Jigar Shah on the DOE's Role In Accelerating The Energy Transition

in the countries that have particular access to them. But at the same time, there's also a lot of impulse to just get the price down right now. Yeah. To me, it comes back to just the cyclicality of the energy industry. And if you think back to when we had um the oil prices going down quite suddenly and everyone was talking about a glut in shale oil and all this energy industry capacity had expanded too quickly and now you know,

there wasn't enough demand to actually justify it. And then fast forward to today and it seems like we're in completely the opposite problem, and so it just seems kind of crazy to me to be swinging from you know, access to shortages on like a five to seven year timeline, and it seems like it's really bad for as you mentioned, planning for the future, right, how are you supposed to attract investment into the space if you're going from feast to famine all the time. So I guess one question

that arises is can the state? Can the government player role in ameliorating the swings on both sides, essentially reducing the volatility, And the government has this infinite balance, it doesn't have to optimize for profits itself. Obviously, you know, in theory it doesn't want to waste money, but itself does not. The government itself doesn't have a profit motive.

And can there be sort of a role for planning, for thinking strategically for public investments such that we don't have these so that we actually have like a strategy of vision that's not just sort of at the whims of these incredible swings that we have in what seems like a fairly short period of time. Absolutely, and I think you put it well like that's the question whether there's a role for the government to come in as

a source of stability and an extremely cyclical market. And also I don't think anyone's really talks through exactly what the different roles are for the government versus private investors. And I still think, you know, when you look at E. S G. For instance, UM, there seems to be a lot of onus placed on private capital and this idea that well capital is going to come in and fix everything. But actually I still think you need the government to

come in and do a lot of this. But anyway, this sort of question about what the different roles are for private versus public capital, I think is a fascinating one, right.

And there's one other phenomenon. You know, we talk a lot about gas and gasoline prices, and the other thing that's going on in energy to especially going to the summer, is concerns about the grid, like various regional grid operators warning that blackouts are going to increase, uh this summer, potentially lots of concerns once again about the Texas grid, but not just Texas, it's really everywhere is worried that this sort of like baseload power has seen under investment,

and so lots of big questions about the sort of what role can the public sector play and all of these challenges, both short term and long term. So I'm very excited. We have a very special guest today. We're gonna be speaking with Jigger Shaw. He is the director of the Loan Program Office at the Department of Energy and in a prime spot to be thinking about and addressing some of this stuff. So, Jigger, thank you so much for coming on odd lot. Oh it's great, thanks

for having me. It's ah, you're you're a staple in my podcast listen. Uh you absolutely absolutely flattered, dear. So what do you tell us, like, just give us the sort of quick summary of like what you do, what you do at the d o E, and your background, like how you got into this role. Yeah, no, it's it's it's a good question. I'm a mechanical engineer by training, and my my career has really largely been about figuring out why technologies that are already fully proven don't scale, right.

So I started UM in the solar industry and uh, you know, started sun Edison, which largely invented the power Purchase Agreement, which is now attracted you know, over two trillion dollars of capital uh into uh solar objects right around the world using that financial structure, and then you know, after that, did some nonprofit work with Richard Branson and understood a lot more about lots of other sectors UM, and then started Generate Capital with two co founders in

twenty fourteen, where we really changed the entire way that infrastructure investors thought about, UH, first of a kind deployment and scaling up new sectors because you can imagine the vast majority of people before that we're in fund structures, and fund structures, you know, you get paid more if you make a higher I R R, and that doesn't quite work for commercialization. So we flipped the script on that and created the first sea corp to do that

back in before tax rates went down. UH, and then got tapped for the the you know d O WE Loan Program's Office as a perch by which we you know, helped to commercialized technologies UM from the U. S. Government seat. So I'm gonna go ahead and clean and say that I wrote some very unflattering things about Sun Edison, but

I did it. I think it was around uh so after you had left the company, and it was mostly it was mostly about the leverage that they taken on and very undisciplined after I left, so they deserved all of the criticism hard blog posts. Okay, but actually I want to go back to something you just said, which is this idea of proven technologies that are nevertheless difficult

to scale. So what is the issue there? Because you know, you would assume that if someone comes along and says, I have this amazing new technology to produce energy, you know, hopefully uh, you know, cleaner way than than we do traditionally, you would naturally expect people to get very excited about it and for some private investors to start pouring money

into it. But historically that hasn't been the case. Yeah, it's a weird thing, right, I mean, the what happened after the Arab oil crisis in the nineteen seventies as we invented the Department of Energy, right, we put it in place, And what happened on the technology front is America has figured out how to make things smaller and more uh you know, sort of bite sized. Right, So the phone in your pocket is more powerful than all the computers that you know, it took to put a

man on the moon. The same thing is true with solar panels. It's the same solar panel that you put thousands of in one field and make utility scale solar, or twelve of them on your roof for residential solars. So when I first started sun Edison back in two thousand three, we had signed contracts with Whole Food, Staples, I Kea, and others right of way and people said, that's great, Jugger, but you only need sixty million dollars of capital, And I was like, only like sixty millions

