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Jigar Shah

Director, Loans Program Office

Department of Energy

June 3, 2021
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Ep 26: Jigar Shah - Director, Loans Program Office, Department of Energy
00:00 / 01:04

Bret Kugelmass
We are here today with the one and only Jigar Shah, who is the Director of the Loans Program at the US Department of Energy, but that title doesn't go nearly far enough to explain what a rock star he is in the energy world. Jigar, welcome to the Energy Impact.

Jigar Shah
Thanks for having me.

Bret Kugelmass
So, we'll come around to the stuff that we'll talk about in your current role today and your view on US energy policy and how things changed over time, but before we do that, we'd like to just get to learn a little bit about you. Tell us. Where did you grow up and where did your interest in energy first begin?

Jigar Shah
Wow, well, you're taking me back. I grew up in Sterling, Illinois. I moved there when I was eight. It was a rural town in Illinois, about two hours west of Chicago and had the seventh largest steel mill in the country at one point, Northwestern Steel and Wire, and still the home of Wahl Clipper, where most people's hair clippers are made, men's hair, at least.

Bret Kugelmass
I have one myself.

Jigar Shah
Yeah, there you go. And so, a fabulous place to grow up, but I think it really puts into focus the moment that we're in today, with the decline of union jobs there at the steel mill, the increase in low paying jobs, a lot of the frustration that came from that. My interest in energy, I'd say, came from my dad who used to buy me a lot of books. A lot of them were on energy, and I read them and I thought it was super interesting. And so, I spent a lot of time really understanding how our energy came about. I think energy is generally pretty invisible to people. As I got greater clarity, I realized how little innovation was actually happening in the energy sector back then in the 80s and thought that I could maybe play a role in helping to increase innovation in the energy supply chain.

Bret Kugelmass
So, quick question. First, what did your dad do?

Jigar Shah
He's a physician. So, he ran two of his own offices. So, watching him be an entrepreneur was also a big eye opener for me.

Bret Kugelmass
Yeah, I was wondering about that. Okay, that makes sense. And then, when you started to look at the energy landscape back then, what were some of the fundamental differences in how the markets were set up that perhaps stymied innovation at the time?

Jigar Shah
Well, I don't know that I understood anything about markets, but clearly, when you read about energy back in the 80s, I mean, we clearly burn stuff or use stuff to create heat. And then use that heat to boil water, and use that water, that steam to turn a turbine and produce electricity. So, everything had basically stayed the same for 200 plus years, whether it was nuclear, or coal, or natural gas, or even hydro. When you study solar, wind, and other technologies, you think, actually, there's something different going on here, right? I mean, particularly with solar. Right here, we've got a semiconductor that gets hit by light that unlocks an electron in an excited state and then that electron gets captured by some well-placed busbars, and then off they go. When you think about genuinely new ways of making electricity, there aren't a ton of genuinely new ways that were introduced to me there in the 80s.

Bret Kugelmass
Then how did that translate? I think most people in this space know you as this legendary entrepreneur in the energy sector, but did you always kind of have your eye out for entrepreneurial opportunities? Or was it through your work in larger other organizations that you kind of saw how things looked, and perhaps saw some opportunities to jump into?

Jigar Shah
I think that a lot of these terms are very filled with meaning. For me, my motivations are a little bit less sort of consistent with those meanings. For me, having been born in India, came over here when I was one, and then grew up in a small town in Illinois, the whole notion of entrepreneurship where you sort of write an idea on a napkin and go to a venture capitalist, and get it funded, and then become a high flyer, moved to Silicon Valley, and get rich on cryptocurrency was not really my form of entrepreneurship. For me, it was really just, you come up with an idea, you think the idea is worth chasing, you eat a lot of ramen while you're chasing it, and you hope that you actually sell enough products that other people say, That's great, we should buy more stuff from you, and then you get some growth, capital, etc. It's a very traditional form of entrepreneurship. My businesses that I've started, whether it was, SunEdison, or the Carbon War Room, which is a nonprofit, or Generate Capital. They were always basically profitable. We didn't really lose money on purpose to get eyeballs and get scale and do that stuff. I mean, it was a very Midwestern slash East Coast, way of starting companies. It wasn't really a West Coast model.

Bret Kugelmass
Well, take us through a couple of those. I mean, SunEdison, I'd love to learn a little bit more. What was the origination of the idea? I mean, I know that you guys had a pioneering business model there, but was there also a technology component to it? And how did you get started? How did you even start ramping up to begin with?

Jigar Shah
Well, the idea was fundamentally a simple one, right, which was, people don't really want to pay cash upfront for a solar system, and then wait eight years to get their money back. They really wanted to pay a discount to what they're currently paying for their electric utility bills and pay that for 20 years and outsource the maintenance and the operations of that power plant to someone other than their own internal staff. They didn't want to get into the power plant business, they just wanted to buy solar panels.

Bret Kugelmass
Perhaps professional infrastructure investors should be handling the upfront money part.

