosted. If you don’t get a sector to $100 billion scale, there’s no way it’s going to be part of the solution.” 

LPO does have a track record of helping other technology sectors hit those kinds of growth targets, Shah pointed out. The office’s early loan guarantees for the country’s first five 100-megawatt-plus solar projects helped prove the viability of a utility-scale solar sector that now offers the cheapest source of new electricity in many markets around the world, for example. 

LPO’s $465 million loan in 2010* to bankroll Tesla’s factory in Fremont, California was a similar early boost for a company that’s now the world’s top electric vehicle manufacturer, he said. Tesla’s success has arguably helped catalyze a global industrywide shift to committing to EVs as the future. The rise of EVs has also driven demand for lithium-ion batteries, which in turn has dramatically driven down costs for grid-scale energy storage needed to integrate variable wind and solar power at increasing scale. 

We take this bridge to bankability for granted, particularly for solar, wind, lithium-ion batteries and EVs,” Shah told Canary Media. But you take it for granted at your peril.” 

The past, present and future of the Loan Programs Office

While LPO’s loans and guarantees in aggregate have been moneymakers for the federal treasury, not all its bets have been successful. The collapse of LPO-backed companies including Solyndra and Fisker Automotive drove a political backlash from the right that crimped LPO’s post-2011 activity. Since then, the only project to receive its backing has been Southern Company’s Vogtle nuclear power plant, the first new U.S. nuclear power plant expansion in three decades, which has fallen years behind schedule and billions of dollars over budget. The map below from think tank Third Way shows that LPO funded projects in many states in 2011, and then funding dropped off (check out the full-featured, dynamic version here).

(Third Way)

In the past year, Congress has taken action to reinvigorate the office’s authority and expand the scope of projects it can support. The clean-energy provisions in the omnibus spending and Covid-19 relief bill passed by Congress in December made changes that reduced the upfront and ongoing costs for earlier-stage companies to apply for and receive loans and loan guarantees. What’s more, the LPO has since dropped application fees and other complications that gave it a reputation for being hard to work with in the past. Third Way has put together a comprehensive breakdown of the LPO’s recent changes.

Nick Montoni, a policy adviser at Third Way, said that Shah and LPO staff have been working to make the programs more effective. They’ve made the financing tools…more flexible. They’re being more proactive in educating potential applicants. They’re making it very clear that a broader range of projects are eligible. That’s why they’ve been able to get nearly $10 billion in project applications in a single month.” 

LPO has also issued a statement making it clear that its Advanced Technology Vehicles Manufacturing (ATVM) loan program, which has $17 billion in direct lending authority, can support domestic battery manufacturing and supply-chain efforts. 

The infrastructure bill passed earlier this month also gives LPO flexibility to apply its ATVM funding not just to light-duty but also to medium- and heavy-duty vehicles such as ships, planes and locomotives. We’re talking about really hard-to-decarbonize parts of the transportation sector,” said Ryan Fitzpatrick, Third Way’s climate and energy program director. 

The budget reconciliation package now under consideration by Congress could dramatically bolster LPO’s lending authority. Provisions in the current draft bill include $3 billion in credit subsidy appropriations to support direct loans from the ATVM program, an additional $3.6 billion in credit subsidy for the Title 17 Innovative Energy Loan Guarantee Program, as well as $40 billion in loan guarantee authority across a range of other technology areas. Those include specific carve-outs for nuclear power and carbon-reducing fossil fuel technologies, as well as a broader category for renewable energy and efficient energy that would serve as a catchall of sorts for many harder-to-decarbonize technology sectors. 

A program like LPO that can leverage billions into tens of billions in projects — it makes sense that we would see climate advocates and clean-energy advocates in Congress leaning in on this,” Fitzpatrick said. 

An open-ended decarbonization strategy

With so many potentially valuable technologies to choose from, what will end up making the cut at the LPO? Over the past eight months, Shah has offered a long list of potential winners, including green hydrogen, carbon capture, advanced nuclear power, biofuels, transmission lines, offshore wind projects, grid-responsive energy efficiency, virtual power plants, and EV and battery manufacturing as well as companies that process critical materials and minerals for those manufacturers. 