a lot. And I started this company by taking out a home equity loan on my house, and so you know, like, so I feel like that's a big number. And most of these folks are like jigger. Infrastructure investors don't get out of bed for less than two und fifty million dollars, right, And so if you can't aggregate up two hundred fifty million dollars with projects, then you know you're not gonna get any attention from us. And I'm like, well, but

we miniaturized the technology. It's no longer billion our scale just to get in. You could do it at scale and up rooftop. And so we ended up getting money from Goldman Saxes, you know, Special Situations Group, and you know they made a nice seventeen percent rate of return to to do the first set of deals, and then once we got to that multi hundred million dollar scale, we got Walls far Ago and Union Bank of California and lots of other folks to come in. But you

know that's happening in battery storage. I mean when Generate Capital first started funding battery storage, I think the check size that STEM needed at the time was twenty million bucks, right, and you know they had all these battery storage deals, like you know, behind the meter. I think one of their first customers was like a print press company who really needed it because they were paying like fifty cents

of kilo one hour because of demand charges. And so you have all these weird niche projects where you have very high rates of return for new technology, but it amounts to like fifty million million, seventy five million initially of capital needed before it goes to trillion dollar scale. Can you talk about that model, you know, for for listeners, and when I say listeners, I also kind of mean myself, uh,

but for listeners who maybe don't understand it. What was that model that you pioneered at Sun Edison, that original model when you say, you've got these deals with Whole Foods and others. What was the sort of uh, the sort of breakthrough business model that you pursued there. Yeah, so, I mean when I worked with Whole Foods, I remember it was great. The guy who ran the store in Edgewater, New Jersey really wanted to put solar panels on his roof,

and he said, Jerry, yours is the first model. Lets me do this because every other model I had to pay four and fifty thousand dollars for these solar panels and wait for ten years to get my payback. Right, what we did was we said, no, we'll own the panels and we'll just charge you for the electricity every month. And so it's pay as you save. And when I talked to the CFO above him of the Eastern Region, she was like, you know, this is two thousand and three.

Whole Foods is growing so fast, jigger that I either can buy a solar system or open a new store. And so I'm not going to buy a solar system. And so as soon as we were able to give them this pay as you save contracts, she was like done. Like, I mean, really the contract was a way to get past the CFO right the because they were saying, look, you know, like we shouldn't be putting our capital into this kind of asset, right, Like, that's not our core competence.

So if we fast forward to today, you're at the Department of Energy, Now, what exactly are you doing over there? Well, it's all the next generation of entrepreneurs, right. So when you think about where I was in two thousand three, and you know, after we did the Goldman Fund and we had you know, five million dollar pipeline, you still had a hard time breaking through with banks. And so a lot of banks would say, look, I don't get paid that much, and you know, like you're basically asking

me to do something weird. I have to basically write twelve white papers to educate my investment committee on this new asset class. And it's so much easier for me just to do a really weird real estate deal. And so why am I like spending all this time on it? Right?

And so largely there isn't real technology risk. Sometimes there's perceived technology risk, like in fuel cells for instance, or in hydrogen where people are just afraid of it um, But most of the time it's just getting their attention, right. They they just really need someone to be first, and so they come into loan program's office. We give them money first and do a proper underwriting due diligence. You know, we're really respected for you know, how much of a

pain in the ass we are to get through. And and then after we do the first deal, a whole bunch of banks say, all right, we're happy to be the second money in because we can read Department of Energies white papers and we can do all of that. We don't have to do that work, and we can do the next phase of it, and we're proud to

play that role across I think twenty sectors or so. Now, so I started off, you know, in the beginning, we were talking about this tension because uh, you know, in the long term, it looks like there's still plenty of returns and possibilities for some of the new energy technologies to change the way we get get our energy. And I know, wind and well, I'm sure we'll talk about

that and solar and hydrogen, all these new technologies. On the other hand, like right now in June of two, there's concerns about whether just the grid is going to stay up for Americans this summer, and in the Midwest there's warnings about that, and obviously in Texas going back to sitting aside everything else, like, how would you diagnose the issue, like what is going on, whether it's under investment, or what is going on such that this has suddenly

become a concern again about whether the lights will stay on through the year. Well, I mean, you know, I think there's entire books that have been written about so I don't know that I could answer this question in a minute, But what I'd say is, we have a lot of old infrastructure, right. So the average coal plant in this country is almost fifty years old, right, And so when people say, oh, those environmentals are shutting down coal plants, I think old age is shutting down coal plants, right,

And the same thing to have natural gas plants. We built a tremendous amount of natural gas plants in this country to deal with air conditioning. Remember, conditioning wasn't a thing in this country until the early eighties. That's when

most people got air conditioning. And because it created this huge spike in demand during the day, um, we built a whole bunch of natural gas peaker plants and those natural gas peaker plants were built in largely the late eighties and then into the nineties, right, and so they're all old today because they were never made to last

more than let's say years, Right. And so now we're sitting here and saying, should we reinvest in more coal plants and more natural gas plants, or should we use the next generation of technologies to you know, provide generation for our grid. And then at the same time, because we weren't really thinking about the dexterity of demand, we were only thinking about the dexterity supply. So today you can do whatever you want at home, and the generators have to ramp up and down to meet what you

do at home. Right, But tomorrow you could really easy ramp up in down people's EV chargers at home, people's thermostats. Right, You could do lots of things if you gave them an incentive to do that. And it's cheaper to ramp people's uh, you know, EV chargers and air conditioners than it is to build a new power plant. What do you mean? What are you sorry? Can you explain that?