Jigar Shah
Yeah, but when we started it, we were the only guys saying it.

Bret Kugelmass
Why was that? And did you receive criticism when you first started bringing that idea? Did it become immediately obvious to everybody once you proved it out?

Jigar Shah
Interestingly enough, when we started it, we thought customers would be the hard part. It became instantly obvious to them that this was better than then the alternative, mostly because most of the people who were making decisions around buying solar were in the operation side of the business, and they weren't the CFO. They kept getting blocked by the CFO who said, Why would I spend that much money upfront on something that we don't view as core to the business. A lot of those champions, when they heard our pitch, said, Well, Jigar, you know, you're like the eighth person I've talked to about putting solar on this roof and you're the only person who's figured out a way to get past my CFO. So, closing customers was the easy part. Getting investors to go along for the ride was the hard part, which we thought would be easy, just because investors like making money, but turns out that they're actually highly lazy and they thought, Well, this is new, and why would I do something new when I can make money doing something that I already know? So, it took us a long time and a whole bunch of favors to be able to get investors closed. And it wasn't until one of my original co-founders, Brian Robertson, and then he had a friend from Harvard Business School that was in the right office at Goldman Sachs Special Situations Group, Manoj Dengla, got together and said, Hey, we think Special Situations is the right place for you. And Brian said, Well, we're good friends, so thanks for giving us a chance. And it took us a year and a half, but we closed that $60 million fund, which was the first ever fund for solar, and it used the tax credit and depreciation and all the other things. At the time, the tax credit was only 10% and so, that level of financial innovation was what really catapulted us in the business. At the time that we did it, there were a lot of people that were threatened by us. I mean, one of our main competitors who sold systems as cash told the State of California regulatory authorities that what we were doing was illegal, because utilities were the only people who could sell power and what we were doing was amounting to selling electricity, which we were never doing. We were always selling solar services, which included the maintenance and other services. There were a lot of hurdles in the way, but I would say that we were never selling technology, not initially. Over time, of course, once we became big, we were doing lots of things, but initially, we said, Look, this is the same technology that has been powering space satellites and telecom towers for 20 years, so nothing about this is new.

Bret Kugelmass
One thing that I wanted to ask, though, is, was there another industry that you could learn from that was an appropriate analogy, almost, where they had taken something that historically had to be financed over a long period of time by the customer and you could come up with a fund or model to just sell the services instead, and obfuscate the cost of the infrastructure. Was there anything else that you guys could look to for inspiration?

Jigar Shah
There were a couple of things out there, but they weren't very big. Enron Energy Services, at the time, had figured out how to sell boilers as a service. They actually bought a company that did that. There were certainly a lot of independent power producers who had figured out project finance for coal plants and natural gas plants, so there was some analogy there. But the fact that we were connecting two different things, one was power, but we were doing it at a distributed basis, and the other is really taking a technology that, frankly, has been around for a long time, but just wasn't familiar to bankers, still made the road pretty steep.

Bret Kugelmass
I noticed something earlier that you mentioned about how investors were being lazy, and, as an entrepreneur, I've also kind of come across that in my career. Not all of them, but a lot of them just don't want to hear new ideas. I was wondering if that kind of stuck with you. So, after you'd sold SunEdison and you decided to continue other passions, including forming Generate, was that one of the driving motivations was to say, Hey, I see this impediment towards innovation in the energy sector, I think I can get on the other side of the table and fix this.

Jigar Shah
I think that's probably right. It's not that investors are disinterested in the pitch. I mean, investors are folks who love to learn, so they love getting pitched and they love learning. But when you look at infrastructure investors writ large, they generally don't get paid that well. In general, their credit committee is pretty conservative, because they kind of act like a senior dad. There's not a lot of upside. They're not venture capital investors, so they don't make 10x returns. They're mostly like, Look, if I can hit my numbers without doing something new, why wouldn't I? And you say, Well, I'm gonna give you a higher rate of return than the other thing. They're like, It's not really worth it. Right? Because I'm putting $500 million to work. I'm giving you 50 million bucks, which is not lot of money compared to the 500 million I'm putting work. So, even if I make an extra 300 basis points, that's just not a lot of money for me. The amount of money that trickles down to my paycheck is, whatever, an extra 500 bucks. I'm not going to start climbing this hill to educate everybody about this new topic for 500 bucks. So, there's really no incentive within the model to put in all that extra effort. So, when I say people are lazy, it's not because they're disinterested. I think they're very curious people and they want to learn about all this new stuff, because hell, they might have to finance it five years from now. But they don't really want to be the trailblazer that does all the work to get the first couple transactions done.

Bret Kugelmass
Is there any incentive on the organizational basis that would counteract that. Like, if there is a specific type of investor, not on the venture end, but that can essentially, by being earlier, kind of taking a risk on a new business model and a new sector, gaining experience with it earlier, that they can kind of corner the opportunities moving forward? So, maybe the low level, maybe like the fund manager level guy doesn't see how it would directly impact his bottom line, whoever owns the entire financial institution might be kind of pushing everyone to be able to be more open to innovative ideas, because he sees the opportunity for the larger financial institution.

