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"We pay $10 billion per year for balancing the grid using natural gas, peaker plants, etc. when we could be paying that to households for those services instead."
-Jigar Shah
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Episode 137 is a conversation with one of my climate heroes, Jigar Shah. I read Jigar's book "Creating Climate Wealth" when I was 23 and it set me down the path I'm on today. So inspirational.
Jigar was most recently co-founder and President at Generate Capital, where he focused on helping entrepreneurs accelerate decarbonization solutions through the use of low-cost infrastructure-as-a-service financing. Prior to Generate Capital, Shah founded SunEdison, a company that pioneered “pay as you save” solar financing. After SunEdison, Shah served as the founding CEO of the Carbon War Room, a global non-profit founded by Sir Richard Branson and Virgin Unite to help entrepreneurs address climate change. A lot of us have listened to Jigar over the years on The Energy Gang podcast, which I’ve also learned so much from.
Jigar is now leading the DOE's Loan Programs Office and he's here to talk about loaning out money for deploying building technologies.
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Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
[00:00:00] James Dice: This is a conversation with one of my climate heroes. I'm gonna put 'em on the spot here with that, uh, it's probably a lot of people's climate heroes. Jigar Shaw. I read Jigars book, uh, creating Climate Wealth when I was 23, and I was just telling him before we hit record.
It kind of set me down on the path that led me to Nexus and what it is today. So thank you.
[00:01:32] James Dice: All right. Welcome to the Nexus Podcast. Jigar was most recently co-founder and president at Generate Capital, where he focused on helping entrepreneurs accelerate decarbonization solutions through the use of low cost infrastructure as a service financing.
And then prior to that, he founded Sun Edison, uh, a company that pioneered the pay as you save solar financing after Sun Edison. Jigar served as the founding CEO of the Carbon War Room, a global nonprofit founded by [00:02:00] Sir Richard Branson to help, um, entrepreneurs address climate change. And a lot of us have listened to Jigar for years, uh, on the Energy Gang Podcast, uh, which we've also learned a ton from him on there.
He is now leading the DOE'S Loan Programs Office, and he's here on the podcast today to talk about loaning out money to all of you people that are listening to this. For deploying building technologies.
So Jigar, I know we have, uh, less than an hour for this, so we're not gonna go deep as we normally do into a lot of stuff, and I don't wanna waste any time.
But I have a sort of relevant icebreaker, which is , which is how smart and decarbonized is your home.
[00:02:39] Jigar Shah: uh, my home is, um, somewhat smart, uh, you know, smart thermostat, smart ev. Uh, smart. I have a solar plus battery storage system. Um, I'm building, um, a new house and that one's gonna be very [00:03:00] smart, so it's gonna have like all the features in it, et cetera. I have to say, like putting all the smart stuff in as a retrofit, I find to be hard to do compared to new construction.
[00:03:12] James Dice: Totally. Yeah. It's one of the things we talk a lot about on this show for sure, as you can imagine. Yep. Yep. Um, but I bet, I bet if we pulled this entire audience, you'd have, you'd have one of the greenest homes, if not the greenest home probably.
[00:03:26] Jigar Shah: Yeah, no, it's, um, and it comes in handy. We had, uh, that polar vortex where it got to like six degrees or whatever, and, uh, the house stayed pretty warm throughout without, uh, the heat pump having to work that hard just cuz it's, it's well insulated and all that stuff.
[00:03:44] James Dice: Totally. What are you doing for your new home? Just real quick.
[00:03:47] Jigar Shah: uh, well, we're looking at like the, sort of the Lutron system with like, I think Corbin Systems is like, you know, sort of smart panel. And then, um, then there's like smart EV chargers as [00:04:00] well. Like the, like the goal is to be able to take it off grid and for it to like, um, move the electrons, you know, to where it needs to go in an off grid fashion.
[00:04:11] James Dice: Totally
[00:04:12] Jigar Shah: We're
[00:04:13] James Dice: exciting. Exciting. All right, let's jump in. So I have a, a couple questions from the audience. So if I shout out to someone that you've never heard of, it's because I've, I've solicited questions from the audience for Jigar. So this one's from Corey Mosman. So shout out to Corey. Thank you, Corey. He said, um, with Sun Edison you changed the game.
Not with new technology, but with business and financial model innovation. Are you still of the opinion that business model innovation is one of the keys to unlocking decarbonization at scale?