What do you mean? It's cheaper to ramp people's EV chargers or so So I live in a nice neighborhood in Bethesda, Maryland, right, and every time I go for a walk, someone's got a new electric vehicle right. Right. You can imagine that these homes in this circuit, when it was built in or whatever it was, wasn't built for a bunch of electric vehicles to plug in. Right.

So the utility companies coming in and saying, well, we're going to spend seventy million dollars to redo the distribution grid, Well, it's a lot cheaper for the utility just to put in a one thousand dollar bi directional charger in my garage and say, when everyone's plugged in at the same time, we're going to ramp everybody down from ten kill a while of draw to only one kill a lot of draw so that we don't have to upgrade this entire

distribution circuit, but instead we actually just make sure that we're not over burdening the distribution circuit all at the same time. Right, Because most of the time my distribution circuit here on my block, I think the average capacity factor is maybet which means it's only being used roughly at the time, right, But they're going to increase that and pay seventy million bucks to do that and drop it down to right just because a bunch of people

bought Tesla's right. At some point, that math doesn't work, right, So we've doubled the cost of transmission and distribution infrastructure in our country. We used to pay roughly two cents a kilo one hour for transmission distribution. Now we pay roughly four cents. And that's largely because we keep over building it and then using it less and less on an average basis, right, And so if you want to use it more, well you fluctuate the way the loads work.

Because your house is thermal storage, right, like when you when you turn on your air conditioner, unless it's a super leaky house, then it maintains that temperature for like six to twelve hours. Right, So you could put the temperature down to sixty eight when we have excess power and capacity in the grid and let it float up to seventy two, you know, when you have a lack of capacity or generation in the grid. But that whole

approach is not something that we do. Instead, Warren Buffett, I think, proposed that that he wanted to get paid like six billion dollars to build natural gas plants in Texas with on site natural gas storage just in case a polar vortex hit once a year. Why would you do that reversus paying poor people or paying middle class people or wealthy people to like fluctuate their loads. So,

I mean it's the issue. Then it's not that we don't have enough energy, it's that we're not particularly good at I guess calibrating the flow of it depending on

changing demand, is that right? Yeah, The asset utilization of the entire grid is going down, right, And when you pay a fixed amount of money for something and the asset utilization goes down, then the cost of it goes way up to use it because you're not using it very often, right, And so so we've got to figure out how to optimize for asset utilization and stop optimizing

for cost per kilo one hour at this particular place. Right, What we care about is system costs, because all the system costs are shared amongst the rate payers, is they're referred to, and and so they don't care that the levelized cost of energy of that solar plants one point six cents of kill one hour, or that nuclear plants seven cents of kill one hour, or that pumped hydro storage facility costs two billion dollars. What they care about

is to provide me with reliable electricity? Right? What do I have to pay at my house? Right? And so we evaluate things on an individualistic basis as opposed to a system wide basis, and so that has led to a bunch of individual decision making that has led to, you know, no optimization at the system level. At what level, whether it's the federal government or the regional power authorities?

Like what would have to change in order to get, as you say, a sort of a superior evaluation of the grid so that we actually so that we stop optimizing for this sort of individual level get system wide allocation? What what? What incentive structure or regulatory change? Like, how do you how do you get to that? Uh? That

different approach? So, I mean, we do a lot of this modeling at the Department of Energy, but we do it on a nationwide basis, which is not that helpful and a decision making the side of things because the

decision is made at the low the level. Right. So each state has a public service commission, and that public service commission is one that makes this decision you could imagine the Public Service Commission is is hugely under resourced, right, and so they get ten thousand pages of documents from the utility and then they have to read it all and say here the twelve assumptions in here that we don't like, please go back and make these changes or

whatever it is. But they don't really have the ability to do all of that modeling themselves. And so like what has happened in the past is, for instance, the city of l a Um owns one of the largest municipal utilities in the country, l a w P, and they hired the National Renewble Energy Laboratory to do a comprehensive study called l A one hundred and that it has said, here is the you know, four ways for you to optimize the system for decarbonization and reducing prices

for everybody. And so now they're implementing that l A one hundred study because they pay the National Energy Laboratory to do their own thing. That made sense. But I think that unless you empower the public service commissions to be able to do their own independent analysis, which we could do. We have resources that Department energy, but they

