WASHINGTON–(BUSINESS WIRE<\/a>)– \n\u201cThe pace at which we are deploying climate solutions is wholly unacceptable,\u201d says Jigar Shah, director of the U.S. Department of Energy\u2019s Loan Programs Office that has more than $40 billion in loans and loan guarantees available to help deploy large-scale energy infrastructure projects in the United States. \u201cThe United States is at maybe $200 billion a year of climate change solution deployment annually. That number has to probably be a trillion dollars a year to be able to be on track to [achieve] the goals that the president will be announcing [at the United Nations Climate Change Conference] in Glasgow.\u201d\n<\/p>\n \nThe comments are part of the latest episode in the CERAWeek Conversations<\/a><\/i>series. In a conversation<\/a> with Atul Arya, IHS Markit Senior Vice President and Chief Energy Strategist, Shah discusses the role of being a \u201ccatalyst\u201d for Wall Street; advancing climate solutions to the trillion-dollar-scale needed to meet carbon goals; and how oil and gas companies can transition to leverage their expertise in subsurface, geology, risk management and safety in other sectors.\n<\/p>\n \nNoting that previous DOE loans to Tesla and others created a trillion dollars of equity value in nearly every sector since those loans were made in 2010-2011, Shah says \u201cnow we have to find the next set of technologies to do the same thing.\u201d\n<\/p>\n \n\u201cA lot of what we\u2019re doing at the Loan Programs Office is really explaining to people the supply chain of how it works within the government, but then also within industry. There are many industry participants who really don\u2019t understand [project finance],\u201d he says.\n<\/p>\n \nThe complete video is available at: https:\/\/ondemand.ceraweek.com\/cwc<\/a><\/p>\n \nPodcast version available: CERAWeek Conversations <\/i>is also available via audio podcast onApple Podcasts<\/a>, <\/i>Google Podcasts<\/a>, <\/i>Soundcloud<\/a>, <\/i>Spotify<\/a> and Stitcher<\/a>.\n<\/p>\n Selected excerpts: (Edited slightly for brevity only)<\/i><\/p>\n <\/b>\u201cWe all recognize that project finance is something that is not well understood. Ultimately what you find is that the commercial debt market generally does not want to do new things. Sometimes it\u2019s because they generally believe there\u2019s technology risk that they don\u2019t understand. But a lot of times it\u2019s just because they can hit their numbers without doing new stuff. What ends up happening is there\u2019s a lot of technologies that we care about at the Department of Energy and also as a nation that don\u2019t get a good start. We have about $46 billion in existing authority within clean energy and the automotive supply chain to be able to provide these loans and to really be a bridge for the commercial debt market so that they see us do the first three of four deals, then they get comfortable doing the next set of deals.\u201d<\/p>\n \u201cToday we\u2019re already averaging about $7 billion of applications every month. More are coming every day. We have about 40 applications that are actively being put together. Everything from the fossil [fuel] sector to advanced nuclear to renewable energy and energy efficiency to EV manufacturing, battery manufacturing and critical minerals.\u201d<\/p>\n \u201cUltimately the way the Loan Programs Office thinks is the same way that S&P [Global] and Moody\u2019s thinks. It\u2019s the same way the commercial debt market thinks. We are a liquidity instrument. The goal for us is to fund a project, but more importantly, fund it in a way where we think that we can just pass all of our notes on to Wall Street so that they can do the next set. I have $46 billion of authority here at the DOE Loan Programs Office. We can do whatever portion of that that we can do. But at some point, we\u2019ve done our job. We\u2019re a catalyst and we can hand it off to Wall Street to do the next hundred billion.\u201d<\/p>\n \u201cEvery one of these solutions has to get to a trillion-dollar scale. That\u2019s the only way you meet the carbon targets that we\u2019ve set for ourselves for 2035 for electricity and then 2050 for the whole economy. LPO is never going to have a trillion dollars. That means that we have to bridge to private sector capital, otherwise the goal doesn\u2019t get reached.\u201d\n<\/li>\n<\/ul>\n <\/b>\u201cUtility scale solar and wind\u2014many people forget that those were unbankable projects. They received PPAs in 2007-08; by 2010 they still had not gotten bank debt. The Department of Energy provided the bank debt and even after we provided a guarantee, most of those projects were forced to be sold to Berkshire Hathaway. It was not until 2014 that Wall Street banks really got fully comfortable with solar and wind financing at scale. We did three geothermal projects; we did electric vehicles with Tesla and Fisker. We did battery manufacturing with Nissan; we did nuclear plants\u2014the Vogtle nuclear plant continues to be almost close to being turned on. The existing portfolio is about $32 billion. It\u2019s a pretty diverse group.