Jigar Shah
Not really, right? I mean, we can go through it. JPMorgan Chase makes its money on the Fortune 500, or the Fortune 1,000. Right. Everybody else is basically a non-event for them. They have a bunch of checking and savings accounts, but they don't make a lot of money on those people. So, when you're working with JPMorgan, they're like, We kind of make our money over here. Now, they get hit up by environmentalist and others and then they make announcements about how they're going to do $2.5 trillion worth of climate change investing. But at the end of the day, that $2.5 trillion is a lot easier to put into solar and wind projects today than to figure out geothermal or fuel cells or even low impact hydro, which has been around for years. It's all weird new stuff for them. Certainly, when you look at 45Q projects, the only reason they might do carbon sequestration and storage is because ExxonMobil's doing it and ExxonMobil is already a big client of JPMorgan. So, they're like, Alright, fine, we'll help you out on 45Q. But it's not something where they're saying, Should I help a future SunEdison get their start with their first $60 million fund? Not really, I mean, if Manoj Dengla hadn't worked for Special Situations Group and been best friends with Brian Robertson, my sense is he wouldn't have taken his extra 50 hours worth of free time that he was given by his bosses at Goldman and spent it on us. He would have said, Alright, well, is the next deal I've been assigned. My boss says I'll work on this next deal. And then, when you look at the SBA lenders, like Celtic or Live Oak Bank, they're experts at arbitraging federal loan guarantees. They do SBA loans, they do USDA guarantees, they do other things, and from their perspective, they're saying, Look, we're super easy to work with from a customer service standpoint, so we offer 6% financing. The Federal guarantee portion we can sell off at 2%, so we're making a big spread and the 20% that we're left to hold is our risk. And we're really good at underwriting, so we're making large amounts of money here. And we're not really institution per se, we're sort of run by a small group of people at the top. We just happen to be 25 year old banks. And so, the small people at the top are pretty wealthy now and as new programs come about, like mine in the Loan Programs office or others, then they're like, Look, let's do more loan guarantees that have federal loan guarantees, we're good at that. So, that's the part that they're arbitraging around. When we started Generate Capital, that was one of the first groups that were started whose job it was to actually help people, because they were new at energy technology. That took a long time to prove. I'd say seven years into that experiment, there are now people going, Huh, we might actually be able to make more money by focusing on helping these people. But maybe we have three or four competitors at Generate Capital now, but it's not like we have 50.

Bret Kugelmass
Yeah, it is. I guess it's a little unfortunate that that didn't create a much bigger class of investors that could get into the space. I mean, I say unfortunate, because I'm sure that like you'd almost rather there be 50, even if it means competition, because that just means the sector gets more powerful overall, right?

Jigar Shah
Well, I've been giving away our secrets on the Energy Gang podcast for seven plus years. I mean, I wrote a book that gave away all of our secrets, right? So, it's not like, what we're doing. I mean, Generate Capital, I think, has been the best performing stock for infrastructure investors for the entire seven years that we started the company. Since 2014, I don't think there's a single name in all of energy infrastructure investing that has outperformed Generate Capital, even by close right. I mean, it's been such a home run that that I think they raised the money in their last round in weeks. It was so oversubscribed, right? So, it's not like there isn't the huge pent up demand now for what they're offering and a proven track record for making gargantuan amounts of return without taking a lot of extra risk. But a lot of folks are lazy, right? I mean, a lot of the people that would be competitors to Generate are saying, I get it, Jigar, you're making a lot of money at 25 to $50 million check sizes, but it's just so much easier for me to do a $500 million loan and then just go to the Hamptons for the rest of the summer. Like, I don't want to work that hard. Man, why would I do 25 to $50 million checks? That seems like a lot of work.

Bret Kugelmass
Is this a broader societal problem, actually, that we're uncovering here? Because these aren't not- these are still smart people. These smart, ambitious, motivated people that are even in that position of privilege that they can make the decision to go to the Hamptons instead. And there are only so many of them. When you get more narrowed and narrowed into any sector, you probably know the 500 people out there that should be starting up these funds. You've probably met them personally at conferences. Why aren't they dropping the summer house and saying, You know what, it's actually my responsibility, my time to get a little bit more serious about something that affects the entire planet and every single human being on it.

