Tune in to our fourth episode of “Energy in 30: Scaling an affordable clean energy transition,” to hear from Jigar Shah, Director of the Loan Programs Office at the U.S. Department of Energy. Throughout his career, Shah helped pioneer climate solutions at scale and low-cost infrastructure. This includes founding SunEdison, which led the way in pay-as-you-save solar financing, serving as the first CEO of the Carbon War Room—founded by Sir Richard Branson—and co-founding and serving as president of Generate Capital.
Shah is joined by Patty Cook, ICF Senior Vice President of Market Development, Distributed Flexibility Solutions, who designs innovative customer programs that support electrification, resiliency, and flexible load management. Together with our hosts, this episode takes a look at some of the current and future energy trends piquing their interest.
Some of the topics discussed in this episode include:
- Scaling the industry toward renewables and distributed energy resources
- Making space for energy equity through accessible financing options
- Improving service and affordability through energy-as-a-service models and leveraging third-party capital
Full transcript below:
David: Welcome to Energy in 30. We'll use the next 30 minutes to explore how utilities in the industry are reacting to forces that are shaping new offerings for customers in order to meet decarbonization goals.
Joan: If you're a utility manager, consultant, technology provider, or just curious about energy, we hope to push your thinking about the changes that are happening in the energy industry with me, Joan Collins.
David: And me David Meisegeier.
Joan: It's a power-packed podcast today. So, David and I have decided to skip our “what-are-we-up-tos” and get right to what our two guests are up to by welcoming Jigar Shah, who is the director of the Loan Programs Office at the U.S. Department of Energy (DOE) and Patty Cook, senior vice president of market development, Clean Energy Solutions at ICF to discuss profound pathways that are emerging to activate a clean energy economy.
David: Jigar is a strong and innovative voice in the energy industry. He probably doesn't need much of an introduction, but I love that he spent most of his career bringing climate solutions to scale. This includes founding SunEdison, which pioneered pay-as-you-save solar financing serving as the first CEO of the Carbon War Room—which was founded by none other than Sir Richard Branson. And he co-founded and was president at Generate Capital, where they innovated the use of low-cost infrastructure as a service financing. And now, as Jones said, he's the director of the Loan Programs Office (LPO) at DOE. I mean, wow, such an amazing career.
Joan: It really is. And we also have Patty Cook on, who leads product and market development activities for ICF Clean Energy Solutions, designing innovative customer programs that support electrification, resiliency, and flexible load management—all things that we cover on this podcast. And among many of the extraordinary contributions she's made over the span of her 25-year career, she has helped keep the lights on in Brazil, supported the development of renewable energy in California, and developed solutions to leverage financing of the new clean energy technologies. With that, welcome Jigar and Patty.
Jigar: Thanks for having us.
Patty: Thank you. Nice to be here.
Joan: We are just so excited to have you on and it's just fantastic. And there's so many different directions we could go today. Like Jigar, I'd love to ask you what the funniest interaction you had working with Sir Richard Branson was. And also, I would just really enjoy hearing if there were any situations where you've had bizarre stories of different innovations and ideas that have come to you that actually have panned out. I just think that would be fascinating to hear, but our format is to keep things in the here and now. So maybe we'll have to try that again sometime. But, Jigar, given what I've heard, you stated in other discussions and in the industry, one of the things that you said that's really stood out to me is that change has to be structural. And in your current role at the LPO, I think it's just kind of on the top of our minds and we're curious to hear from you what you're currently working on.
Working toward utility-scale for wind, solar, and electric
Jigar: Yeah. Thank you so much. It's a funny thing that the industry that I've been a part of, and of course you guys have been big leaders in for a long time is, one that I think is often accused of not moving very fast and being very slow to change. But I think when you think about how quickly we really have moved, it's quite shocking, right? I mean, when you think about 90% of everything that was added to the grid in the 90s was natural gas. Today, 90% of everything that's added to the grid is clean electrons. And so, when you think about just how much everything has changed in 20 years, it's amazing. But I think that part of what I have endeavored to do for a long time is really understand how capital markets work. And how does the electric utility make decisions on what it invests in and how does the private sector—particularly independent power producers—make their decisions, and how do credit groups view credit risk? And all of that has been shaped through some of the journey I've taken. From when you think about solar in 2003, when I first started SunEdison, it really was not viewed as low risk or an investible asset class. And today you have over a trillion dollars of capital that's been raised just to invest in the SunEdison model.
