Inside America's Only Bank for Nuclear Energy — ft. Jigar Shah

25:59We'll be right back after the break for our clean energy conversation with Jigar Shah. If you're enjoying the show so far and you haven't subscribed, be sure to give Prof G Markets a follow wherever you get your podcasts.

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29:00Welcome back. Here's our conversation with Jigar Shah, Director of the Loan Programs Office at the Department of Energy. Jigar, thank you very much for joining us. Thanks for having me. So I just want to start out with a quick summary of who you are. So just for our listeners. So Jigar is first and foremost, an entrepreneur. He founded this successful solar energy company, which he eventually sold. He later wrote a book about climate tech. He started this nonprofit on business solutions to climate change. And now he has this position as director of the Loans Program Office at the Department of Energy, which sounds pretty bureaucratic and a little bit unsexy until you realize that Jigga is in charge of allocating more than$400 billion in loans to clean energy projects in America.

29:49So the way that I think of Jigga is that he's kind of the most influential climate VC that you don't know about. He's not buying stakes in startups, but he is definitely steering the direction of this clean energy transition that has been building up in America for decades. So we're very happy to have you here. I'm going to start with this question to you, Jigar. Where are we in the clean energy transition? Are we sort of in the middle? Are we getting to the end or are we just getting started? I mean, we're pretty far along, right? When you think about the amount of money that's being driven towards climate solutions, the oil and gas sector globally does about a billion dollars a day.

30:30The solar industry alone now does$2 billion a day globally. And so then when you add wind and clean hydrogen and all the other sectors, we're going way past it. So I think we're close to liftoff. So when I think about how clean energy is funded at the moment, it feels like there are two main incentives. The first is just climate change. You know, we need to bring down the temperature of the planet. And the second that I've been seeing a lot more of is that we need just more energy. And I feel like AI has been a big part of that because of the amount of energy that AI requires. I'd just like to get your perspective.

31:08How do you balance those two incentives? Which do you think is more pressing, more important? What would you say is driving strategy at the DOE? So I'd say the question slightly differently, right? I mean, to me, when you're a developer, the way you make money is by meeting load growth in AI, right? You don't make money by solving climate change. And so you're generally making money by solving a problem for somebody. And the reason people are choosing clean energy is not because it's clean, it's because it's fast. So you have the ability to install solar and battery storage in Texas way faster than building new natural gas facilities.

31:45And that's why they're all going in batteries and solar, right? And the natural gas facilities are probably two years behind. Just on the energy needs themselves, how much power are we creating right now? And how much more power do you think we're going to need? Yeah, so we generally have about 1 ,000 gigawatts of power generation around the country, right? A little bit more today than we had before because there's more solar and wind. And we're going to need to double that probably by, you know, the 2040 timeframe and maybe triple it by 2050. It really depends on how much AI and, you know, some of the other things we need.

32:26But also, just to put things in perspective, the president's goals around the bipartisan infrastructure law, chips and science, et cetera, are really dwarfing AI load growth in terms of new loads in the United States, whether it's electric vehicles, heat pumps, new manufacturing facilities. We have 900 new manufacturing facilities under construction here in the United States right now. And so the load growth is actually quite broad-based. Could you explain what load growth is? So when you think about, you know, manufacturing wire harnesses in Georgetown, Texas through Cellink or manufacturing thermal blankets with aspirin aerogels in Georgia, these facilities need one megawatt, three megawatts, five megawatts of power to power robots or automation lines or other things to be able to manufacture things, right?

33:20Same thing is true with electric vehicles. Your average house probably uses two kilowatts of load on a regular basis. Your hair dryer is two kilowatts alone. And your electric vehicle is seven to nine kilowatts. And so it's a lot more than what your average home is using right now. And that's load growth. Digger, thanks for your time. Can you stack rank the pluses and minuses of wind, solar, and nuclear? Well, let me start by saying when the grid has gone down the last four years, it's because natural gas power plants failed to supply power when we needed them, right? They froze up during winter storm Yuri.

34:00They had real challenges during the crisis during the Christmas of 2022. And so nobody wants a 70 % natural gas grid. And nobody wants a 70 % solar plus battery storage grid. And so the real key is diversification, right? When you think about solar, it was perfect for summer peaking loads that are air conditioning driven because a lot of that is when solar is very easy to get a hold of. I think as you get more and more solar, you only have 25 % production in terms of capacity factor. So 25 % of the hours of the year it's producing solar power and the rest of the time it's not. With wind power, you're probably closer to 40 % of the year you're getting wind power production.