In his September interview with Canary, Shah declined to offer any hints as to which technologies or specific projects his office was considering as front-runners or also-rans. But he did outline some principles guiding its decision-making process. 

First of all, LPO isn’t in the business of backing technologies that haven’t yet proven their fundamental viability, an area more suitable for early-stage venture capital investors or, on the public-funding side, DOE’s extensive research and development funding. 

We’re not taking technology risk — we’re taking perceived technology risk,” he said. In other words, the ideal target for LPO backing is something that commercial debt providers would respond to by saying, “‘We don’t know what to do with this.” He explained, It’s not that the commercial debt markets aren’t ever going to get there. They’re just not there right now.” 

On the other hand, he said, There is a record amount of equity being raised in this space,” both from venture capital and private equity infrastructure investors and from public investors via initial public offerings or, more commonly of late, reverse mergers with special-purpose acquisition companies (SPACs). Every one of those people raising a $100 million equity round, or SPACing, are looking at our office” for loans or loan guarantees to take their next step to commercialization, he said. 

Technology to make the zero-carbon grid possible

Clean hydrogen, carbon capture and long-duration energy storage are key areas of focus for the DOE. This is because they’re seen as critical to achieving deeper and more challenging decarbonization of the power grid, transportation and industry. Each is the target of a DOE Energy Earthshot program, aimed at driving down the costs of the underlying technologies to commercially viable ranges.

When you look at the Earthshots that DOE has announced, 80 percent of that goal is preordained just through the learning curve,” Shah said. That’s the term describing the cost reductions that technologies undergo as they scale from early-stage deployments to mature, repeatable projects, much as solar power has done over the past decade. 

James West, senior managing director and head of sustainable technologies and clean energy research at Evercore ISI Research, agreed that LPO is likely to see itself playing a role to expand those businesses so they can do the same thing that wind and solar accomplished, and use scale and learnings to become economic.” 

In particular, clean hydrogen, carbon capture and long-duration energy storage are central to managing the rapid growth of variable wind and solar power, which are themselves key to reaching the Biden administration’s goal of a zero-carbon power grid by 2035

I’m completely in agreement with Jigar that you simply have to get on top of solutions to integrate intermittent resources at an acceptable price,” said Joe Osha, Guggenheim Partners’ managing director and senior research analyst covering the energy technology and industrial technology sectors, in a November interview. 

As of early September, LPO had roughly $3 billion in hydrogen project applications under consideration, Shah said at the DOE’s Hydrogen Shot Summit 2021. Hydrogen projects seeking LPO loan guarantees include the green hydrogen network that fuel-cell and electrolyzer maker Plug Power is planning to build, the Advanced Clean Energy Storage hydrogen production and storage hub being planned by Mitsubishi Power Americas and Magnum Development in Utah, and the solar-powered hydrogen production and storage hub being planned in Mississippi by Hy Stor Energy. 

Government backing is critical to projects like these as they seek to simultaneously line up would-be project financial backers and prospective buyers of the hydrogen they plan to produce, Hy Stor CEO Laura Luce said in a November interview. 

Developers are always out there trying to raise money, and the question is, do you have long-term commitments?” she said. And the answer always is, if we did have long-term commitments, there wouldn’t be the need for the Loan Programs Office.”

Similar chicken-and-egg challenges lie in store for long-duration energy storage technologies that could play a similar role to zero-carbon hydrogen in supporting the grid. There are a lot of these new chemistries that we think are pretty safe,” Shah said, chemistries we invented back in the 1970s in a DOE lab” like the iron-air battery technology that well-capitalized startup Form Energy is working on.

But the market structures to allow long-duration projects to be financed and built haven’t yet been developed, even in states like California that are beginning to mandate their procurement within the next decade. That’s a problem for energy project developers that the LPO could help solve, Shah noted. If they want to be compliant with the state of California’s mandate, they have to come to us for a loan on that piece of equipment,” he said. 