[00:04:42] Jigar Shah: Yeah, I mean, look, I mean, when you're a hammer, everything looks like a nail, so. Sure. I mean, but like, I mean, look, I think that um, and the loan program's office actually has like sort. Unique role to play within that ecosystem too, right? I mean, when I started Sun Edison, [00:05:00] um, there was no loan programs office that was willing to provide debt first.
Right? Um, and you know, a lot of folks thought that solar PPAs were, were super risky. Um, but I would say that, you know, today I'd, I'd sort of broadened it a little bit to. Ultimately we have the greatest innovation engine, um, on the planet in the Department of Energy here, uh, in the United States right over the last 45 years.
What we need is to figure out a way to get this technology into the hands of consumers and business. You know, model innovation is my expertise, but there's certainly other people that bring expertise to the table too. But we just gotta move past that 1% early adopter, uh, phase, and really get into the mass.
[00:05:43] James Dice: Totally. Yeah. And we'll talk about how you guys are doing that in just a second. Um, another question we had from the audience is, um, this phrase that I think a lot of people associate with you, with you, which is deploy, deploy, deploy. Can you sort of explain to our audience what, why you've sort of [00:06:00] been shouting that from the rooftops and what that means?
[00:06:03] Jigar Shah: Well, I mean, I think the secretary is the one who started it, so I'm happy
[00:06:07] James Dice: can't take credit.
[00:06:08] Jigar Shah: her credit for it. But I look, I think that ultimately, . We really believe in innovation here at the Department of Energy, and we still believe in innovation, but I think there's a lot of people who got away with saying the technologies that we have today aren't worth deploying at scale.
We have to keep innovating first before we deploy, and that's just patently false. Like we have an extraordinary suite of technologies that need to depl be deployed right now, and deployment leads to more in. Because you learn so much from the deployment that it leads to more innovation and it creates that beneficial cycle, which is the learning curve, which we all know has reduced the cost of wind and solar and lithium and batteries and EVs.
And so I, I just think we're in a, in a place right now where we have to be deployment forward, um, uh, to compliment the innovation that we're already good at.
[00:06:58] James Dice: Yeah, I was listening to you on [00:07:00] the carbon copy with, with Steven and Catherine lately. It was kind of like a, a throwback to the, the energy gang. That episode. Um, you talked about moving to the, how. Can you talk about what you meant by that?
[00:07:12] Jigar Shah: Yeah, I think that there's a lot of people who, um, are comfortable with the what, right? We need to electrify everything. We need to move to more electric vehicles. We need to move to more heat pumps, right? We need to move, um, to smarter buildings. We've gotta like, you know, allow the. , you know, the independent.
System operators to pay for virtual power plants, right? So under third quarter. 22. 22. So you've got a lot of this, what stuff? And then the question becomes how do you do it? Like do you use aggregators? Like do you use homeowner associations? Do you use, like how exactly do you do that? And then where does the trust come from?
Like do you trust your home association? Like they say nasty things about you on Nextdoor. Like, do you go like an aggregator? Like how do you actually figure [00:08:00] this out? Like how do you make sure you treat people with respect so that if they don't want that level of sacrifice in their home on demand flexibility, that they're able to opt out of the system, but then they wanna be opted back in cuz they don't wanna like lose out on the dollars during those emergency events.
Right. And so I think when you think about, and the same things too with like nuclear, like everyone's, you know, really into nuclear. I'm in a nuclear, it's great, but like how do you actually build up a nuclear. Everyone's like, well, we know it's the answer. I'm like, okay, fine. Let's all assume that it's the answer.
Now we gotta build a nuclear plant who rate bases what, like what supply chain provider does this, right? And I think that that's where things get messy and that's where there's actually a lot of missing holes in the strategy. And so we gotta start identifying the missing holes and then finding the people that are smart enough.
[00:08:48] James Dice: Absolutely. Yeah. And, and I had, so a couple weeks on the go, on the podcast I had, um, The Institute for Market Transformation and he, and we really talked about, okay, these are all the places [00:09:00] there where someone from a third party must intervene in how the market is currently acting to transform how things are done.
So is that kind of, can you talk about why you sort of joined, you decided I'm gonna go from this illustrious career and join the loan program's office. Sort of why, why'd you take the job?
[00:09:17] Jigar Shah: Well, I, I've always had the luxury of being able to, um, you know, think about these things in a holistic way, right? And, um, you know, my experience at Sun Edison was, um, one where, you know, people just said, solar's too risky. Power purchase agreements are not bank. Never gonna happen. Right? . And you know, when you think about that experience, um, it led me on a pathway to figuring out, you know, how does one solve these big problems?
