Have a cool cleantech project? Jigar Shah has $400 billion to lend

Jigar Shah is in a race against time, his progress measured in part by a map on his office wall. Each point on the map represents a project financed by the Department of Energy’s Loan Programs Office, where Shah is the director. The 60 active LPO-financed initiatives include a factory for EV batteries or sustainable aviation fuel, a grid upgrade, and a next-gen geothermal plant.

Shah’s obscure office is now busy reviewing paperwork for billions in new projects, with the goal of accelerating U.S. clean energy, making it affordable, onshoring its supply chain of minerals and manufacturing, and creating millions of jobs, especially in struggling communities. The office has about $74 billion remaining for innovative technologies and about $60 billion for energy infrastructure reinvestment (that is, repurposing or replacing defunct energy infrastructure like old coal plants). But lending out that cash isn’t easy. It can take years to get a deal out the door for companies that apply—and those applications are no sure thing, given how many CEOs are hesitant to step outside of traditional financing and take a big government loan.

It helps that Shah is well-known in cleantech circles as a pioneer entrepreneur and investor (he founded solar developer SunEdison and financier Generate Capital) and, arguably just as importantly, as cohost of the popular podcast The Energy Gang. (He’s also a former Fast Company columnist.) Shah’s robust rolodex has helped him to connect directly with companies and investors, and to double the LPO’s staff by recruiting over 100 people from the private sector. 

The office is currently managing a pipeline of 203 applications totaling $263.8 billion in loans across 48 states, according to a spokesperson, but so far their slow, painstaking work has resulted in only four loan approvals. The caution and care is intended to balance out the inherent risk that’s built into the LPO’s mission: It has a mandate from Congress to provide backing to new technologies that might otherwise struggle to find investors. It provided a vital $465 million loan in 2010 to a then-struggling Tesla, and backed some of the country’s first large solar farms more than a decade ago. Infamously, the office also lost more than a half-billion dollars on Solyndra, the solar manufacturer whose bankruptcy and resulting Congressional investigations cast a pall over greentech. (From then until 2021, LPO approved only three loan guarantees, for a single nuclear power plant in Georgia.) 

Shah, who was hauled before a tense Republican hearing on climate spending in October, says the risk around Solyndra was poorly managed, and points to safeguards made by his office. And he emphasizes that, despite the occasional misfire, the office actually makes money for the government. It has a loan-loss rate on par with commercial banks, and has earned the U.S. $4.9 billion in interest payments since the program’s inception, including $484 million last year, according to the Energy Dept. Shah already sees proof of the office’s impact in “huge” multiyear power purchase agreements that customers have signed for upcoming LPO-supported geothermal, hydrogen, and nuclear projects, a mechanism that helps provide further certainty to developers and investors. 

For Shah and his office, the stakes are nothing less than the future of the U.S. energy economy, and the clock is ticking. Apart from the 2026 deadline included in the climate bill, the U.S. is aiming to cut carbon emissions to half of 2005 levels by the end of the decade. At the same time, energy demand is spiking faster than clean energy can keep up, prompted in part by the power-hungry data centers used to train and operate generative AI systems like ChatGPT. 

Amid those challenges, his office finds itself on the precipice of a new existential threat: Should Republicans win control of Congress in November, there’s reason to believe they’ll claw back funding, if not pull the plug on the operation entirely. Shah spoke with Fast Company about how his office is getting billions in loans out the door—and what might happen if the entire program ceased to exist. The interview has been edited for length and clarity.

How do you tell the story of cleantech financing in this country, and where does the office fit into that narrative?

We have had a robust ecosystem of cleantech financing in this country for many years. And when you look at how many companies got financing in ’21 and ’22, it was just extraordinary. I don’t think that the A round and B round and C round are the difficult parts of raising money. Obviously, some people win, some people don’t win, and there’s lots of factors that go into that, but on the aggregate, there’s a lot of money going into these earlier stage rounds. 

But then, when you get into a later stage, what you find is, in this infrastructure business, a lot of companies need to deploy a project, a commercialization strategy, that amounts to a billion dollars. Whether that’s next-generation low-carbon steel or low-carbon cement or virtual power plants or car sharing. Your overhead for a car sharing business, when you think about software and the people who work at the company, could be $5 to $10 million a year, right? And so in order to earn $5 to $10 million a year to break even, you need $500 million worth of cars, or maybe a billion dollars’ worth of cars, which, frankly—if you take a billion dollars and divide it by $40,000 per car—it’s not that many cars. 

So what you find is that once these companies have proven their concept and gotten through the demonstration phase, they often need to get to a billion dollars. And so that next round of financing that they’re going after is hard to raise. Investors are like, Am I really gonna give you a billion dollars? And I need a rate of return on that billion dollars because I need it to be a venture capital return or a private equity return, or whatever it is. 

So people’s belief that the Loan Programs Office actually is in business means that they’re more likely to get that billion-dollar project done—where they only have to raise $300 million of equity, and we bring in $700 million of debt. Now, the weighted average cost of capital isn’t 20%, it’s 12%. And [as an energy developer], you’re like, “Well, actually, I can make those numbers work. I can provide a service that actually is affordable for consumers and meets everyone’s needs if my cost of capital’s 12%, instead of 20 plus percent.”

And what do you say to those who think that the government shouldn’t be in this kind of business at all? Or maybe another way to put it is, What would happen if we didn’t have the Loan Programs Office?

Well, we know what would happen. I mean, from 2011 to 2021, which is when the Loan Programs Office was not really active, nobody really succeeded at scale except for solar, wind, battery storage, and EVs—all four sectors we supported in LPO 1.0. So the folks who got financing in LPO 1.0 got over that bridge to bankability, and the other sectors basically went sideways for 10 years. Think geothermal, long duration energy storage, think electric trucks. All of those sectors basically went sideways. They did demonstration projects, but they never got to the billion-dollar scale.

