D.O.E.’s Loan Program Has a Lot More Climate Capital to Give

The lodge ballroom was packed earlier than breakfast as Jigar Shah took the stage on the oil and gasoline business’s annual convention in Houston this spring. The host joked he was assured a enormous crowd would come out for Mr. Shah, even at 7:30 a.m.
It’s uncommon for a midlevel federal official to entice a lot consideration. But the small, obscure workplace that Mr. Shah oversees, the Department of Energy’s Loan Programs Office, has change into an engine of the Biden administration’s efforts to aggressively advance clear power. And Mr. Shah isn’t any peculiar bureaucrat.
As a part of final 12 months’s Inflation Reduction Act, Congress supersized the workplace’s authority to arrange loans to firms making an attempt to convey rising power applied sciences to market, rising it tenfold from $40 billion to greater than $400 billion. That makes it doubtlessly one of many greatest financial growth mortgage applications in United States historical past.
Mr. Shah, 48, is the gatekeeper for that gusher of tax {dollars}. And the clock is ticking; he has roughly a 12 months and a half to get the cash out the door earlier than the 2024 elections may imply modifications within the White House that may curtail this system.
He brings an entrepreneurial swagger and a tolerance for threat to the job. Before arriving in authorities in 2021, Mr. Shah was a movie star of types in power circles. A pioneer within the photo voltaic business who earned hundreds of thousands, he co-hosted a popular energy podcast for practically a decade the place he bluntly riffed on every little thing from driverless automobiles to Canadian power insurance policies. (“Countries should not have stupid policy” he instructed listeners in 2017, dubbing it “the Jigar Shah Rule.”) He has relentlessly promoted the view that shifting to clear power is nothing to worry, however will amount to the “largest wealth-creation opportunity of our lifetime.” He is a common presence on social media, the place he banters with the general public.
Mr. Shah’s enterprise acumen carries weight with power firms. “Jigar brings street credibility,” stated Atul Arya, chief power strategist for S&P Global, a analysis agency.
The job comes with monumental expectations — and excessive stakes. Created in 2005 to assist finance clear power initiatives that business banks discovered too bewildering, the mortgage program bankrolled a number of the nation’s first massive wind and photo voltaic farms, and seeded Tesla, the electrical automobile maker. But it additionally lent $535 million in 2009 to Solyndra, a photo voltaic agency that went bankrupt two years later, requiring taxpayers to take up the loss. In Republican circles, Solyndra grew to become shorthand for presidency boondoggle, and the Trump administration basically froze the mortgage program.
Mr. Shah has targeted on avoiding one other Solyndra whereas reviving the workplace, hiring workers and persuading power firms that the federal authorities is prepared to lend once more.
He is ever conscious that Republicans are poised to seize on any taxpayer-backed loans that go unhealthy. The Energy Department’s inspector general has warned her workplace doesn’t have sufficient assets to correctly monitor the newly-flush company, elevating issues amongst some in Congress.
“Americans deserve to know this money is being spent responsibly,” stated Representative Cathy McMorris Rodgers, Republican of Washington, who chairs the House power committee and has referred to as the elevated funding for the mortgage workplace “Solyndra on steroids.” She stated she would maintain the Energy Department “accountable for every cent spent.”
Mr. Shah says the mortgage program’s position is just not to take a leap of religion on chancy initiatives however to again promising clear power offers that may’t get standard financing as a result of business lenders lack the aptitude to vet them — scientific experience that resides on the Department of Energy.
In a current interview, Mr. Shah stated at the moment’s workplace bears little resemblance to the one which made a unhealthy wager on Solyndra a decade in the past. The workers has grown from 12 to 250, and has safeguards to weed out overly dangerous initiatives. Last month, the workplace reported that its general mortgage portfolio has turned a revenue, whereas struggling losses equal to simply 3 % of its loans — a efficiency in keeping with business banks.
“The failed projects of the past clearly wouldn’t get through the office this time around,” Mr. Shah stated. “Now we can look at our portfolio of $38 billion worth of loans and say, actually, we have been pretty good stewards of capital, and we actually make money for the federal government.”
Sitting in his workplace on the Energy Department in entrance of a map coated in color-coded decals representing initiatives throughout the nation, Mr. Shah exuded a relaxed confidence. Dressed casually in a fleece vest extra befitting a tech govt than a federal employee, Mr. Shah spoke in full paragraphs, shifting seamlessly from Wall Street lending practices to the challenges of geothermal power.
He estimated that reducing America’s planet-warming emissions roughly in half this decade, as President Biden has pledged, would require about $10 trillion in funding. The Inflation Reduction Act may present $1 trillion, however the remaining has to come from the personal sector.