Working within LPO’s technology silos 

LPO’s mandate to support innovative decarbonization projects could also apply to fossil fuels, a category that has $8.5 billion in loan guarantees earmarked for it under existing authority. Project Tundra and Enchant Energy, two financially struggling carbon-capture-and-storage projects at coal-fired power plants, have applied for LPO assistance. 

So have companies such as DG Fuels and Velocys that are targeting biomass-based low-carbon aviation fuel. 

Advanced nuclear energy also has its own $10.9 billion set-aside under LPO’s existing authority. Nuclear companies including NuScale, X-energy and Terrestrial Energy are seeking loan guarantees. 

One interesting option for advanced nuclear plants, but one sure to face financing challenges due to its novelty, is siting the facilities at coal plants, as Bill Gates–backed TerraPower has proposed doing in Wyoming. Shah noted that other concepts for reusing closed coal plant sites — such as utility Xcel Energy’s idea of installing molten-salt energy storage at the site of a slated-to-be-shuttered Colorado facility — will require complex financing to carry the project through decommissioning of the existing plant and startup of the replacement technologies. 

While fossil fuels and nuclear power have dedicated funding, a much wider range of renewable-energy and efficient-energy projects will be competing for a smaller pool of $4.5 billion under LPO’s current authority. So far, Shah’s office has received applications for $7.6 billion in wind power projects, including offshore wind that requires extensive transmission and port facilities to support its growth, for example. 

According to Shah, LPO’s mandate to support innovative projects could be met by novel approaches. For example, ships are needed to build offshore wind farms, and LPO could back those ships being powered by methanol or ammonia produced via low-carbon methods rather than by fossil fuels. 

Similar innovations may open up LPO lending to transmission projects that take novel approaches to unblock bottlenecks that are preventing the construction of the new high-voltage lines needed to integrate wind and solar power into the country’s power grids. DOE guidance has made $5 billion in LPO loan guarantees available to transmission owned by federally recognized tribal nations and Alaska Native Corporations, as well as innovative projects such as high-voltage direct-current transmission along railroad corridors and highways.

The Advanced Technology Vehicles Manufacturing program has more money than the LPO’s renewable-energy and efficient-energy category, but so far it hasn’t seen the same flood of proposals. As of late October, that office had tracked roughly $2.2 billion in applications for EV manufacturing, $1 billion for batteries, $4.3 billion for components and $4.4 billion for projects focused on critical minerals, as well as $1.3 billion for projects related to EV-charging infrastructure. 

Guggenheim Partners’ Osha believes that the amount of private-sector money flowing into the EV industry indicates that LPO is less likely to see the need to back light-duty EV makers directly, as it did with Tesla in 2011. On the other hand, EV-charging infrastructure and heavy-duty vehicles do face some commercialization barriers that could make them candidates for LPO support. 

Osha cited a September conversation hosted by Guggenheim during which Shah emphasized the role that distributed energy — rooftop solar, batteries or even EVs plugged in at homes and businesses — could play in enabling broader decarbonization.

That’s a significant departure from the typical big-project, utility-centered approach that we’re used to hearing about” from LPO, Osha said. But it’s a point that Shah has made in multiple interviews and appearances in recent months. 

It’s also an opportunity that’s begun to appear in official DOE communications. Last month, DOE announced that 10 projects had won a collective $61 million in funding to develop connected communities” featuring solar, batteries, sensors and smart appliances and energy controls. The press release states that applicants that didn’t win could still be eligible for DOE funding through DOE’s Loan Programs Office, which provides access to debt capital for the commercial scale-up of innovative technologies like grid-interactive efficient building communities.” 

So how might an agency best known for industrial-scale clean energy tackle the issue of distributed energy? Stay tuned for our next article delving into the concepts that LPO is exploring to make energy efficiency and resiliency available to more U.S. residents, and how it plans to link that work with supporting communities and decarbonizing the grid.

*Due to a typographical error, this article originally misstated the date of Tesla’s DOE loan.

Jeff St. John is director of news and special projects at Canary Media.