Right? So I joined the Carbon War room and, you know, figured out a way to get entrepreneurs around the world involved in climate change because we realized they're the change makers, right? That really wanted to change the status quo. And then, you know, we started to generate [00:10:00] capital because, you know, there was no natural place for me to go to when I was at Sun.
And so the question is like, for the people who are doing batteries as a service, or now Anor digesters as a service, or you know, buildings as a service or whatever it is, there was no natural place to go to get equity. Everybody just wanted to give you a venture capital, right? And so, so when they offered me this job at the loan programs office, I was like, huh, that wasn't on the plan.
And, but then, you know, you think about. There's all these people who have raised hundreds of millions of dollars of corporate equity, and now they need to build their first of a kind facility that's 2 billion. Where do you go for debt? On a 2000000001st of a kind facility. And the loan program's office, as the secretary suggested in her, um, confirmation hearing has been dormant.
And so even though you had a loan program's office, which at the time had 40 billion of loan authority, nobody thought that it was functioning. Right. And so, you know, after I got asked to [00:11:00] serve, you know when you're, when the President and Secretary of Energy like ask you to serve Yeah. It's hard to say no.
[00:11:05] James Dice: Mm-hmm. . Absolutely. So can you just give people an overview of how the, the o the office works, what goals are you guys trying to, and this is obviously all public information, so we can just do a quick context setting. But for people that are listening to this that don't really know what you guys are doing, can you just give an overview of, of how, how this process.
[00:11:24] Jigar Shah: Sure. So the loan program's office, um, you know, basically provides senior debt to projects, right? So we're not, um, providing equity. Um, so we provide money where the commercial banks won't. Bother. Right? And so we're not necessarily taking risk, um, from an, from a technology standpoint, right? Cuz we've got 10,000 engineers, scientists and experts that can evaluate whether the technology itself will work.
But we're taking, um, execution risk. We're taking, you know, um, management risk, right? A lot of those other [00:12:00] more typical risks. And so we. Have a couple of different programs. We have the 1703 program, which is the innovative Clean Energy Program, and then we have the Advanced Technology Vehicle Manufacturing Program, right?
So 1703 is where we funded, um, the Solar and Wind Projects transmission, geothermal, uh, the Vog nuclear plant, right? , the Atvm Pro, uh, program is where we funded, uh, Ford, Nissan, Tesla, and some of those kinds of things, right? And so as we move forward into the, um, next phase of lpo, we have a couple of new programs, right?
So the 1706 program lets us help refurbish, repurpose, replace existing energy infrastructure, both in power and in petro.
[00:12:40] James Dice: Okay.
[00:12:41] Jigar Shah: And then we have the tribal energy loan program, which has been, you know, started in 2017 and scaled up under ira. And then we have the CO2 transportation pipeline to take CO2 and buried underground.
I'd say, you know, in this latest phase of loan programs office, we have to take more, um, perceived risk. [00:13:00] So in the first. Um, the loan programs office was largely a liquidity function, right? You had market seizes up and so a lot of standard 20 year PPA projects asked for loans from loan programs office.
Today a lot of our projects have merchant offtake agreements, right? So, uh, like if you look at sustainable aviation fuel, oftentimes you have a fixed volume of purchase, but the price fluctuates based on all prices. , that kind of stuff. Same with like critical minerals, like we know how much critical minerals is coming out and people are willing to buy those, but they want the price to fluctuate with whatever the market price is of lithium or cobalt or, or graphite.
Um, and so we're, we're having to take different risks and there's ways that we have to structure the deal to be able to meet what we call the reasonable prospect of repayment. , um, which means that we're more likely to get paid back than not. Um, and we've been able to bring in some really attract, uh, great people, right?
So we started with about a hundred, uh, awesome staff when I got here. And we were able to add another a hundred or so people, [00:14:00] um, to the loan programs office, many of whom came straight from the private sector. And so, uh, we're now staffed up. We're ready to go. Um, people put in. An loan application in their Part one application.
We tell them if they qualify for the statutory requirements, if they meet the innovation in greenhouse gas risk requirements. If they do, they drop hundreds of files into a data room, and then we do due diligence on their loan and then give them a conditional commitment.
[00:14:27] James Dice: Cool, cool. And, and if you think about, you know, there's a bunch of different frameworks for the technology adoption life cycle. Um, where do you guys sort of get involved or where are these loans sort of targeted in that life cycle?
[00:14:42] Jigar Shah: Yeah, in general, um, innovation is, you know, a real standard, right? It's gotta be technology innovation, not business model innovation. And, um, but what you find is, is that people are doing things differently all the time. Right, and so there's a lot of deployments of first of a kind [00:15:00] technology, so it doesn't have to be, you know, the.