would have to ask us to do it. Um, Then it's hard to equip them with what they need to negotiate with the utility because remember, the utilities are not bad people, but they've been given a monopoly license and they have shareholders. They get paid based on how much iron they put in the ground, right, So the more money they invest, the more shareholder equity returns they make. So I'm fascinated by the idea of you know, you mentioned the banks having to write white papers on new

types of technology. Um. And I can just imagine someone, you know, trying to wrap their heads around some new emerging energy technology and trying to convince their investment committee to put a bunch of money in it. But how does how does the d OE actually go about it? Like, can you give us some color on on what it's like if someone approaches you with a new idea or a new project, what is that process of approval actually

look like? And how do you judge one project over another? Yeah, it's a great question, um, And I'd say that the first part of it's easy because look, what the Department Energy does mostly is invest in R and D and so, and we're increasingly doing a lot more on the commercialization side under Secretary Grant Home. But you know, when you think about what we have is we have ten thousand engineer, scientists and experts who work on our platform at extraordinary

natural laboratories across the country. So there's not a single new idea that we ever get pitched, right, that idea is new to the marketplace. But the person who invented the patent probably works at one of our national apps and did it twenty seven years earlier. So so the the so the technology part of it doesn't scare us because we've got all these experts in the platform. On your the second half of your question, i'd say that

we don't compare produc jecks to each other. Right, if if they qualify for the Loan Programs Office and they can get through the gauntlet, then we'll give them alone. Right, they have to be you know, technology, they have to meet our innovation standards, they have to meet our greenhouse gas emission reduction standards. But if they qualify, we don't say, well, this one saves one percent more than you do, so therefore we're going to give it to this one, not

that one. We'll give it to both of them, because from our perspective, it's about starting the flywheel, right, It's about putting the first and second and third projects out the door, and then they're going to have to win on their own merits in the battlefield we call capitalism. So what are you doing, Like, what specific areas are interesting right now? Do you in terms of technologies that you're potentially backing or thinking about backing or see is

very promising? Like what are the what when you look at the opportunities, what what's exciting? Well, we spend a lot of time in twenty or so different sectors, right there's a lot of teas that have been done around how you decarbonize the grid, how you decarbonize the economy, etcetera. I'd say that where we're getting the most interest right where people are actually submitting applications are in nuclear energy, in carbon sigiustration and storage, hydrogen battery storage, transmission, e

V charging, UH rollouts, but also critical minerals. You can imagine with all of the rise and costs of critical minerals, we're getting a ton of interest for people to you know, to mind more critical minerals here, to process them more efficiently, etcetera.

You mentioned battery storage, and I'm very like. I feel like I read very mixed things, whereas some people talk about like, okay, batteries are really key and they're particularly going to be crucial for increasing our ability to rely on renewable sources like solar and wind because then they we can preserve the energy at night or when the wind isn't storing. And then others say, you know what, it's a pipe dream. People have been pitching grid level

battery storage for years. It's not going to get cheap enough, and we're like not even close to having battery capacity to meaningful, meaningful you move it in, and not being an engineer myself, I don't really have any way of evaluating these competing claims. How do you think what is the battery storage opportunity and what is like where can battery storage play a meaningful role in accelerating adoption of

some of these non carbon based UH power sources. Yeah, no, it's a fascinating question, you know, like the the the whole narrative around storage fascinates me because it's actually not that complicated, but everyone makes it super complicated, right, I need the simple, the simple sm So you guys have been studying supply chains on your podcast for a long time now, right, And the largest supply chain in the entire world that is real time only is the electricity market.

Yeah right, every single millisecond of every single day, the supply and demand has to equal each other. That is exhausting, right. Think about like how transportation feels works, or or agriculture, there's like storage everywhere. You have grain elevators, you have tank farms, you have all these things. We don't have storage on the grid. The only time we built storage was in the nine seventies. We had this thing called

pumped hydro. And the reason we built it is because the nuclear plants of the nineteen seventies were designed to never be turned down, and so you had all this excess power at times, and so we needed to dump the extra power. So that's just pushing water up and then you let it down. That's exactly right, right, And so now what we're saying is we basically have found it. By adding storage into this supply chain, it makes everyone's job easier. You don't have to do this real time

thing all the time. You can just store power. And so when you have some circuit that you know has a squirrel that gets you know, fried on it and so like it goes down, you can use a battery to to like fix that problem if something happens, to use a battery, right, And so so that's why we have battery storage. Right. We've been working on it since the nineties. I've been working on it like with Sandy

and National Laboratories, etcetera, since nineties. And and so the technology though, got cheap because we started using lithium mind batteries for laptops and cell phones. And then Elon Musk said, well, that supply chain is there, so we should use it for electric vehicles. And so then that got even cheaper.