Jigar Shah
Yeah, it's a tough question to answer. A lot of people are, frankly. But the problem is they go way the other direction. They go, Alright, well, now that I'm no longer making as much money as I possibly can make, because I've made so much that I've already got four houses, and now I'm retired, they go, Well, let me help the extreme other side and become an impact investor and let me help people with $500,000 loans through CDFIs or local community banks who are doing $150,000 worth of loans a month. And I'm like, that's awesome. I mean, someone's got to do that work. And I think that's amazing. And I've done that out of my private family office for years. But that doesn't mean they want to get into the for-profit business of helping to serve 25 to $50 million check sizes, which is what really is needed, right? The vast majority of people need to figure out tax equity. Tax equity is so hard. I mean, I happen to be an expert in it, because I helped put the first tax equity fund together in 2005. But it's really hard for the average person. I mean, for most people, they can't do a $25 million tax equity deal or a $50 million tax equity deals. Most people don't want to get out of bed for less than $200 million tax equity deals. So, a lot of these folks who are choosing to get off the roller coaster rat race are saying, Well, I'm going to work 80 hours a week, but I'm going to work 80 hours a week for all these folks who have been left behind on energy justice and environmental justice and other things, which is hugely important. I mean, so important. But there's this missing middle where there are a bunch of entrepreneurs that have gotten grants from the Department of Energy, that have gotten money from Breakthrough Energy Ventures, who've gotten money from EIP. There are all these people who have funded them and now they've gone out with their first $25 million, $50 million project finance structure and you've got Breakthrough Energy Ventures that are trying to figure out this catalyst idea. EIP put together their own credit fund. There are other folks who have solved it their own way, which is great, but when you talk to the people who are running it, they're generally not trying to build a $25 billion empire putting $25 million loans out the door. They're basically putting together a $500 million vehicle to help their own companies that they are going to make a 10x return on get through this catalyst phase Which is interesting, but it's not serving the broadest possible market so that, when the Department of Energy looks all around, we see thousands of companies and technologies and investments that we've invested in that have made it fairly close to demonstration scale that is now ready for primetime that's gathering dust on the shelves for 15 years.

Bret Kugelmass
It's amazing. And is there something special - you mentioned that number a couple times, that 25 to $50 million range? Is there something special about that amount that makes it kind of perfect for a demonstration or a pilot plant at the industrial scale? That actually does seem to be the number that I see come up pretty often as we interview people across different technologies that want to show something working at scale. Is there a specific reason why that number seems to come up over and over again?

Jigar Shah
Well, it's the right number for a lot of reasons. If you're doing something residential scale, then the number might be $5,000 per home. But you can generally cobble together - if you're the right person, with the right resume, with the right background -3 to 5 million, $7 million, with the money just passing the hat around at the country club, getting angel investments into project finance vehicle. A lot of people sort of do that. Or your venture capitalists might say, Well, we'll do the first 3 to $7 million off of our own balance sheet, we'll let you do that, just because we understand that you've got to prove it. Well, the next stepping stone of pipeline that people have is 25 to 50 million bucks. Once they've exhausted the three to 7 million, or they're building a pipeline, they generally can show you an order book of 25 to $50 million in the residential or small commercial sort of space. Then, when you get to industrial scale, a lot of industrial projects are, in these efficiencies, sort of areas, or thermal heat or other things, you're in the 5, 10 $15 million per project range. So, you might have two customers to get to 25 million to 50 million. And then, when you get to bigger stuff like aviation biofuels or ethanol, or other cellulosic plants, or that kind of stuff, that's really the price tag for a demonstration plant is 25 to 50 million. Even in the transportation space, if you want to do a fleet financing, a lot of times it's a $25 million financing, by the time you include the charging infrastructure and all that stuff. So, it turns out the 25 to 50 million is what it takes to prove to somebody that what you got is actually worth scaling to a billion dollars.

Bret Kugelmass
So, you were going around at Generate, like you say, giving away your secrets for free. Getting on the Energy Gang podcast - which I listened to many episodes of - just trying to spread your ideas as widely as possible. Is that how you ended up at the position that you're at now? Because somebody saw what you were doing and said, Well, if you had the full force of the government behind you, perhaps you could hit things with a bigger hammer?

Jigar Shah
Oh, I have no idea. No one ever answers that question for you, right? You ask somebody and said, Hey, why did you think of me for this job? They're like, Oh, Jigar, those are all confidential conversations, we decided at the end of the day to pick you for this job. Do you want it or not? And I'm like, Well, I've got a good setup at Generate, like, I worked pretty hard to create this setup. What are you trying to do to me over here? So, I don't think anyone's ever gonna answer that question for me. But sure, I certainly think that people believe that I know what I'm doing and I know how to protect the American taxpayers' money. I certainly have a pretty extensive Rolodex of entrepreneurs that I know who I can go to and say, Have you ever thought of the Loan Programs Office when you're thinking about putting something together? I certainly know a lot of the equity investors.

Bret Kugelmass
Is that it? Is it partly this deal origination that you bring to the table? Those 1,000 projects that are sitting on dusty shelves, you can get them in front of committees and create both sides of this marketplace of getting these projects financed?

Jigar Shah
I thought I just answered your question. I have no idea whether that's it. I mean, no one ever told me the answer. It could also be that I said all sorts of crazy things on the Energy Gang podcast which got me a cult following, and they said, Well, look, if we break Jigar in-house, then that cult following will stop criticizing us. I mean, I don't I don't know what the reason was that they brought me in, but I'm honored that they asked me and working my butt off on behalf of the American people.