Uh, you know, brand new, uh, fusion , nuclear fusion technology, right? It can be an incremental improvement over something else that it's replacing, right? And so when you look at a lot of the hydrogen electrolyzer projects that we looked at for like the Delta ACEs project that we did, um, you know, those are next generation electrolyzers.
Electrolyzers have been around since the 1950s, but this is the next generation far more efficient, you know, better materials being used, et cetera. When you look at like, some of the other projects that we funded, like the monolith materials, conditional commitment, you know, that methane pyrolysis approach has been around for 25 years, but they basically have figured out a way to do it better, better quality results, um, and, you know, a lot of incremental improvement as a result, right?
So, so, you know, the, the Loan Programs office, um, does want real innovation, but the bar is far more accessible, I think, than people, uh, otherwise think.[00:16:00]
[00:16:00] James Dice: Got it. Got it. Okay. Um, I know I heard you talk on, on a couple different places recently around you personally going out and engaging people in different industries and saying, Why aren't you applying for my money? Right. At least, at least I'm paraphrasing what, what you were saying, but how do you think about real estate specifically and um, you know, in the context of all these different industries, how do you think about real estate owners and getting them to use these loans to, to decarbonize their buildings?
[00:16:32] Jigar Shah: Yeah, it's a great question. I mean, we, um, there's some sectors that are obvious, right? So we do a lot of work in nuclear carbon management, carbon, uh, you know, hydrogen, um, transmission, you know, some of these other areas.
[00:16:44] James Dice: Mm-hmm.
[00:16:45] Jigar Shah: there's some areas that are less obvious, like, you know, virtual power plants or um, ev charging networks or some of that
[00:16:53] James Dice: Mm-hmm.
[00:16:53] Jigar Shah: And so we've talked to a lot of asset managers. Um, you know, they come into loan programs [00:17:00] office, they own, you know, billions of square feet of real estate. You know, they wanna like figure out what to do. And, you know, we talked to them, they're like, well, you know, we have this nav and we just don't wanna like actually mess that up by.
Extra capital into energy efficiency. We want to, but we don't wanna sign a contract with a third party and let them make money off of us. So we'd rather create our own fund and then have that fund actually invest in energy efficiency in our own buildings. And so, you know, what we said to people is we've said, look, you know, like get off the dime, right?
Like, like, I get it, you're being very intellectual about this, but like, get to a conclusion, get to the point, like, what are you gonna do to. , figure this out. Right. And then Ukraine hit and you know, energy prices went up, right? Cuz natural gas prices, uh, spiked. You know, they've come down recently or, uh, electricity, wholesale market prices went up and then came down recently.
But a lot of building owners are like, oh crap, maybe we should take these 20 years of, um, You know, [00:18:00] proposals that we've received and actually do something finally, right? Because the payback is no longer six years, now it's four years because you know where energy costs went. And so, um, so I think we've been very helpful in thinking this stuff through with them and saying, look, it doesn't really matter whether you left right up or down, but you can't do nothing.
You can't not do it right. And I'd say that, We haven't succeeded yet. I'd say we're on month 19 and some of these conversations with the largest real estate owners in the United States. Um, but we are seeing a sense of them realizing that they're now. Becoming laggards, right? That these empty promises that they've made at COP or other places about how they're gonna reduce carbon emissions or other things, but if they actually have to act upon it at some point, , they can't just sit there and keep making empty promises.
And so, so I think we sit here and we try to help them think through their, um, the way that they wanna solve it. And now that we've helped [00:19:00] facilitate this conversation with probably 20 asset managers, I'd. as well as corresponding entrepreneurs. Um, I'd say that we actually know that there's a path forward where they can use our money and get there, but they still have to chart that out for us, right?
We can't want it more than they do.
[00:19:17] James Dice: So what, what is that chart? That was gonna be my next question here is. What we do a lot on this podcast is sort of unpack that framework that sort of any real estate organization or any building owner organization can follow, right? I need to collect all my utility information. I need to benchmark.
I need to create a roadmap for all the retrofits that need to happen in my building. I need to install technology, blah, blah, blah. , where do you guys propose that these loans sort of come in? Um, and, and how, and what is that roadmap that you guys have said, okay, here's how you use us. Here's how you decarbonize.
Can you talk a bit more about that?