The cost came down using rights law. Right, it's not new information, right, the learning curve has been around for decades, and you know, after five or six cumulative doublings of experience, the cost has come down to the point where people are like, this is cheaper than building a natural gas peaker plant. That's what a Yes figured out back in so they started building a bunch of battery storage because

it was cheaper than running their their peaker plants. And then people just kept growing and then but just the sheer scale of it, I think it's hard for people to fathom. Yeah, so I'll just give you a sense. So, um, when you think about electric vehicles, Uh, the President has said that we're gonna have fifty electric vehicles by right being sold every year. To do that, we'll need eight

hundred gigawatt hours of um of uh battery storage. Right to put a kill one hours of battery and your four f one fifty lightning and your sixty six kilo one hour battery pack and your hyundaionic right and and so that's eight hundred giga what hours right, um, And just put that in perspective. You know, we use like four thousand tarowatt hours, right, So that's like four million

giga what hours per year in the United States. Right. So, um, So eight hunred gig one hours the total amount of utility scale battery storage that we expect to be on the grid by a hundred and fifty giga what hours, Right, So we will have eight hundred gig at hours of batteries sold in people's cars in one year. The total cumulative amount of battery storage on the grid in utility scale battery storage will be a hundred and fifty gig

one hours. And then blow your mind even more, we just closed alone for hydrogen storage right in a salt cavern in Delta, Utah. That one salt cavern will store a hundred and fifty gigo at hours where the hydage group. So when it comes to designing the supply chain for energy, as you mentioned, who should be the ultimate standards setterer there?

Because on the one hand, you have the government, which clearly has priorities of its own, and you would assume that increase battery storage or something like that would be part of it. But on the other hand, you do have pools of private capital that are often funding a lot of these projects and efforts, and I'm sure they have their own preferences as well about how these things should work. So who should be the standard setter here or or how should these two um groups kind of

oh work together. It is a fascinating question, and every question you ask, I think like needs its own one hour podcast. We could do a series, We could have like a five episode series with you. We might do maybe we'll do that later in the year. But like I think that I think when you think about your question, right,

like who should be the standard bearers? So Department of Energy writes a report, right, and says, here's the status of all the technologies that we've done R and D in and here's where we think the pathways will work and the roadmap and all that stuff. Right, And then people, you know whatever, Sometimes they ignore it, sometimes they read it it's great, um. And then at some point you've got venture capitalists, right, and then they fund companies and

they have you know, all these different companies. And remember like in two thousand nine it was like Heinrich Fisker versus Elon Musk, right, and there was like Fisker Automotive and this kind of thing, right, And why did Elon Musk win versus Heinrich Fisker. It wasn't because his technology was better or execution around like you know this particular thing or that particular thing. It was because like a raw grit and perseverance and all the things that you

know we herald entrepreneurs for right. And so he succeeds, right, and he you know, now has the most valuable car company in the world, and it's it's wonderful, right. But it didn't like come out of some sort of like thing that I wrote up in a roadmap at Department of Energy, you know, in two thousand and seven and said this is exactly how the electric vehicle market will work, right, and so so that happens that way, right. But then when you get to trillion dollars scale, right, then the

structure investors don't care. That's the interesting thing, right, what they care about, and they're the large bucket of money that is going to spend the ten shillion dollars to decarbonize the United States and the larger numbers to de carbonize the world. And for them, they want to contract that they think is going to pay them back. That's

all they care about, right. They don't care whether it's lithium ion batteries or nickel metal hydride batteries, or zinc batteries, or iron air batteries, or hydrogen storage or pumped hydro or whatever it is. What they care about is is this asset likely to be used for the entire period of the loan or the equity I'm investing in it because they're gonna make a six eight percent return, right, They're not getting paid to like take a whole bunch

of risk. So what they want to know is what is the regulatory infrastructure why does the utility want to do this? Like is this likely to get you know, like used for the period of time that's required, etcetera. Right, and so so you've got this interplay between the choices that the infrastructure investors have though in front of them, are limited. Right. They don't get to look at the entire landscape and say here the twenty seven technologies for

us to look at, and we pick this one. They get to only invest in the things that they get pitched. And so if only two of those seven entrepreneurs are competent and capable of actually getting to what we talked about the beginning of the podcast, which is two or fifty million dollar scale, then those are the only two applications that they get to choose between. When we talk about these infrastructure investors, hey who are we talking about? Like where where do they sit in this sort of

like you know, the constellation of private capital? And then how do you see your work with them? And how do they think about you? And you think about you know, Okay, you provide these sort of initial loans, then maybe a handoff to them like who are we talking about and how much do you do work with them? Yeah, it's a good question. They're generally not American. So the American names are generally insurance companies and they've got their own

conversation that we can go through. But um, it's usually Canadian and Australian companies. So this is like ods Super q I, c Ontario Teachers, aim COO out of Alberta, c p p I B, right, the Canadian Pension Board. These are the folks who you know, um, like remember when like City of Chicago sold their parking meters or

someone like invest in toll roads. It's always them, right, They're the ones doing the cool stuff on the infrastructure side, right, it's and so it's not cowpers or Calisters or newar Common or some of those folks. It's usually those big infrastructure investors. And what they're looking for is outside returns, right, because if you have a municipal bond backed project, you're making three percent, right, So they're looking to make six to eight which is higher than three, right, And so