And so, when you think about how that happens and what the structural underpinnings are, it sort of looks random from the outside, but it's actually quite specific. And a lot of what we're doing here at the Loan Programs Office is figuring out how we take that formula, which a Loan Programs Office was a part of for utility scale, solar, and wind. And of course, Tesla's loan for EV manufacturing and then Nissan's loan for battery manufacturing and how you actually move the next set of 20 sectors from hydrogen to direct air capture, to virtual power plans, to EV charging, to transmission and other areas. And how do you bring them up to the same, sort of trillion-dollar scale? And it's just a fascinating perch with how exciting the industry is today.
Making space for energy equity
Patty: And that's what really inspired me when you reached out—I think it was maybe last year, of course, we go back to your Generate Capital days—but I remember you challenging ICF after you joined the Loan Program Office. And me specifically, like, how can we accelerate this transition? How can we make equitable decarbonization happen faster? How do we tap other sources of funding, including the Loan Program Office to make this happen faster? And I remember you said something specifically about ICF and our history. And, as you know, in 1969 we started Inner City Fund, which was basically started to finance minority-owned businesses. So, I think it's great that the conversations we're having now are coming full circle, and I'm really seeing some of this structural change that you mentioned come about.
And if you think about the tension that's happening right now in the industry—I see this tension between the need to decarbonize and electrify pretty quickly. I see a need to provide greater levels of resiliency, given the extreme weather events that we're experiencing. And then I see the need to do this all way more affordably and equitably. So that's really quite a challenge. And I think that what you're doing with the Loan Program Office kind of puts you in this sweet spot of being able to address some of those challenges.
Jigar: Yeah. It's been a really interesting journey. I think that when you think about some of the things that we've been through together, whether it's the Non-Wire Alternatives work that BQDM (Brooklyn Queens Demand Management) represented for ConEd (Consolidated Edison) and that was a difficult process, right? ConEd trying to figure out how to do these kinds of contracts and the vendors trying to figure out how to serve ConEd in a way that was actionable and auditable and resilient. But then also I think all the changes that have happened in the state of California and them moving to time-based energy efficiency and not just raw energy efficiency at any time of the day and helping people understand what that looks like. I think that the concepts are ones that have been piloted for some time.
But thinking about how all of those things are fully integrated into the grid operations software still hasn't been figured out, right? I mean, I think people still prefer calling up a generation facility and saying, “Hey, can you turn on? I need more power,” as opposed to going to somebody with demand, flexibility, or flexible loads and saying, “Hey, can you shed load?” I think that whole concept is viewed more as an emergency situation phone call than it is a day-to-day phone call. And so then as you layer on FERC Order 2222, which is saying that now demand flexibility has to be paid at the exact same rate as natural gas peaker plants. I think there's a lot of people’s priors that are being questioned right now. And people are trying to figure out how to maintain the resiliency and reliability that we've come to expect for decades from our electric utility industry within this new framework.
Patty: Yeah. So, absolutely. It's funny, you mentioned non-wires alternatives, because that has become in a way a stepping stone to thinking differently about how customer-side resources can be used to enable this transition and to decarbonize. When you think about the cost of some of these clean energy technologies and the challenges associated with getting customer-side assets out more quickly, it's really a first-cost barrier that customers are dealing with. We're seeing an interest from utilities in getting more heat pump water heaters out there. There's an interest in doing more make-ready infrastructure for EV charging.
And there's even an interest in make-ready for solar and batteries for resiliency, but the assets are expensive for most people. So, this idea of leveraging third-party capital, I think, with more entities is becoming more, in vogue as utilities realize they can't do it alone. They need to have a structured way of enabling these partnerships and these associated DER (Distributed Energy Resources) resources to achieve our clean energy goals. Can you talk a little bit about how you think that capital, including the third-party capital and loan guarantees that DOE is offering, can enable this transition?