Bret Kugelmass
Yeah, so forget about- all right, let's figure out what they wanted. We're not going to get that answer. What do you want? When you decided to take the job, what was the thing that you thought that you could- well, what are your opinions? First, on what you think you could do differently in this role? And then also, what were your thoughts just on government going in and if you would get swallowed up by the government machine or if you'd be able to use it effectively?

Jigar Shah
Well, most of my thoughts are already on the record from the Energy Gang podcast. I was withering in my criticism of the Obama administration. Those answers are already on the record somewhere and so, you could listen to those? Look, I mean, I think that the government has to play an essential role if we're going to get government- if we're going to get overall clean energy deployment investment from 200 billion a year to a trillion a year - which is I think, what we need to get to - to meet President Biden's vision of decarbonizing the electricity grid by 2035 and the rest of the economy by 2050. That's a five x-ing of the investment that we have been averaging over the last three years. I think the government's going to have to play an essential role to be able to do that. Part of the government playing an essential role is to getting the top tier entrepreneurs to actually allow the government to play an essential role. I mean, I've had a conversation with probably over 100 CEOs already, directly one-on-one saying, What's stopping you from taking advantage of the Loan Programs Office? And they're like, Well, Jigar, we don't need to tap into Loan Programs Office, it's a pain in the ass and here are the reasons we don't want to bother and put all the resources into it. And I'm like, Well, here's what you get for it for leaning in, and they're like, Wow, Jigar, that's actually a pretty sweet set of benefits that you guys are offering, which I, frankly, didn't bother ever to read about, or think about. So, I've gotten them to think about it twice.

Bret Kugelmass
And what are the benefits? Are they strictly economic and not having to dilute yourself? Or are there greater advantages towards working with the program? Are there other connections that are made to utilities or who knows what?

Jigar Shah
I wouldn't say that there's any real economic benefits to using the program. I mean, there are clearly economic benefits, but we're not here to subsidize senior debt. We're only senior debt. The cost of capital to the best borrowers that are AAA-rated is, let's call it 1.9% interest for 30 years. The average interest rate for people who are not the best borrowers are, let's call it 5% cost of capital, right? But the goal for us is not to subsidize people, although we might be a little bit. The goal for us is to give people liquidity to say yes to good ideas, where commercial banks are currently saying, We're too lazy to underwrite the deal. It's just too much work. It's too different. It's too hard. That's our job. I don't care how different or how hard it is, we have an obligation as the federal government and the Loan Programs Office, to read your application, to bring in the 10,000 engineers and scientists who work for the Department of Energy and the National Laboratories, to opine on your idea and tell you whether we think it's worth funding.

Bret Kugelmass
Now, that's a real superpower in there, that you can pull in these engineering resources, because I feel like that's, especially when we're talking about new technology, that's what I think scares a lot of investors, especially on the debt side, scares them away, is, unless it is a cookie cutter technology that's been done 100 times before, how are we gonna truly model the risk here? Is that something that you're saying that the US Department of Energy can do better? They can actually look at a project that has a newer technology component to it, whereas banks would just run away otherwise?

Jigar Shah
Yeah, I think that's part of it. I mean, look, when I was at Generate Capital - we were on the other side of the deal, we were equity at the time - we would oftentimes be forced to 100% equity finance our projects, because there aren't any debt players that bothered. And we were big, right? We had some of the largest investors in the world that were investors in us and still the debt player said, Jigar, it's a pain in the ass.

Bret Kugelmass
Why can't they trust you? If you have a track record, if Generate has a track record that will show in returns, why do the debt providers still run away? Why can't they say, You've done our due diligence, if you're willing to put your money behind it, you've essentially done our diligence for us?