that's that's what they're solving for. And they're saying, well, they got to be early, they have to move a little faster, they've got to have bigger staff, right, so they can like network with folks, etcetera. And sometimes they invest in the company. So like c pp I B bought out Pattern Energy, which is one of the largest wind and transmission line developers in the country, because that's

how they could get access to proprietary deal flow. Otherwise they were getting out competed by other cheaper forms of capital. So is it just inevitable that people will have to choose between paying higher rates for energy in order to incentivize investment or um, we'll just have to deal with, you know, creaking infrastructure because no one wants to actually pour money into it. Like, is that just a tension that that we can't get around? Well, it's certainly the

It's certainly the default point of view. Right. The default point of view is that you know, you wait for things to break, supply chain costs go up and then incentivizes a bunch of people to invest, and then you know, supply chain costs come down. Right, So that's the default

of view. I mean, you know, when you think about the speech that Brian Desk gave on industrial policy, um, and then you know, as re client wrote that, you know, big piece in the New York Times about it, and I think he defined it as industrial policy is the idea that a country should chart a path to productive capacity beyond what the market would on its own support. Right. And so I think we are at a crossroads where I think we're asking ourselves should we be proactively dealing

with all these supply chains? And if we are going to do that, what tools do people want us to use? Right? Remember when you think about us commodity supercycle, right, which we went through during the Bush administration. You know, there's three ways to dealing with the commodity supercycle. Right. One is you've got to get more of the raw materials. Right. You gotta mind more, you gotta produce more, you gotta

do whatever it is. Right. The second thing is you use what you have more efficiently, right, Like you get cars that have better mouse per gallon you like, you know, have batteries that use less lithium than the previous version to get the same amount of output. Right. And then the third is you find substitutes, which is largely what I do for a living. Is you know, you fund all of the different technologies, all the different things that would you know, reduce the amount of the base commodity

that you need. And that process is slow, so so that process is not something that's going to happen in twelve months. But you need to do all three of those of those things, right, and that can be planned, but there needs to be a framework that everyone agrees to and then each of the technology fits into one of those three things. Right. Either you're you know, streamlining permitting so that you can get more minds built or

more things built. You're you know, investing in R and D so that you can like make the use of those minerals more efficient, right, or you're investing in alternatives because and scaling up those investments early when you don't need them. Right. That's the biggest problem is when commodity prices are low, people are like, well, why are you making that investment? We don't need it. Well, because it takes ten years for that technology to get to match maturation,

so we can scale it to trilling our scale. Can you talk about speaking of funding alternatives, and you mentioned that just today we're recording this on June nine, but just today that you funded a hydrogen project, and I'm I'm still a little unclear in my head, like where hydrogen fits intell this, Like when we think about cleaner fuels obvious or cleaner source of energy, Lots of talking about solar, lots of talk about natural gas or sorry, um,

when some talk about uh nuclear, what is how should we understand, you know, when we talk about this vision for expanding capacity, how should we understand in your view, the role that hydrogen has to play on all this? Now that's a good question. I look, I think that people get confused because they're thinking hydrogen and what they

should be thinking instead is energy carrier. Right. So if I say to you the wind and solar industry, right, and also natural gas and coal and other things, right, they have a lot of surplus capacity in the spring in the fall, right, because there's not a lot of air conditioning or heating being used then, and so and we have a lot of excess grid capacity. So what could we do to store all of that capacity so that we can use it in the winter and summer when we need it? Right? Like it put it all

into big batteries. But those batteries have a degradation rate of like you know whatever, it is, like point two per day. So if I store it and I stick it there for ninety days, then by the time I need it, it could be like gone, right, So that's not a great energy carrier for seasonal storage. I could use pump hydro, but then if I just sit sit up there, it might evaporate. Right, there's some evaporation that happens, etcetera. And then I could put hydrogen in a salt cavern

and guess what, that doesn't degrade at all. So the hydrogen just sits there. And a lot of people argue with each other over points that are meaningless, like so for in sends, people will say, well, hydrogen doesn't make any sense because the round trip efficiency is way lower than it is for lithiumine battery storage. Okay, factually true, but LITHIUMI and battery storage is not good for seasonal storage.