As a result, there was a backup of a bunch of these companies that were ready for LPO to be a merchant again. And I would suggest to you that there’s a bunch of additional companies that received C round financing because those investors believe that five years from now, they might be able to get money out of LPO. I think so many [financiers] believe that LPO is gonna be around five years from now, that they’re starting to take risks again. They’re starting to help companies across the spectrum.

Well, some in Washington would like to power down the LPO. In terms of the stakes here, I guess why should the average American want the office to flourish? 

[Laughs] Because the business model has changed. In the early days of cleantech, the business model was to perfect the technology and then license it or manufacture it in China or Europe, right? And so we didn’t need to provide C and D rounds, and you didn’t need LPO because companies were saying, “Look, once your solar technology works, go to China or go to Malaysia or go to Europe.” Today I think everyone, from the average American to our sitting president, has said “We have 45 years of history of inventing everything in the world here in the United States, and we don’t want you to send it overseas to commercialize it anymore. We want you to commercialize it here. Tie it to the American worker, create jobs here.” I think that is a full-throated message we’ve received from voters in the 2016 election and the 2020 election. And we passed the bipartisan infrastructure law and the Inflation Reduction Act so we can commercialize the technology here.

It’s part of a giant buildup of infrastructure, too, part of a bigger vision under the Biden administration. Are there other factors this time around that are front and center for you or for the office that maybe weren’t as important last time? Are there important lessons from 1.0 you’re thinking about now?

One of the biggest lessons we learned from 1.0 is that we should never take real technology risk. So we take perceived technology risk all day, but when you look at all of the failures we’ve had in 1.0, the only one we got beat up on is Solyndra, because Solyndra had real technology risk, and in the end, the technology didn’t work. But we didn’t really get beat up on Fisker Automotive or Unbound Solar or Tonopah Solar or Ivanpah or KEPCO Solar. Like we’ve had other losses in the portfolio, but people thought that we underwrote the risks properly there. Technology risk should be taken by our partner offices within DOE that do demonstration work. We should not be taking real technology risk; we should be taking perceived technology risk and scale up risk.

I think the second one that we learned is that, for certain sectors we need other policy, not just LPO. So when you think about the battery supply chain, not only do you have our office and the Critical Minerals [program], but you also have this 37-50 tax credit for electric vehicles that use domestically sourced or processed critical minerals. So that now provides belts and suspenders. Not only are we providing the financing for the critical minerals, but if there’s dumping going on by other countries around the world, where they’re selling their critical minerals for less than the cost to make them, or to process them, we’re protecting our industries by having this domestic content requirement, either for solar panels or for critical minerals. 

And so when you think about the way that the [Inflation Reduction Act] was structured, there’s a set of policies, not just LPO. We’re not on our own island. We partner with the 45-V [tax credit] program for hydrogen, or with the 45-U program for nuclear, or with the 30-D program for battery materials. We’re partnered with these other policies to provide a clear signal to the equity investors that, “Hey, we are open for business and we want these projects to succeed.”

Still, it can be challenging to break across silos in Washington, not just between other agencies but within your own. I wonder how big a challenge that is for you and for the Loan Programs Office when approaching this outlay. How do you work with the Environmental Protection Agency and others?

It’s a good question. I don’t know how to answer it per se. I would say that all of our colleagues at the other agencies want to coordinate with us as much as we want to coordinate with them. So the good thing is that there’s no lack of interest. It’s not like I call people up and they say, “Jigar, why am I wasting my time with you?” They’re saying, “I’m so glad you called, we actually were thinking about this the other day and we wanna coordinate with you.”

I think the other thing that I would say is that, because our loan applicants desperately need to coordinate with those other agencies—because if you’re offshore wind, you need to get a BOEM [Bureau of Ocean Energy Management] permit, you need to go to the Department of Commerce and get a national Marine Mammals Life permit for the construction—once someone becomes an applicant, we have the ability to advocate on their behalf across the entire government. So we’re not coordinating on a theoretical basis; we’re coordinating on behalf of our applicants. A couple of our applicants are using the Class VI wells to do carbon sequestration, so we’re coordinating closely with our friends at EPA who are providing the Class VI wells. 

And I think that [when regulatory hurdles pop up] our office has really assumed positive intent. We’re not saying, “Oh, they just hate carbon sequestration or they just hate offshore wind.” We’re going over there and saying, “What is stopping you from moving quickly and doing this?” And they actually often have good questions. And then we, on behalf of our applicants, get the answers for them, and we help them through that. And because we are the filter, they trust us. And if LPO has done a bunch of diligence on the applicant, then we’re a more trusted voice across the government. So we can play that facilitation role for most of our applicants.

You have over 200 loan applications in the pipeline for $263 billion in loans, but so far the office has approved only four projects: a $2.5 loan for a lithium-ion battery manufacturing project by Ultium Cells; a $3 billion loan guarantee to a Sunnova solar-and-battery virtual power plant (VPP) project; a $102 million direct loan for Syrah Technologies’ battery factory in Louisiana, and a $504.4 million loan guarantee for ACES, a hydrogen storage facility in Utah. What are the challenges you’re facing as you sort through and choose other applicants? 

I think it’s important to remember that we are not picking which applications to support. What I’ve told my team is that every single application that comes in that meets the statutory requirements that Congress laid down from us gets a thumbs up. We’re not determining whether we think hydrogen is better than transmission is better than carbon sequestration is better than whatever. We’re helping all of them equally as long as they qualify under the program. 

Now, we do require them to have a high-quality application, which means they have to fill out all of our forms correctly. And I would say that that is a far taller order than you would think. Because many of these applicants are extraordinary inno