<\/p>\n \u201cIn almost every sector, a trillion [dollars] of equity value has been created since we made those loans in 2010-2011. Now we have to find the next set of technologies to do the same thing.\u201d<\/p>\n \u201c[Tesla] was out of cash and no one wanted to fund them because you had the financial crisis. LPO put in $465 million for them to retool an existing auto manufacturing plant into their plant and that allowed them to launch the Model S which allowed them to raise more money and do the Gigafactory. All of those things came from that. We\u2019re proud of the fact that they were able to pay us off early. It was a fantastic success story. Even more importantly, we made the loan to Fisker as well which we lost money on.<\/p>\n \u201cWe have to take several swings at-bat. The question becomes, if we fund four EV manufacturers and one of them becomes Tesla and the other three are not as financially successful, that still promotes the interest of the United States of America and making sure that all of that innovation that we\u2019ve paid for at the DOE stays here, and grows here, and creates jobs here.\u201d\n<\/li>\n<\/ul>\n <\/b>\u201cIt\u2019s very clear that we have been testing carbon sequestration and storage techniques for decades. As the United States government, we\u2019ve been talking about it and funding it at high levels since 2009. Now the question becomes: What does scale-up look like? What does it take to create hundred billion-dollar deployments?<\/p>\n \u201cWhen you think about the state of Louisiana where 60% of their emissions are from the industrial sector, for them to meet the governor\u2019s goals they have to really figure out carbon sequestration and storage. When you look at the geology of Louisiana, they can really store tremendous amounts of CO2. The question really becomes, what does it look like? Is it each individual company coming to LPO for an application? Sure. But it can also be a new utility company\u2014one common trunk line for CO2 and we\u2019re going to allow people to opt into the network and share the risk and costs across all of them so there isn\u2019t discrete risk on one project. When you think about all the complexities of these issues, the Loan Programs Office is staffed not only to evaluate senior debt for a loan, but also to think through all of these issues with governors and the industry participants.\u201d<\/p>\n [Geothermal]<\/p>\n <\/i>\u201cIt\u2019s very obvious that geothermal technology works. It\u2019s a staple of many economies around the world, including California and the U.S. But when you think about the challenges of geothermal, there are real risks around drilling. For the risk management divisions at Halliburton and Schlumberger, can they actually reduce the risk on drilling?\u201d<\/p>\n \u201cEach one of these technologies has these institutional barriers where everything needs micro-management when it comes to due diligence. Every single project is a snowflake and each project takes extraordinary amount of time\u2014years\u2019 worth of due diligence\u2014before people feel comfortable to put the money in. The supply chain of capital when it comes to development of these projects, to the risk management of the construction, to the operations, mirrors the oil and gas sector. What we found is that the oil and gas sector has not yet figured out how they want to play in the space at scale. There\u2019s a lot of pilot projects here and there. The Loan Programs Office continues to be open for business. We see a lot of projects coming in. We\u2019re going to be doing several billion dollars\u2019 worth of geothermal loan guarantees. But the bridge to bankability is more than just these projects. It\u2019s also figuring out how we rationalize the supply chain around development dollars and EPC risks.\u201d\n<\/li>\n<\/ul>\n <\/b>\u201cWhen you read the technology pathways work from the IEA, what is shows is that there are certain sectors that are on track to reaching gigaton scale, whether it\u2019s solar, wind or lithium ion battery storage. And there are many pathways that are not on track to gigaton scale\u2014geothermal, low impact hydro or small modular and advanced nuclear.<\/p>\n \u201cI\u2019ve been quite surprised at how they have been chasing things that are already successful, like solar and wind, as opposed to leveraging the tens of thousands of extraordinary people who work at their companies and bringing forward their expertise in subsurface, geology, risk management, safety. There are many sectors where these skills are critical, and these skills are generally not available in the existing players in that space. I would love to see them differentiate themselves and, as Warren Buffet talks about, create \u2018moats\u2019 around their business which I think will lead to increased interest in their companies from investors.