Jigar Shah
Because that's not how it works. The way it works is, you're the Walton family, you're with Goldman Sachs, you've got almost $100 billion invested with Goldman Sachs, in high net worth wealth. You call them up and say, Hey, I've got a guy, and I want to make sure that he gets a $50 million loan. And Goldman Sachs says, Whatever you want, we're happy to give them a $50 million loan if that's what it takes. From their perspective, if something goes wrong, they're going to go back to the Walton family and say, Hey, you got to make us whole on the $50 million we lost on you. For them, it's a covered loan. It's personally guaranteed. That's how they view the world. The same thing is true for the ExxonMobils of the world with JPMorgan Chase, or whoever it is. They view this as relationship banking and if something goes wrong, Exxon is gonna make us whole. That's not what Generate Capital does. Generate Capital does real non-recourse financing. So, if something were to go wrong, sure, we're gonna make them whole in the sense that, if it was not their fault, or our fault, but it was a third party's fault, we're gonna sue them, and we're gonna make sure that they pay, and we're gonna get everything up and tidy. But we're not giving them a corporate guarantee for the loan. We're saying, No, it's a non-recourse loan, it's a good loan, it's got a two debt service coverage ratio, you should do the deal. And the vast majority of investments that Generate makes that way, three years later, after we proven ourselves, there are banks that come to the table, who then provide us with debt. But the Loan Programs Office does that upfront. We're happy to do that, even if you don't have this big track record and you don't have big investors, like Generate Capital does, and all the other things. That is the whole point of the Loan Programs Office, but it hasn't been really active for 10 years, so the vast majority of entrepreneurs don't know that it exists. A lot of what I've been doing is going to CEOs saying, Look, we exist, you should use us. And they're like, Oh, you guys are still around, we didn't even know you guys still existed. And now they're coming to us and we're getting applications in at the level of two to three applications a week, when we were getting in two or three applications a year before this time. I mean, that's awesome and folks are starting to do it. And the Secretary of Energy is talking about us all the time, which gives us a lot of air cover, which is fantastic. And people are like, Oh, you know, that Jigar, he's not just bloviating about this stuff, I mean, the Secretary of Energy is backing him up with all these comments. This is great, right? And then we've got the President who talks about us every once in a while, and you've got other people in the White House who talk about us, which is great. Then we're doing a lot of sub segmentation of the market. Everyone is, of course, allowed to apply for a loan from the Loan Programs Office. The only requirement is it's got to save greenhouse gas emissions, which a lot of people qualify for. But we're looking at the marketplace and saying, Where are enough projects already coming together that we're seeing at least $2 billion worth of loans in one sector? And where we see that we're then assigning an outreach person and saying, You go call every single person in that sector and make sure that they know that we exist, because we see a line of sight to $2 billion worth of applications and that might mean that there's actually $10 billion worth of applications that we're not seeing. So, figure it out. We've identified about 12 of those sectors and we're proactively calling all the trade associations and the members and those trade associations directly.

Bret Kugelmass
Yeah, it sounds like you're running it like a business, and you've directed a sales team or biz dev team in a very process driven fashion, like, get after it.

Jigar Shah
Yeah, well, we're working on behalf of the American people. I want to make sure all these people who qualify for our money know that they qualify for our money and are actually going out and chasing that money.

Bret Kugelmass
And then, when you say all those people, is it- tell me, is it typically like a technology entrepreneur that will come to you and say, Hey, I'm the one that's fundamentally responsible for financing my first pilot plant? Or is it like an equity developer that has paired up with a technology entrepreneur to bring to market, but they're really leading the first implementation? Or is it both?

Jigar Shah
Oh, it's not just those people. It's all the above. Well, remember, we've got the Title 17 Program, which is largely project finance. It's project finance for renewable energy, energy efficiency, fossil energy, and nuclear. Then we've got ATVM, which is the Advanced Technology Vehicle Manufacturing program, which is where Tesla and Ford got their loans, and that's all the companies who have SPAC'd in the electric vehicle market. They've got a bunch of money and they're trying to figure out how to stretch it farther, now that their stock price has come back down to earth. Those guys are all applying to the office, which is great. Then we've got the battery manufacturing companies who are also in the same situation that are doing that. Then we've got the critical minerals folks who are finding new ways of getting at lithium and nickel and cobalt and that kind of thing from the United States, and they are all qualified. That's all in the Advanced Technology Vehicle Manufacturing program. And then we've got the Tribal Energy Loan Program where we've got $2 billion for wealth creation within the tribes to make sure that they understand that they're getting, that they can be a part of this decarbonisation boom where we're rebuilding the entire country. They should be a part of that. That's been fantastic. We've restarted that program, we've never received a loan application that's gone through the program there. So, we've already gotten two valid loan applications have come in, since we put resources behind it, and we've got another four coming that we can see, which is great. We've already identified about 300 companies and we've reached out to all of them and tried to get them to apply. I personally talked to over 100 CEOs. But the rest of the people also are not educated. So, all the bigger banks haven't sent a lot of their clients, and frankly, I had one bank argue with me for 20 minutes saying, Why would I send my clients there? How do I get paid for this? I was like, I don't understand what it is that we're arguing about here. I'm the federal government, we have senior debt resources to provide to your clients, you're talking to me about how to negotiate a fee with your clients to figure out how you get paid, right? That's not my problem, you've negotiated that, but you failed at providing debt products for your clients for four years. I'm offering you a way to succeed. It sounds like you should figure out how you get paid with your client directly, but the fact that my program exists is something that's good news for you. So, there's that, but then there are also like 20 law firms who dominate the project finance space, so we've been talking to a lot of those law firms and saying, Hey, why don't you hold a little mini meet and greet with your clients and we can explain to them how the program works and you can then advise them on how to navigate the office and all that stuff. That's been going well. And then the accounting firms like Deloitte and KPMG and Ernst & Young and others have had a hard time understanding exactly how our program works. We've been educating them. The entire ecosystem has to understand how our programs work. Even incubators, there are a lot of incubators who don't know how our programs work. And so, we're working on it. We're going out and educating all those different players in the ecosystem to make sure that they know that we're open for business.