34:45and it goes up and down depending on when it's windy, where solar power is probably more predictable. With nuclear power, you have the opposite problem. It produces power 92 % of the time in the United States. So you often get power that you don't need in the spring and the fall. It's still producing power when no one's using air conditioning and heating. So that's why we built all the pumped hydro facilities in the United States was to take all that extra nuclear power. So I would suggest that it's really more of a balance that we need than more nuclear or more solar. My sense is all of a sudden is nuclear has come back in vogue.

35:22I don't know if it's the macho feel of it or what people see as the most reliable, best bang for your buck kind of power supply. Is your sense that nuclear is making a pretty strong comeback? I realize I'm putting words in your mouth, but feel free to disagree with me. I would say that the amount of competence in the solar and wind industry is so high that they are likely to dominate and add 90 % of everything that gets added to the grid over the next five years. Whoa, let's press pause there. You think 90 % of the incremental energy capacity add over the next several years will be from wind and solar?

35:57For the last five years, it's been wind and solar, and it will likely be for the next five years. And so the nuclear energy industry has such a hard time getting off of the launch pad that they need the most help. And so I've spent the better part of the last four years figuring out exactly what was holding nuclear back, figuring out exactly who has the solutions to those problems, and figuring out exactly how we can accelerate those folks to actually getting$100 billion worth of new projects announced. And we're not quite there yet, but the president announced a pretty bold goal last week. What was holding nuclear back?

36:33There's nobody to develop nuclear plants, right? So the nuclear industry right now is set up with a bunch of people who own nuclear power plants, but none of them want to construct new nuclear power plants. And then when you talk to the people who design nuclear power plants, they're sort of like architects. You buy their designs for your new home, but you don't actually hire them to build the new home. So then you go to the constructors. You have Bechtel. You've got a couple of other folks. But they're not willing to give you a fixed price. They're saying, we're going to charge you cost plus.

37:05I hope that that works for you. And so it's hard because people are like, well, what if it goes double the budget that you projected? Well, you're going to have to pay it. Well, who actually pays it? And so figuring out exactly how we build 10 reactors, because one reactor clearly doesn't solve the problem. And with 10 reactors, you can spread the risk across 10 reactors, build the supply chain, do all those things. It's hard because it's at least$35 billion to build 10 small reactors, and it's over$100 billion to build 10 large reactors. So we've been circling the problem between the existing owners, the hyperscale data centers that want to pay a premium for 24x7 power that they've listed on their website, which they still haven't walked away from.

37:52the utility companies who want to finish nuclear power plant but don't want to actually sign up to the cost overrun risk on behalf of their rate payers, right? And then all of the supply chain folks. And so getting all of them in the room, having a productive conversation has taken us the better part of three and a half years. One thing I didn't hear you mention were, you know, previous nuclear disasters like Chernobyl and Three Mile Island and stuff like that. And our hypothesis or our theory has been that those events and sort of the Hollywood fear of nuclear has been a large part of why we've seen a big pullback from nuclear as a power source.

38:38I'd just like to get your take on that. Is that right? do you think? Yeah, the data doesn't support it. So when you look at the 1970s, we had a lot of inflation. And as a result, nuclear power, which is a lot of capital, got expensive. And so people were already starting to pull back from nuclear before Three Mile Island occurred. And then, you know, when you think about what happened with the Renaissance in 2008, the Vogel nuclear plant got started, but everyone else pulled back not because of Fukushima, but just because there was no load growth. I mean, we had passed these regulations to switch to LED lights.

39:14And so we were actually getting a reduction in sales every single year. And people were saying, well, without load growth, why would we build new nuclear, right? And so today, the reason you're seeing a renaissance is because data centers are uniquely disruptive to the grid. You cannot add 1 ,000 megawatts of load in one location without pairing it with something like nuclear power. And so that's why you've got a renaissance today. Your department seems pretty thoughtful in trying to find sources of energy that are economically viable, but also recognize the emissions and externalities. That sounds to me like something the Trump administration would hate.