On top of that, you can't get paid only like four times a year to like use lithiumine battery storage. You have to get paid to use that every day or else it doesn't petzel for hydrogen storage. If I store a bunch of hydrogen in a salt cavern and then Texas needs it at nine thousand dollars of mega an hour for like two days, that whole thing is paid off, right, And so each thing has its own

like thing that it does within a system. That's why I'm saying, like everyone's like, well, this is more expensive, this is like worst round trip efficiency. I get it. But on a system wide basis, each one of these technologies helps to make each other resilient so that when we have more extreme weather, when we have all these other issues, we actually have tools that we can use to keep the grid going. Sorry, but Tracy, just one

real short question here, can you? I don't. Can you just give me the real sketch of hydrogen stored in assault cave? Like, what do we actually talk about here? How does that work? So? Salt caverns have been used for years, right, We use it for the Strategic Petroleum Reserve. We use it to store all the natural gas that everyone is like on pins and needles around every single day. And we've been using it for temporary storage for hydrogen near refineries for decades, like forty years. So it's not

like a new technology. This is the first ever commercial you know, salt cavern storage. This particular salt cavern just happened to be there. So, um, there's an eighteen hunter megawatt coal plant that's on top of this salt cavern and um Group Paddington Ventures looked at it or twelve years ago and says, this is a really cool salt cavern. At the time, they didn't know they were using for hydrogen. They just said salt caverns don't happen every day, and

salt cavern's basically trapped things. So even though hydrogen is super light, right, it's number one on the periodic table, it doesn't escape from a salt cavern. A salt cavern has this crystal sort of lattice and so it keeps things in right, and so there's some money that has to be spent to make it usable to pump stuff into it and then pump stuff out of it. But otherwise it's a natural phenomenon and it's you know when

you see it. And right now there's a run on salt cavern so everybody their mother is trying to buy up salt caverns and the Western United States right now.

So it's, uh, it's always interesting. This is this disc I already it's like ten or two at least ten follow up episodes coming on, Like it's like we gotta fight like someone that we gotta like find someone who's like making a read like a salt camera that has to exist somewhere anyway, Sorry, keep going, but I'm just thinking, like there's just so many anyway, keep going, No, no, and so like, And so you this one salt cavern can store a hundred and fifty gig of what hours

of of hydrogen, right, which is an enormous amount of hydrogen, right. I mean it's the same amount as we expect to be on the grid for lithium mind battery utility scale battery storage by and so it's it's this extraordinary thing. And then they've got two and twenty megawatts of um electroalizers, right, which turn electricity excess electricity into hydrogen, right, split water

into hydrogen and oxygen um. And then you know, but because there was a coal plant there now which has extended its life through UM, the grid capacity to run those electroalizers is already there because it's there for the coal plant. So it's the perfect project because the grid is already built around this site, and so you don't have to like add another billion dollars worth of grid infrastructure because it's already been built and it's already there.

And so they could probably expand the electric electrolysis and electroalizer capacity there to two thousand megawatts under the existing

grid conditions there. So so you could imagine in the future, uh, this project, you know, being an anchor for a hydrogen hub and people co locating a green ammonia plant, right, and then turning that hydrogen instead of turning it back into electricity, they turn it into fertilizer, or they turn it into green chemicals, right, and people use hydrofluoric acid, hydrochloric acid, you know, things for industrial processes, and so it's a it's a pretty exciting time to think about

all these things because supply chains are getting disrupted and people are wanting to see how we do things here in this country, and well that happens to be the president's goal as well as to onshore and and you know, build up a lot of the capacity that we have here in the country. What's the most exciting project or technology to you right now? Like where do you see the most potential or what gets you the most excited. Honestly, it's hard to answer, because I'm excited about things in

all sorts of sectors. Like I'll give you an example there's a company that has figured out a way to tke um these sort of like uh, you know these like nutrients right when you have a chicken farm and they say that that you know, their manure like pollutes the ocean and creates algae blooms. They they have a way of just spinning all of the nutrients into their component parts and going back to nitrogen and phosphorus, etcetera,

and then selling it. It's groundbreaking, right because right now, like there's a lot of these uh whether they say like birth control and that kind of stuff that's in waste our treatment plant waste they have right now, waste our treatment plants have to spend money to dispose of what they call p fas. This company could just spin it back out into its um essential elements and sell it back into the marketplace, right I mean, and so

like it literally could be game changing. Right, we don't have to mind for as many of those elements because we can get it from our waste tream. Right. There's other folks who have created next generation business model innovation around car rentals, right, I mean, you know, fifty of Americans basically just live from car payment to car payment, and you know, and for those of us who don't live on the coasts, right, I mean, many people's car

payments are larger than their house payment. Right. They're paying like seven hundred bucks a month for that f one fifty, and they're paying four hundred bucks a month for their mortgage. And so, you know, like figuring out how to get people off of car payments but instead into something that looks like cars as a service where you never have to do maintenance in your car. You have to do anything, because electric vehicles don't require maintenance compared to uh in

jone combustion engine cars. Right, so you can just rent it for a hundred fifty bucks a week for as long as you need it, and whenever there's a problem, you just give it back and get another car that works. Right, I mean, just the amount of reduction of stress for people is worth every penny, right, I mean, but there's

just technology after technology manufactured homes. Right, there's a lot of innovation and manufactured homes now where the old school manufactured home industry basically you know, continues to sell you these these houses for like five six thousand ars a year because of the except the auxiliary dwelling unit marketing California, the places there's all these startup companies who can now three D print a home that's basically net zero for