“We’re not the smartest people in the room,” he defined at a recent podcast event in Napa, Calif. “The folks who are the smartest people are the American innovators and entrepreneurs who put their sweat and tears behind something and come to us to get that last bit of help they need to get to the finish line.”
Mr. Shah additionally insists clear power will be bipartisan. His workplace is presently reviewing purposes from 141 power initiatives searching for $121 billion in loans — many in pink states. Fossil gasoline firms, too, are investing in renewable power.
“Everyone is getting on this action,” Mr. Shah stated on the Napa occasion. “I get that some of them were worried that their country club membership might get canceled if they’re too outwardly supportive of what we’re doing. But increasingly everyone in the country club is in on it.”
One of the largest limitations that clear power firms face is crossing what is called the “valley of death.” Investors would possibly fund small demonstrations of recent battery chemistries or geothermal drilling methods. But financing a commercial-scale model is difficult.
Consider Monolith, a Nebraska-based chemical compounds firm. For years, Monolith has been refining “methane pyrolysis,” which includes taking pure gasoline, heating it to excessive temperatures, and producing two helpful merchandise — ammonia, utilized in fertilizer, and carbon black, utilized in tires. Both merchandise are normally made by means of extremely polluting strategies, however Monolith thinks it could possibly achieve this with out heating the planet.
Monolith had already constructed a small manufacturing facility, and was prepared to considerably broaden. That’s the place the mortgage workplace got here in. By tapping the community of scientists and consultants inside the Energy Department, the workplace evaluated Monolith’s proposal and has since conditionally approved a $1.04 billion loan.
“The scrutiny you go through can be pretty intense — it takes years, they bring in teams to go over every little detail of our technology, our business plans,” stated Rob Hanson, Monolith’s chief govt. “But at the end, you don’t just get a loan, you get validation from one of the most sophisticated technical organizations in the world, which is incredibly valuable.”
Other initiatives presently backed by the mortgage workplace embody a novel plant in Rochester, N.Y., that harvests lithium from outdated electrical automobile batteries and a giant salt cavern in Utah that will likely be transformed into a hydrogen battery as a backup for wind and solar energy.
Even if authorities consultants vet a new know-how, success isn’t assured. Markets change, commodity costs fluctuate, abroad rivals can muscle in. Solyndra failed not as a result of its photo voltaic know-how didn’t work, however as a result of options grew to become cheaper when silicon costs plummeted.
For Mr. Shah, the workplace is a pure match. He is almost encyclopedic about each power and finance.
“In some ways he knew more about methane pyrolysis than I did,” stated Mr. Hanson of Monolith. “He knew what Exxon and Chevron had been doing in this space back in the 1970s, who had tried what. He instantly grasped the importance of what we were trying to do.”
In 2003, Mr. Shah based SunEdison, a photo voltaic firm that pioneered a new means to pay for photo voltaic initiatives. SunEdison would bear the danger of financing and constructing photo voltaic arrays, and the client would agree to purchase electrical energy from these panels at a fastened value over a longer interval. His first buyer was a Whole Foods retailer in New Jersey. Today, many photo voltaic and wind initiatives are financed by comparable agreements.
“There’s no better way to learn than the world of hard knocks,” stated Claire Broido Johnson, his co-founder at SunEdison. “We had a lot of ups and downs in those early days as we tried to persuade potential customers and investors that our idea wasn’t crazy.”
The mortgage workplace needs to make innovative applied sciences, comparable to clear hydrogen fuels, as mundane and as straightforward to finance as wind and photo voltaic have change into.
And it’s making an attempt to broaden clear power in a means that touches all Americans. Last month, the workplace said it would conditionally guarantee up to $3 billion to assist Sunnova, a photo voltaic agency, fund networks of rooftop photo voltaic panels and battery techniques to assist reduce power prices in deprived communities.
As a part of its new windfall, Mr. Shah’s workplace has $250 billion to retool outdated fossil-fuel infrastructure — by far its greatest pot of cash. While the workplace nonetheless wants to make clear the way it intends to use this cash, consultants say it may, for example, assist fend off economic devastation in communities dealing with coal plant closures.
One query is how shortly the mortgage workplace can transfer cash out the door with out dashing selections. Since Mr. Shah got here into workplace, this system has finalized solely a handful of loans.
“It’s incredibly challenging to get through the application process, especially with all the protections put in place post-Solyndra,” stated Taite McDonald, a associate on the legislation agency Holland & Knight, which represents dozens of mortgage workplace candidates and awardees. “Jigar’s team has worked hard to help projects start moving through again, but it’s not easy.”
Mr. Shah is conscious that he should transfer quick. He pointed to the Monolith challenge as proof that the workplace is now not paralyzed by previous failures. “Everyone was like ‘Wow that’s a really risky project.’ And we’re like ‘Well, we’re back.’”