39:53So the rhetoric of the Trump administration from 2016, and then of course the success of the Biden administration in 2020, has been to do what we've all been talking about, right? Which is that we need to onshore and reshore back in this country, and now we are succeeding. More than that, I'd say, you know, as somebody who's been an entrepreneur for decades, American innovators and entrepreneurs always thought that when they were ready to commercialize their technology, they had to go to Asia or had to go to Europe. Today, they are now believing, and their investors, more importantly, are believing they can do it here.

40:27The loan programs office functioning is essential for them to actually take that step. And so my sense is that this program has more support than any other program for no other reason than it doesn't really matter where you're innovating, whether it's nuclear power, blue ammonia, right, using carbon sequestration and storage, you know, sustainable aviation fuels. It doesn't really matter what sector you care about. Without having access to bank debt, right, You really can't build these billion-dollar projects. And the banks don't want to provide money for first-of-kind deployments. And so that you're left with a loan programs office.

41:09And so while there might be a pause when the new administration comes in for a few months, my sense is that there are so many entrepreneurs and innovators who want access to being able to do big things in this country that it's just something that you're not going to be able to stop. I was surprised to hear you say that you don't think you're going to be affected permanently by this new administration, specifically because, one, I think Trump has just a sort of anti-clean energy bent to him. But two, he said he wants to repeal the Inflation Reduction Act. And from my understanding, you were a huge beneficiary of the Inflation Reduction Act.

41:48so I'd like to hear more from you on why you are feeling so optimistic going into this next four years I think it goes to your first question right which is what is your driver if your driver is climate I totally understand right but if your driver is figuring out how to commercialize American innovations right we're tired of inventing everything here in the United States and then shipping all those patents over to Asia or Europe to be commercialized we want to now take the technologies that we invent here, many of which happen to save carbon emissions, but they're actually truly superior products, and we want to commercialize them here.

42:24Those people are not often driven by climate. They're really driven by the fact that they've got kick-ass technology that they want to commercialize here and employ people here, right? And you've got a lot of folks who are tired of saying that their best job, if they don't graduate from college is working at the local Panera, which I love, I love Panera, but I'm just saying they want to actually work with their hands. They want to manufacture things. They want to construct things, right? And so I think when you look at what President Biden has put in place, we're probably 500 ,000 people down right now in the national building trades, right?

42:59If you like go get trained in the national building trades at 16 years old, you could be making six digit salaries within six years. I mean, it's a pretty amazing thing right now. If you don't want to go to college, you can get six figures just by wanting to be good at your craft. That is something that we lost for 40 years, and a lot of people want that back, whether or not they voted for the D's or the R's. Yeah. I feel like one pushback that you might receive from Republicans or from this administration is that it's a lot of power that you have in that department. I mean, from my understanding, your loan authority after the IRA went from$40 billion to$400 billion.

43:45And I could imagine that a criticism or a concern is that someone would say, well, why aren't we just letting the private markets fund these innovation projects? Why are we leaving it to government to step in and accelerate clean energy? What would your response be to that? There are no criticisms that are like that. If you go to Apollo right now and say to them, you have a$100 billion platform for climate, name one loan that the loan programs office did that you would rather do instead. They're like, none. We could never take those risks. If you go to TPG, if you go to KKR, if you go to the private credit markets, every one of these banks is saying, we would love to get an investment banking fee to help raise the equity to match your loan, but we would never in a million years want to do that first-of-a-kind project that you did.

44:33I don't think I've ever heard of somebody saying, you know, Jigar, we would have done that loan but for the fact that you competed with us. I don't think that ever happens. Because these are such risky investments that may or may not pay off? Well, they're not risky from our perspective because we have 10 ,000 engineers, scientists, and experts who work on the DOE platform. But they're certainly risky from JP Morgan's perspective because they don't have those experts on their platform, right? And generally speaking, those banks with Basel III, they securitize their debt. They don't want to hold it long-term on their balance sheet.

45:04Could you imagine how much tier one capital they'd have to put against it if they had a 20-year loan on their balance sheet? So they don't want to do that. You speak to some of the economic impacts of some of these projects in terms of sort of the main street economy, like what this will do to communities and to workforces when you've gone in there and funded some of these projects. Yeah, I think when you think about what we've done, there's direct impacts, right? So think about the$465 million loan that we gave to Tesla. And then there's indirect impacts, right? I mean, who would have thought that the electric vehicle industry would be anything had we not given the loan to Tesla, right, at the time at which they needed it?