Expanding possibility with transactive and bidirectional grids
Jigar: Yeah, it's a great question. And it's one that I think is really confusing from an architecture standpoint, right? I think that part of the reason the utilities view everything as so expensive is because they view electrons from having to come from a central place through transmission, through distribution. So, everything is really one-directional. The whole concept of a bidirectional grid or a grid that is transactive is really something that I think people have read papers on but have a really hard time wrapping their brain around. And so, I'll give you a couple of examples. One is, so for instance, we do pay batteries to be on the grid today, right? So, people will put very large battery setups in place, but they're still expected to go through the transmission grid and then the distribution grid. But you can imagine that almost all electric vehicle charging stations in the country run at less than 15% of the time, right?
So, you could put the same big battery at that center with eight supercharges—and they're averaging 50 kilowatts to 350 kilowatts of load—and put in a battery there and continuously charge that battery at 200 kilowatts all the time, 24 hours a day. And then when it fills up, people charge, and they get the 350 kilowatts worth of charging and then the battery starts filling up again. And then that battery can still be used to provide a lot of the grid resources that people are willing to pay them. But because that battery is placed behind the meter and not in a central location, even though it's the exact same Tesla mega pack, people are saying, "Wait, we can't pay you for that service. We only pay people who are in the middle of nowhere—that service."
Right. And so, when you think about that, and then I'll give you another example on batteries. So, the president has a goal of 50% of all vehicles being sold by 2030 being EVS. To do that, we need roughly 800-gigawatt hours of battery capacity—that requires manufacturing capacity here in this country. And that's how many batteries will be in those roughly eight million cars, let's say in 2030. So that's an annual number, 800-gigawatt hours of batteries, right? One-hundred-and-twenty-five-kilowatt hours in a Ford F-150 Lightning and 66-kilowatt hours in a Hyundai Ioniq. But when you think about what we're expecting to have on-the-grid cumulative by 2030, it's only 150-gigawatt hours cumulative.
So, I mean, could you imagine your entire architecture is built to pay the 150-gigawatt hours, but you have no idea on what to do with 800-gigawatt hours that in one year will be added to the grid in 2030 and what the standards are bidirectional charging, how to pay those people, vehicle to home integration, how you might load level a neighborhood distribution circuit with those batteries? I mean, all of that, right? V1G, V2G, and it's just a change in mindset.
Patty: Yeah. It really is. And the other thing that you mentioned—FERC 2222—and I keep thinking about, this whole idea of aggregation, because clearly what you just described is going to need to be coordinated and orchestrated, particularly when you think about utility-scale assets being dispatched to deployed relative to say customer-sided assets. So, there's a whole orchestration that needs to happen. And a lot of that orchestration's going to have to happen in seconds, right? Not hours, not through time of use rates.
But it's going to have to happen quickly. And so, there's this discussion around, who is the aggregator and how does that functionality actually occur? When FERC 2222 first came out, we were talking with some of the folks who authored it and they basically said, “Look, we don't care who the aggregator is. It could be the utility; it could be a third party.” So, it's really all about, who is best positioned to provide that value to customers. And how do we do it most affordably? And again, I go back to this idea of funding outside, using outside funding sources to make some of these transitions happen is going to be really key to the transition.
Improving service and affordability by rethinking asset ownership
Jigar: Yeah. I mean, it can go many different ways as you suggest. I think that the problem with the utilities leading the charge is that they're not sure whether they want to own those assets, right? I mean, that's the real challenge. I'll give you an example. We have said for years that the way to solve the net metering problem is for the electric utilities to own all the inverters. Why wouldn't you own the inverters? Since the 1980s, we have known that inverters can provide Volt-VAR support, frequency regulation—all sorts of services. Remember Petra Solar was doing that with PSE&G in New Jersey? HICO and HEI have done that to great success in Hawaii, but the utility companies are really afraid of having to provide that service. I mean, once you get approved to rate-based all the inverters, well then clearly the public service commission's going to require you to use those inverters to provide that service.