\u201d\n<\/li>\n<\/ul>\n <\/b>\u201cThe pace at which we are deploying climate solutions is wholly unacceptable. The United States is at maybe $200 billion a year of climate change solution deployment annually. That number has to probably be a trillion dollars a year to be able to be on track to [achieve] the goals that the president will be announcing in Glasgow. When you think about the transition, we can maintain $200 billion a year or even grow that number substantially and still pursue supply chain efficiency because we eventually have to get to a trillion dollars a year of deployment or else we\u2019re not going to get to the goal. We\u2019re not deploying at a fast-enough pace where any slowdown is necessary because we\u2019re just in such a deficit in terms of deployment.\u201d<\/p>\n \u201cToday we perennially have too much money and not enough projects. If you look at the energy sector alone, five years ago fundraising was probably 50-50 between oil and gas and clean energy. Today it\u2019s like 10% oil and gas, 90% clean energy. On a macro basis, in 2003 about 3% of global money raised\u2014of all types\u2014into private funds was in infrastructure. Today that number is 12%. When you think about just the sheer amount of money that has been raised, it\u2019s enormous. We don\u2019t have enough projects. The reason we don\u2019t have enough projects is because the only people who really know how to develop projects are people who develop solar and wind and those kinds of projects. When you look at the oil and gas space those are almost always PPPs: Someone wins an auction, they get a monopoly license to figure out a site, and they build out their capabilities if there\u2019s oil and gas there. That\u2019s not the same thing as climate solutions.<\/p>\n \u201cWhen you think about climate solutions, whether it\u2019s nuclear plants or carbon sequestration, these are projects. The vast majority of people are still waiting for the government to tell them what a risk-free approach looks like. That\u2019s not how it works. It\u2019s not risk-free. A lot of what we\u2019re doing at the Loan Programs Office is really explaining to people the supply chain of how it works within the government, but then also within industry. There are many industry participants who really don\u2019t understand [project finance].\u201d\n<\/li>\n<\/ul>\n <\/b>\u201cClearly we have [Native American] tribes who have not been given full access to modern services. That is something that is working through the congress today. Largely, a lot of that work is grant-funded. Separately there are many wealth opportunities. Many of the best wind and solar sites in the country are on tribal lands. There are many transmission corridors which run through tribal lands and making sure that the tribes not only get paid rent for those sites, but also participate in ownership of those assets is something that we\u2019re very focused on. That is where we\u2019re really focused on the Tribal Energy Loan Guarantee Program. We have $2 billion of authority. The tribes have to own at least 51% of the project and then we can provide up to a 90% loan guarantee on the debt. There are many projects where the private sector has figured out that if they invite a tribe in as their partner to be a 51% owner, then they can get access to this much lower cost debt and it supports everyone.\u201d\n<\/li>\n<\/ul>\n \nWatch the complete video at: https:\/\/ondemand.ceraweek.com\/cwc<\/a><\/p>\n New CERAWeek Conversations <\/i>segments also include:<\/b><\/p>\n About CERAWeek Conversations:<\/i><\/b><\/p>\n CERAWeek Conversations <\/i>features original interviews and discussion with energy industry leaders, government officials and policymakers, leaders from the technology, financial and industrial communities\u2014and energy technology innovators.\n<\/p>\n \nThe series is produced by the team responsible for the world\u2019s preeminent energy conference, CERAWeek by IHS Markit.\n<\/p>\n \nThe complete episode library is available at https:\/\/ondemand.ceraweek.com\/cwc<\/a>.\n<\/p>\n CERAWeek Conversations <\/i>is also available via audio podcast onApple Podcasts<\/a>, <\/i>Google Podcasts<\/a>, <\/i>Soundcloud<\/a>, <\/i>Spotify<\/a> and Stitcher<\/a>.\n<\/p>\n About IHS Markit<\/span><\/b>(www.ihsmarkit.com<\/a>)\n<\/p>\n \nIHS Markit (NYSE: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world\u2019s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.\n<\/p>\n IHS Markit is a registered trademark of IHS Markit Ltd. and\/or its affiliates. All other company and product names may be trademarks of their respective owners \u00a9 2021 IHS Markit Ltd. All rights reserved. <\/i><\/p>\n View source version on businesswire.com: <\/span>https:\/\/www.businesswire.com\/news\/home\/20210722005167\/en\/<\/a><\/span><\/p>\n News Media Contact:
\n\u201cToo much money and not enough projects\u201d is how the head of the DOE Loan Programs Office characterizes the current pace of deployment for climate-related projects in the United States.\n<\/p>\n
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<\/b>Interview Recorded Friday, July 9, 2021\n<\/p>\n\n
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Jeff Marn
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IHS Markit
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+1 202 463 8213
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Jeff.marn@ihsmarkit.com
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