45:44And so the same thing is true with the first 500 megawatt solar farms that we funded in 2010, 2011. At the time at which those were completed, the only buyer of those loans were MidAmerican, which is a Berkshire Hathaway company. Everyone knows that they make a lot of money. So they didn't overpay for those assets. By 2015, the solar industry was so frustrated by the banks that they created their own yield codes, which are like real estate investment trusts, in 2015. And it wasn't until 2019 the Bank of America said, yeah, you're right. These assets are acceptable. So when we provide these loans, yes, we have hundreds of thousands of direct jobs from construction and from operations into these plants.

46:30But more importantly, we're setting up a flywheel that then will lead six, seven, eight, nine years later to the private sector being fully embracing of those technologies, many of which they are highly skeptical on today. But, you know, the science from the 10 ,000 engineer scientists and experts on the DOE platform have already validated that it's worked, that there is no will it work or won't it work risk. It's more that, you know, 15 of, you know, the banker's friends at the country club haven't done a deal yet. Do you have sort of a code or a personal philosophy on which situations demand government intervention in terms of funding?

47:13Like you mentioned subsidies to Tesla. I feel like we're now at a point, or at least there are questions over whether Tesla really needs subsidies. because it's so successful. And now it appears that, you know, some of those tax credits are going to be repealed. Like, do you have a personal philosophy on like when should government provide subsidies? When should it provide tax incentives? And when should it not? When you think about infrastructure, the frame that most people have, it's a dot-com bubble of the late 90s, right? So they think venture capital, they think, you know, people taking advantage of an IPO.

47:53In infrastructure, you never get 100x return, right? Like every once in a while with a consumer product like Tesla, you might. But in infrastructure, that's not how the game gets played, right? So what you want is every time there is new technology, better technology, you want it to be commercialized. Why? Because it keeps the folks who are doing the old stuff on their toes, right? And saying like you don't get a monopoly just because you're already in business and these new folks aren't in business, right? But more importantly, you get more efficiency out of the resources that we have, right?

48:27All of this stuff takes critical minerals. It takes copper. It takes steel. It takes other things. These new technologies use those resources way more efficiently than the old folks. So for me, if somebody actually meets a threshold of innovation, and more importantly, I'm only providing them debt, so they still have to raise equity. If they can't successfully raise equity, they don't get my debt, right? And so if they can meet the formula, who am I to pick winners and losers? As far as I'm concerned, if you're innovative and you meet the standards that we've set, I want to give all of them loans.

49:03Because whether it's carbon sequestration or whether it's solar and wind or whether it's nuclear, to me, steel in the ground is red, white, and blue. Stay with us.

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50:55We're back with Prof G Markets. I hear you use the word entrepreneurship a lot. You're an entrepreneur. You understand. I wasn't even aware of this program. But if you were a 25-year-old, super interested in energy, recognize that there's an economic opportunity here. What are some examples of some great businesses you would be thinking about getting involved in in an early stage or even starting yourself right now? Yeah, there are so many. So when you think about the clean cement and clean steel industry, a lot of those folks are PhD students coming out of MIT that are saying, we have figured out a way to dramatically reduce the carbon footprint of cement.

51:33And they're 28 years old, right, with a newly minted PhD. And then they go through four, five, six rounds of capital raising, right, to be able to prove their thesis and do something at small scale. And then when they decide that they actually need to make cement at the scale that the state of California wants to buy it, or Microsoft wants to buy it, right, where they've recently made a commitment to Sublime, it's a billion dollars. It's always a billion dollars. At the time at which Boston Metals or Aspen Aerogels in Georgia or CellLink in Georgetown, Texas, who makes wire harnesses that makes wiring for electric vehicles 90 % lighter than normal wire, right?

52:15These are all a billion dollars. And so it's one of those things where it's four rounds of capital, but then at some point when you actually want to be at relevant scale, you need a lot of money. And then the question becomes, do you want to raise that money as 100 % equity from the private markets? Or do you need debt to reduce your weighted average cost of capital? And in almost every case, whether it's, for instance, next generation conductors for transmission lines, we have materials now that can carry the two to three times as much power along the same exact right-of-way of which 30 % of all of our transmission lines are approaching the end of life and need to be rewired anyway.