Jigar: Right. And they're saying, “Well, I don't know if I want to provide that service—that's not comfortable for us.” But the same thing's true with bidirectional chargers. I don't know why people privately own them. The utilities should own all the bidirectional chargers. And everyone's like, “Well, but if you use rate tariffs and we nudge people, that's not going to work.” Let's be honest, right? What you want is for the utilities or the aggregator to just own the bidirectional chargers and shut them off when you can't sustain it or shut them off in sequence. So not all 20 cars are shut off, but you can't have 20 cars charging at the same time in the same circuit. And so, they sort of—either they take everyone's draw down to three kilowatts or they just have the ones that have the lowest date of charge get the full 11 kilowatts worth of draw.
And then the ones that are close to fully charged go down to one kilowatt. There's lots of ways to do this. And the technology is being provided. You have Wallbox that recently provided a big announcement of manufacturing in Texas and others. And so, I think it's there, but I think that the utilities really worry that if they own assets in the customer's premises, then they'll be regulated as such and they'll have to take full responsibility for a lot of things. And so most utilities are choosing to let third parties do the aggregation and for them to just have a service level agreement with those third parties.
Patty: Right. Yep, yep. Yeah, no, it's crossing the chasm moment for sure. And, in California, I don't know if you've been tracking that Clean Energy Financing proceeding, which is really intended to get at this issue. And I know you're talking with some of the IOUs in California about leveraging Loan Program dollars for this, but this idea that a customer or a third party could own a behind a meter asset, but that asset could be capitalized by the utility. And the savings from that asset could be used to basically inform a tariff where the asset is paid back over time on the utilities’ customer bill, and that's kind of a financial jujitsu. It's nothing new. It's kind of like what you sort of did originally with SunEdison. It's energy as a service, but through a utility. So, that may be kind of a workaround way to a utility actually not physically owning the asset but having visibility to it and enabling the financing of it to accomplish a similar outcome.
Mitigating cost shifts through programs and partnerships
Jigar: Yeah. I think that's right. And it also goes to your first question about this is really expensive, right? I mean, part of this is expanding the definition of this. I mean, right now this is rate-based investments by utilities, but we know that American families buy billions of dollars of backup generators that are outside of the system. Why would they pay that money, if the system was providing all the services? Would they pay the system for those services and the extra payments required there if offered those services? But the same thing's true with appliances and household appliances. I mean today, heat pump, water heaters, and thermostats and refrigerators are all versions of thermal storage. Right? And so, the question becomes, I mean, do you want to pay for Tesla mega packs, or do you want to pay 90% less money for thermal storage?
And allowing people's refrigerators and water heaters and HVAC units, depending on how energy efficient their home is, to serve the same service. And what would you pay them for that service? And the other thing that I think we all recognize but are having a hard time articulating is that poor people today pay 30% interest for those services. Because when something breaks, they're very concerned of $75 worth of food in their refrigerator going bad. So, they go out and buy the fresh refrigerator they can get. It's usually $200 more expensive than they have any right of paying and it's at 12% interest. When you combine those two together, that's 30% interest. So why wouldn't you want to use a utility on-bill financing mechanism or an unsecured loan?
From the solar financial technology platforms to intervene at that moment and say, “No, we'll get you the cheapest refrigerator at a very good price that's very energy-efficient and we'll stick it in there. And instead of financing it over only two years, we'll finance it over 10 years to lower the payments even more, and well, we'll pay you extra if you subscribe it into a DER or DERMS platform.” But this is all consumer money that would be brought into the system to reduce the cost of electricity for everybody.
Patty: That's right. I love that vision. And, when you and I first started talking about this a while back, we've gone around and around on public purpose programs and the cost shift that they create. And I know we share a common view around that, but I really like this idea of outside capital to fund some of these programs, because it really does need to be off the backs of customers. And that cost shift that we've talked about needs to be mitigated, and the idea of using third-party capital to do things that would benefit all customers I think is really where we need to go.
I know it's potentially difficult to do, but in California they're thinking about leveraging a certain amount of utility equity with outside debt capital. So that blended cost of capital to a customer is far, far lower than it would've been otherwise. And that's the money that's used to sort of fund some of those investments. So, I'm happy to hear that a lot of these things are being seriously considered and operationalized in California to start with.