Bret Kugelmass
So, what you're saying is, just to kind of paraphrase, anything that is going to be built, that is going to bring clean electrons or clean energy just in general, you want to talk to people about that.

Jigar Shah
Yeah, and it's much broader than that, right? I mean, from 200 billion to a trillion dollars a year. So, yeah, we could talk about electric vehicles, we can talk about clean electrons, but we could also talk about alternative proteins. I mean, it could be that Beyond Meat and Impossible Foods could qualify for the Loan Programs Office.

Bret Kugelmass
And that's because of the impact on emissions. So, if you can say, Hey, we can reduce the amount of agriculture-based emissions, that's how it qualifies.

Jigar Shah
Right. But then there's also a lot of school superintendents, who are like, Hey, we want to convert our entire fleet of school buses to electric, because we'd like to stop all these diesel fumes going into the lungs of our students.

Bret Kugelmass
Which is insane that that was not an effort 20 years ago. I still don't understand that one. We had a clear, pretty clear understanding of how emissions affect learning capabilities dating back a while ago. How come that wasn't the big infrastructure push for the last couple decades, just converting our school buses. That to me seems like a no brainer.

Jigar Shah
I'm not gonna point fingers, but look, the bottom line is, the air quality inside of a bus is five times worse than the air quality outside of a bus.

Bret Kugelmass
Oh, my god.

Jigar Shah
So, the EPA determined that back in 2008 and, look, the President's announced that 20% of diesel buses are going to be converted to electric. I think that school superintendents need to call us and say, Hey, we'd like your money to figure out how to convert this stuff and protect our kids. And I think that's great. But also that's true for a lot of ferry operators. There are 793 ferries that operate in the United States. They're one of the worst polluters in their regions. Everyone who takes the ferry also breathes in bad fumes. They can all be converted cost effectively to electric. It's time to do it. We've got money to do it. So, let's get to work. Right? Also, it's true for farm equipment and construction equipment. I mean, you've got people who are rebuilding or putting an addition on a hospital with diesel-powered equipment, when all that construction equipment can be electric. Bobcat and CAT and others have equipment that's electric. And the diesel exhaust is going into the air intake within a hospital that's going then into the lungs of patients. It doesn't make any sense, right. There are lots of applications that people should be prioritizing now, but they don't know that our money's available to do that now.

Bret Kugelmass
And while I still have you, I want to chat a little bit about nuclear. This is an energy source that we kind of became a little bit fixated on, just seeing it as totally under leveraged, from the raw principal physics of it through to implementation. What have you seen in that in that sector? And I know you made a comment about small modular reactors and how there's perhaps a future there. Can you maybe kind of fill us in on what you've seen and what you think might happen?

Jigar Shah
To be clear, the Loan Programs Office, our largest loan has been to nuclear, the Vogtle Nuclear Plant for Southern Company down in Georgia. We have an enormous pipeline of small modular reactors and micro reactors that are coming out of the Office of Nuclear Energy. The first ones should be fully licensed by the Nuclear Regulatory Commission by 2026 or so, maybe earlier. Micro reactors, we think, might actually be fully licensed before 2025. Those technologies basically will start at, small modular reactors will probably start at 10 cents a kilowatt-hour, maybe a little bit lower. And we think they can get down to four or five cents a kilowatt-hour at scale. You've got folks like, NuScale, Holtec, GE, X-energy, others who are playing. On the micro reactor side, you've got, Oklo, and others, Terra-Gen and others that are playing. The micro reactors are sort of one to five megawatts in size. The small modular reactors are more like 60 to 160 megawatts in size. We think that these are areas where, one, the United States of America has a lead against all of our competitors around the world. But two, we think that we can actually build the entire supply chain here in United States, maintain our 20% nuclear power that we currently enjoy, and maintain that all the way through 2100 by replacing a lot of the old retiring plants with these new reactors. And three, we think we can actually export a lot of this technology around the world, as other countries try to decarbonize their economies, and the micro reactors, in particular, I think, are going to be quite essential to offsetting diesel consumption. Around the world, a lot of power still comes from diesel engines. They really need this 24 by seven power and we think these micro reactors that are one to five megawatts, they're gonna start at more like 25 cents a kilowatt-hour for the first units in 2025, but we think they're going to come down to four cents a kilowatt-hour by 2030, 2033. So, we're super excited about nuclear reactors.

Bret Kugelmass
And we are too, but one of the problems that we typically hear when they face challenges financing is just like, it is a - especially the ones that are using new materials, new fuels - it's a big ask for any debt provider to evaluate the technology. So, is that something that you guys have like ramped up internal capabilities to do to be able to look at very hard tech and make those judgment calls?

Jigar Shah
We've been funding very hard tech throughout this entire cycle. Remember, all of the experts in the nuclear industry already sit at the Department of Energy. And we've been funding these folks for the better part of 30 years. I mean, the designs around NuScale and Oklo, for instance, are interesting and innovative, but they're direct sort of extensions from technologies that Department of Energy funded 30 years ago and have deployed in pilot form at Idaho National Laboratory for 30 years. So, this is not new to the Department of Energy. It may be new to private investors.