52:56So we could get two to three times as much power through those wires if we do next generation conductors. The list of deals where American innovation is ready to serve is very long, but we got to commercialize those technologies. Are there any other industries that you think could benefit from a department like this, like a loans program office for anything else? Yeah, look at housing, right? Everyone talks about housing today. Our biggest problem with housing is that we still make housing like our grandparents did. If you go to Germany or Sweden or other places, all of those houses are modular construction, right?

53:29You make them in a factory and you build them in three days on site. We have that industry now in the United States because of the ADU market, the auxiliary dwelling unit market in California. There's 12 startup companies who do that. And many of them are now building their first of a kind factories where they can pump out 100 ,000 units a year, just like Sears Roebuck did with the Sears Craftsman Home after World War too. We are at a point right now where you could make homes consistently and reliably with much higher quality for$200 ,000 a unit out of these factories. My sense is we could do it if it's a net zero home, but there should be some other part of the federal system that should help those guys produce those modular homes at scale.

54:13Just as we wrap up here, Jigar, you're obviously a very successful guy, had a lot of options, and you decided to go to work in government. Give us your best pitch for why someone, a young, talented person with a lot of options should serve or go to work in D.C. or for a government agency. I think one of the biggest challenges of my career has been that the United States has been terrible at public-private partnerships, right? I mean, just terrible. We're amazing at innovation, but then when it comes to manufacturing solar panels, all Chinese solar panels, to be clear, all of that technology was invented here in the United States, right?

54:53CATL's, you know, LFP technology was invented by John Goodenough at UT Austin, right? All of this technology that we say that other people are good at was all invented here, right? And I'm tired of the fact that that happens because the U.S. government doesn't know how to do a public-private partnership. I think President Biden decided to double down on figuring that out. And he attracted people like me and obviously the Secretary of Energy and others to say, I want you to do the hard thing, right? And when you look at the liftoff reports that we put out, that's 2 ,000 companies that gave us their best ideas and proprietary secrets to create a fact base across 10 different sectors where we're saying, what do you have to believe to believe that it's actually profitable to do things here.

55:39And as a result, we've crowded in hundreds of billions of dollars, right? And so I will go back to the private sector, I'm sure, after I'm done serving here. But, you know, I think that what we leave behind now is a group of people who actually now not only believe in the public-private partnership, because we've talked about it for years, but they now have been taught on how to do it, right? And I think that unless you bring people in that have scar tissue like I do, who know how we get hurt when you don't have a good partner in the federal government. You don't really know how to empathize with the folks that you're working with to figure out how to best be a good partner.

56:16And I'm really proud of the fact that the federal government's a better partner today than it ever has been. Having worked in the private sector your entire career before, what surprised you about working in the government and especially in holding such an important job in the government? That there is no government inefficiency, right? Not in the work that we're doing, right? You would have thought that there was all this government inefficiency. The problem with the government is not inefficiency. The problem with the government is risk taking, right? For a long time, they were told if you, you know, do amazing things, we'll give you a$500 bonus.

56:52And if you do bad things, then you're going to get fired. Like if that's the bid ask spread, you don't want to do anything, right? And so having come in and given all these people air cover and said, hey, you are some of the most talented people I've ever worked with. And truly, the people I work with in the loan programs office, many of whom came from the private sector, but also many that were already here, are truly the most gifted people I've ever worked with in my entire career. They just needed permission to do the work. Ninety-plus percent of them want to stay into the next administration.

57:27They love the work they're doing. And so I think demonizing, you know, government is something we need to do less of. And, you know, figuring out how we best support entrepreneurs and innovators in our great country is something we have to do a lot more of. Jager Shah is the director of the Loan Program Office at the Department of Energy. He was previously the co-founder and president of Generate Capital, where he focused on helping entrepreneurs accelerate decarbonization solutions through low-cost infrastructure as a service financing. He also founded Sun Edison, a company that pioneered pay-as-you-save solar financing, and served as the founding CEO of the Carbon War Room, a global nonprofit helping entrepreneurs address climate change.

58:07Jigar was also featured in Time's List of the 100 Most Influential People in 2024. Jigar, really enjoyed this conversation and very much appreciate your service and good work. Thank you very much, Jigar. Thank you. This episode was produced by Claire Miller and engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Mia Silverio is our research lead. Jessica Lange is our research associate. Drew Burrows is our technical director. And Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from the Vox Media Podcast Network. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

58:56In kind reunion

59:03As the world turns And the dark flies In love, la, la, la, la

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