Jigar: Yeah, no, I think that's absolutely right. I mean, and the better part of it is that on-bill financing for people that are sub-670 FICO score has one-fifth the level of defaults as unsecured financing does. Unsecured financing has roughly 15% risk of default and on-bill financing is down to 3%. So as a result, you can provide much lower interest rates because you have less anticipated defaults. But I think the one other thing I'd say, just to reinforce the previous point is that, when you have a diesel generator or natural gas in your backyard, you could imagine the utility not wanting to run that diesel generator or natural gas generator regularly, particularly with air quality standards. And, frankly, just the cost, right? The cost of the natural gas feeding that natural gas generator is retail.
And so, it's not really that cost-effective, but when you have a Ford F-150 Lightning, and it has 125-kilowatt hour pack that can run your house for seven to 14 days—depending on whether you have it wired for only emergency loads or for all loads. And so, when you think about just the sheer size of that battery and the sheer size of the relative size of it to your home's load, and for many people, they feature two pickup trucks in their family. And so now you've got 250-kilowatt hours’ worth of battery there. I just think that we are just not comprehending how large a shift is coming just through people's vehicle batteries.
Patty: I completely agree. And you think about, we have this definition of the grid that I think is, well, it's a little old school. And I think if you think about how distributed it's going to become and how customers are going to be partners in that co-creation…and it's a whole new way of thinking about how the grid could be managed and how customers are part of that co-creation, which I think is pretty exciting. That the key will be figuring out how to do it equitably and it needs to happen faster, is the challenge. Does David have a question?
Big-picture energy efficiency tackles systems, not just individual projects
David: I do have a question. And I want to take it a little back from the forward-thinking and more towards just straight old energy efficiency. And so, I know one of the potential uses of the Title 17 funding through LPO is for energy efficiency projects. I don't believe there have been any approved projects yet. I don't know if any have been submitted, but Jigar, I'm kind of curious, what would you like to see from utilities submitted to you? What kind of projects, what kind of energy efficiency projects would really get you excited to come across your desk?
Jigar: No, it's a great question. And I think it goes to the same conversation we've been having, which is around looking at the entire system as opposed to these individual programs. The federal government just put out, I think, 3.2 billion of weatherization money through the state energy offices, which was something that was done under the Obama administration under ARRA (American Recovery and Reinvestment Act) stimulus as well—the sort of plus-up of money. But when you think about how many homes qualify for weatherization, I think the entire Obama administration program was about a million homes that were done under that plus-up of money. And the average DOE budget does about 35,000 homes per year, maybe.
Jigar: But the total number of homes that qualify for energy efficiency weatherization money is something on the order of like 15 to 20 million homes in this country.
It's not a small number. We're not on track to weatherizing all those homes, right? On top of that, we have Low Income Home Energy Assistance Programs (LIHEAP) that we provide. You separately have the electric utilities writing off a certain amount of the collections that they have for people who don't pay their bills. So, when you take all of that money together as a system, and you think through what could you do with energy efficiency, if you thought about it in a systemic way across the entire utility territory? I think that the level of cost reduction and the level of integration into reduced CapEx for distribution circuit upgrades is pretty profound.
And so, you're basically saying instead of spending a billion dollars to upgrade this distribution substation or this distribution line, why don't we spend that same billion dollars in coordination with LIHEAP and in coordination with weatherization and with utility on-bill financing mechanisms to actually reduce all of this energy consumption in people's homes to reduce their energy burden. But I think when you think about the way in which the utility monopoly license is created and shareholder reimbursement is calculated, et cetera, I just don't think people think about it.
David: The opportunity to braid those different funding streams along with monetizing the benefits that come along with it. And as you said, financing it—it really is a true win-win-win scenario. And it would be exciting to see some projects, I think, that could accomplish that.
Jigar: Yeah. Even if you did it on one product, right? Think about certain communities where you literally just have a million room air conditioners, window room air conditioners. And we have a number of grants that we've given out of the Department of Energy for innovation in that space. So now you've got products coming out where you can turn those into heat pumps. And so, if the utility just said, “We're giving you guys all of these heat pumps and we're going to control them,” and that kind of thing. I mean, I just think that it would just be shocking how much lower people's energy bills would be and how much more grid flexibility the utilities would own.