Bret Kugelmass
What do they have to come to you with already? Do they have to come with like 20% of the plant's total cost? Do they have to have already secured equity financing for that? What's like the minimum qualification to be taken very seriously by the loan program?

Jigar Shah
We are far more flexible in nuclear than we are in other places. So, for instance, we can fund the supply chain today for some of these small modular reactors and micro reactors with the hopes that they're going to have a bunch of their plants ready to go by 2026. But they have to do more than just ask us for money. They have to create the ecosystem of support. When you go to a governor, today, who loves nuclear power, and say to them, Hey, when those plants reach their end of life in 2035, are you going to support putting in small modular reactors and micro reactors to replace those plants? They've never been asked. When you go to the Public Service Commission of some of these states and say, Hey, when you guys talk about flexible baseload, in your 100%, renewable energy, or 100% clean energy futures, are you thinking about nuclear? They've never been asked. Most of them are like, Well, it's nuclear, comma hydro, comma geothermal, comma biomass, whatever else. I'm like, and no one's really pinned them down and said, No, no, we want to know whether you're going to support this nuclear, because you paid 17 cents a kilowatt-hour for solar power in 2008 when solar power needed to cut down the cost curve. Are you going to support nuclear power with the same level of support? Are you going to pay 12 cents a kilowatt-hour for that nuclear power while it's coming down the cost curve? And they're like, Well, we don't think the answer is going to be yes. I was like, Well, have you asked? Because I think the answer will be yes. I think there are a lot of states in this country who have committed to 100% clean energy, who understand that they're going to have to pay a premium for the first couple of nuclear plants, while the costs come down. And the premium, by the way, is not that expensive, compared to what they already paid for to bring down the cost of solar wind and lithium ion battery storage.

Bret Kugelmass
Then, what you're saying is, that's a signal to your program that there's a real customer behind this and that's what you guys are looking for?

Jigar Shah
Yeah. Could you imagine if I approved $2 billion worth of investment in supply chain for a big manufacturing facility for micro reactors that cost $13 million a piece on the other end? And then someone said, Alright, so you invested $2 billion in the supply chain, and they've got a total of four orders. That seems a little weird, Jigar, where are the rest of the orders gonna come from? And I'm looking around, and everyone's like, bolted out of the room, and left me by myself up on stage. That's not how the world works. Look, I mean, we're here. The Department of Energy has the right to fund these $2 billion supply chain things. We were given that right in the 2020 Energy Act. That being said, it'd be nice to have some people create an echo chamber that say, We kind of want nuclear to be part of the final solution. We kind of want nuclear to be around. We've got a nuclear plant here in North Carolina, it has a lot of high paying jobs. We'd like for those jobs to exist into 2100, and so we are going to commit to making sure that this nuclear plant is, yes, license to be extended for 20 years. But then, also, all the safety land around it is going to be used to build these micro reactors and small modular reactors as they become approved by the Nuclear Regulatory Commission. It's not a heavy lift.

Bret Kugelmass
Pretty crystallized thinking there. So, I appreciate you sharing that with us. We're running a little bit low on time, so I just wanted to give you kind of the final note to share any broader insights or perspectives that you think you want our audience to take away from today.

Jigar Shah
Well, one of the other things that I think that we're recognizing in the Loan Programs Office is how much progress we've made in residential solar. A billion dollars a month is now getting financed for residential solar, and how little progress we've made at integrating that knowledge into environmental justice and energy justice issues. I mean, today, low moderate income consumers are buying over $4 billion a month of appliances that can be distributed energy resources enabled into load flexibility programs.

Bret Kugelmass
Wow.

Jigar Shah
And some of them are paying above 15% interest to buy those things, because a lot of these appliances fail on an emergency basis and the last minute financing you're offered is pretty expensive financing. So, we have the ability to step in as a loan programs office to get that financing cost down, help them register for these load flexibility programs - which come with additional revenue streams - and to make sure you get good service and maintenance on these on these units, because they're not going to be very good for load flexibility if they're not maintained properly. Put all of this stuff together - this includes the electric school buses, that includes HVAC and heat pumps, it includes electrify everything, it includes electric vehicles, which are also deemed an appliance within our program - and so, we're seeing hundreds of parties coming out of the woodwork saying, Wait a second, you guys have an environmental justice program at the Loan Program Office? The answer is yes. Come talk to us about it. We have solutions for almost any problem, as long as you're doing it at scale. We're ready to go.

Bret Kugelmass
Amazing. Jigar, I think my takeaway from this conversation, so far, is how you're just hitting this from every single angle. I, going in, did not realize the extent to which you guys are going after this problem. Thank you for everything you're doing. Thank you for your time today. Looking forward to our next conversation. Jigar Shah, everybody.

Jigar Shah
Thanks for having us.

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