ninety thou bucks, right, and so you could just radically change like home affordability but also make them net zero energy users, um and so like, the amount of innovation Americans are capable is amazing, and a lot of what we're doing at the Loan Program's Office is figuring out how to tie them to institutional capital at infrastructure scale because their innovators, right, they their brain is like how do I make this technology work? And how do I

manufactured at scale? Right? I mean what Elon must say manufacturing Hell that he was in in eighteen. They're there, so they need partners like us to help figure out, Okay, if you do this, this and this, here's a billion dollars they can actually like get the rollout to occur. Jigger show. This is a great conversation, actually kind of inspiring there at the end. We have so many like

negative conversations these days about shortages. It's exciting to be reminded that there are people working on big solutions to these things, and maybe they'll come to fruition and uh, no joke, literally like ten episodes to do maybe maybe five of them with you alone. But thank you so much for coming on odd Locks. That was a real treat.

Thanks for having me. I wasn't joking, that wasn't kind of inspiring, Like it is good to be reminded that there is entrepreneurship and potential technological breakthroughs or technological breakthroughs that already proven they just need commercialization or investment. That not everything is like this, Not everything is so dire that people are working on People are working on a

lot of this stuff well totally. And I know we uh, we've talked a little bit about the fertilizer shortage, but it's nice to hear that there's a company that has, you know, an active solution to actually try to capture some fertilizer from from wastewater and things like that. But it does seem like jiggers emphasis on the scaling up

problem and I guess the problem of incentives. And it's almost like every time you come up with a new technology or um a new way of doing things, it feels like it's hard for the system to adapt to it because they've already adapted to the way things are being done, and they've become very good at extracting money from the current system. And so once you start messing around with the way the whole system misfunctioning, it just feels like it's hard to get everyone on board. Does

that make sense? No, it does. And it's pretty clear that the existing system has all kinds of perverse incentives. And this is something we've talked about before and he mentioned it. Now. You know, if the if the publicly owned utilities are largely UH, their shareholder return is a function of, well, we spend X on investment, and so we're going to raise the rate to X plus some y percent. Does that create the incentive to just spend

more even if it's not the most efficient thing? Do the existing Is there an existing um incentive to come up with ways to use the grid more efficiently such as that we've talked about in the beginning of the conversation. These are they're hard economics problems, like the technology is exciting, the financing is exciting potentially, but the economics to get

to those excuse me, to get to that state is tricky. Yeah, I think that's exactly right, And that's really where it feels like energy infrastructure investment is different to traditional infrastructure investments. So you know, if someone proposes, oh, this bridge is really old and we need to redo it that, you know, sure it might be complicated in certain ways, but you're

basically building another bridge. Whereas if someone says, oh, we need to talk about hydrogen power, we need to talk about how we're storing electricity, we need to think of new ways to capture waste products from the energy that we are producing, it just feels like you're almost building a new system every time, or at least it's hard to sort of bolt those onto the existing system. You know. It's also interesting, you know you asked that question at

the end. It's like, well, what what what's most interesting to him? And it is sort of one of the striking things that I sort of got throughout the whole conversation is sort of with different solutions to different problems, Like some places, maybe it's pumped hydros some places, maybe it's hydrogen some places, maybe it literally is putting more

lithium ion batteries directly plugged into the grid. But I guess it's sort of like this all of the above way of thinking because the electricity system is obviously, or the energy system overall is obviously like extraordinarily complex. And so the idea that there's just going to be sort of one fuel that solves it or one new thing, it really is just like what do we have here,

what infrastructure is here? Oh there's a salt cavern here or something like that, Like how do we get it so that what we have in place or what what exists locally can be used in in the best way. Yeah,

which again comes back to that scale problem. Um and almost the beginning of the conversation where Jigger was talking about Sun Edison and creating basically micro solutions that are extraordinarily efficient for one particular house or building or one particular area, but they become hard to do at scale. And almost everything in this world, certainly in finance, is a scale business. It's a volume business, right, and so it becomes very hard to get people, I think, excited

about these individual solutions. I think we should start a salt cavern read by day that would buy buy up all the salt caverns that we can and then uh floated on the market. I think that could be a good business. So I was googling a little bit during that. And first of all, salt caverns are beautiful, um. And second of all, yeah, it looks like a lot of big energy companies UM have been snapping them up. I saw Traffic Bureau was buying some of them. I mean, yeah,

let's do the salt cavern reat first person episode. It looks like there might be a read already that has salt caverns. Anyway, play that that on ironically, like ten episodes out of that one, right, yeah, I think so? Wait there is a salt cavern reat. Oh my gosh. Okay, well yeah, okay, now we have to do an episode on salt caverns. Okay, shall we leave it there before? We planning like an entire ten part series. Okay, this has been. This has been another episode of the All

Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart. Follow our guest on Twitter Jigger Shaw. He's at jigger Shaw d C. Follow our producer Carmen Rodriguez at Carmen armand followed the Bloomberg head of podcast Francesco. Leave at Francesco Today and check out all of our podcast at Bloomberg unto the handle at podcasts. Thanks for listening one