Jigar: And it would, I think, just send shock waves around how many additional tools the grid operators would have to handle all of the complexity that Patty was talking about that's due to weather weirdness and climate change.
Patty: And I think that's, getting back to that structural change, Jigar. I feel like that point that you just described is one of the sticky points because I feel like there's an opportunity for efficient infrastructure spending. And then basically looking at, how do these assets perform on the grid and how can grid operators actually trust those assets are going to show up? What are the market signals or commercial terms that are needed to actually engage those assets in a way that will keep the lights on? Because, as the operator and the load-serving entity, that's ultimately what they've got to do. So, it's that combination. I'm envisioning a Venn diagram where there's common interest between both sides—that the assets are engaged and they're being used, but the grid operator can see them and have visibility to them, and trust that they'll show up. We're going to have to turn that corner sooner than later.
Joan: I love it. I just keep hearing focus and scale, scale, scale. That seems to be a very, very prominent theme in the discussion. And I can't believe it, but we are already getting close to wrapping things up. So, this is when I always like to ask, and I'm going to tee it up to both of you. If you could change one thing in the industry, no limits, what would you change?
Energy empowerment and the importance of elevating local voices
Jigar: Honestly, I've been in this industry for a very long time. And the thing that I want to change the most is to elevate local voices. I think that when you think about our country, we have 19,500 cities and towns in this country, only 1,800 of them have populations above 35,000—2000 of them actually own their own utility or have utility control. And when you think about how little progress has been made on energy burden and empowerment through those entities with all of that local nexus. I mean, it really does seem like we have not really allowed local voices to really have a very prominent role in this conversation.
And I do think it matters because we have huge amounts of money. Loan Programs Office has 43 billion-plus dollars, trillions of dollars have been announced by JP Morgan and Goldman and lots of other people. And we have a huge amount of technology. But I think that when you think about the quote that I saw the other day from Derek Thompson in The Atlantic was, invention is easily overrated, and implementation is often underrated. It's just something that we have got to figure out how to do better.
Patty: Yep. I like that quote, and my big thing is sort of similar. It's related to the need to partner more – including utilities and local communities and DER providers. I think there's a huge opportunity to partner more, to achieve more. That would be my one big thing is, how do we get more alignment between some of the interests? I think there's a lot more mutual interests out there than people realize and trying to operationalize the policy goals that utilities and communities have all agreed to. We see a lot of top-down policy goals on decarbonization by 2040, 2050. But to Jigar's point, those goals aren't being operationalized in real life, in a time-bound way. And I think that's the opportunity to really partner and bring everybody into that tent and agree that look, we've got a lot of work to do. We all need to work together and pull on every single resource we have available to us to make that happen.
Joan: Really great. Thank you both. This just takes me back to what I always say is, that we are all energy users. Like we talk about this as if it's some abstract thing, but in our everyday lives, we're all just the same. We're just using energy like everybody else and trying to do it in a way that leads to a clean energy future. So, anyway, thank you so much. This has been just a fascinating, wonderful discussion, especially between the two of you. Really appreciate it.
Patty: Yep. Thank you, Joan. Thank you, David and Jigar, thank you so much. It's always a pleasure to hear your insight and I'm always inspired.
Jigar: Well, I just, honestly, the groundbreaking work you've done since the Inner City Funds and the ENERGY STAR program and all the things that all of you have pioneered has gotten us here and we have a lot more work to do, so really appreciate your partnership.
Patty: Thank you. We do too.
Joan: Thank you again. And we really hate to wrap it up, but for the rest of you listening, if you've enjoyed listening to today's podcast, Energy in 30, don't worry, there's more. You can look to August for our next episode, where we'll be talking to the founders of Kambo Energy Group, Yasmine and Karim, regarding a holistic approach of addressing climate, weatherization, and capacity needs through housing programs in tribal nations.
David: I'm really looking forward to that one, Joan. And I have to say I'm really thrilled to hear a lot of the optimism that we keep hearing from our guests. And I'm excited to hear more as we keep having these awesome conversations with experts in our field.
Joan: I couldn't agree more, David. Thanks all. And don't forget to subscribe, share, rate the show and review our podcast. We really appreciate you doing that. And here's to our next Energy in 30.