[00:19:54] Jigar Shah: Well, so our, our roadmaps are not absolute, and from the perspective of what does the country need, [00:20:00] our roadmap is tailored to what that asset manager needs or that entrepreneur needs. Right? Every one of our loans is sort of specific, but I'll give you an example. Like, one of company came to us and said, look, we really, um, you know, are ready to go.
Um, but. The real estate investment trust that we're talking to just refuses to guarantee the paper at the, the whole coal level. They really want to sign the contracts at the Bankruptable LLC level, right? Because they're already taking vacancy risks. They don't want to double down on vacancy risk by having to pay a payment back to us when they're building those empty, right?
And so I said, well, we're happy to take vacancy rest. They're like, what? You're the only group I've ever heard of say that. I was like, yeah, look. We can take vacancy risk. Now we have to like hire a CMBS provider and actually, you know, like a commercial mortgage backed security advisor and say, well, what is the likely.
Vacancy rate that we'll have across this portfolio. And then we build that [00:21:00] vacancy rate into the spreadsheet model. Um, and then we, you know, say, well, instead of charging a hundred dollars, you're gonna have to charge $107 because we're gonna have to put the other $7 into a reserve account so that like, if there's more vacancy, that we can pull the reserve account so we, we can figure out solutions to the problem as long as they actually know what the problem is that's holding them back from getting their contract signed.
Right. . And so like, so I do think that there are solutions to every one of these problems, but I think the challenge is honestly that, um, for the vast majority of asset owners that we've talked to, they've said that they are, they are greatly disappointed at the ability for people to be turnkey, right?
They wanna just turn their entire real estate portfolio over to somebody and say, just. Right, and have the balance sheet to back it up. So we don't want it to be a startup company. We want it to be somebody owned by a billion dollar balance sheet that can actually, you know, make [00:22:00] representations and guarantees on the quality of the performance and all that stuff, right?
And so, um, and frankly, those companies are few and far between. There aren't a lot of folks you can just hand the keys off to that have, you know, all of the pedigree that you want, as well as cybersecurity experience, as well as all the other pieces. Um, are willing to do it in a systematic Turkey way.
There are some for sure, but not a lot. And so I think that that also is a big missing.
[00:22:26] James Dice: Yeah, absolutely. The, the, you know, the career path I came from is in the public side, right? Um, governments, you know, municipalities, universities, and that my. Model. That ESCO model is very, you know, prevalent over on that side. But in, for a reit for, you know, a, a private organization, privately held real estate organization is a little bit less common.
And yeah, you're right, the. , the companies are out there, right? We have people that are listening to this right now saying, I can do that. Right. But yeah, just, just [00:23:00] connecting those, those dots and getting the, you know, the, the REITs to trust those organizations because it's a kind of new model. So they would basically apply for that loan.
You guys would help them put together the right terms, you're saying, and then ideally what they're saying is give. A hundred million dollars and I'm gonna go out and do retrofits across my 50 buildings. Is that kind of the, the, what you're expecting the roadmap to be?
[00:23:23] Jigar Shah: Yeah, so most of them would come in and say, I have. Unified business plan where I'm using my proprietary software, hardware dispatch, you know, whatever it is, right? I've got 20 million worth of contracts already signed, and then I have letters of intent for another $300 million worth of projects where, you know, I expect 20% of that at least, or 50% of that at least to clear and over the next three years.
And so let's get started with the 20 million and then we approve you for a hundred million. loan and then the other 80 million has to look like the 20 million,[00:24:00]
right? So we can't give people blind capital. So we have to actually underwrite a specific contract, a specific business model, and then they have to, then those new projects have to match what we underwrote, right?
And so, but we can start with a smaller group of projects, fully booked and signed contract zone, and then more coming in the future. That would look exactly the.
[00:24:23] James Dice: Okay. And when you say turnkey, are you looking to write, give that loan money to someone that's going to be the turnkey implementer of all those retrofits for that real estate
[00:24:34] Jigar Shah: No, no. The person who borrows money from us has to agree to be the fiduciary,
[00:24:39] James Dice: Got it. Okay.
[00:24:40] Jigar Shah: right? So it could be that the fiduciary is just throwing out a random, you know, name like Hannah Armstrong. , right? And then Han Armstrong is partnered with these technology companies who are doing all this work and we're guaranteeing or providing debt to Han Armstrong, right?
And so like it's gotta be the fiduciary who's taking full responsibility for paying us back the [00:25:00] loan. And sometimes that's the technology provider and sometimes it's not.
[00:25:04] James Dice: Got it.
[00:25:46] James Dice: Cool. Uh, let's dive into virtual power plants. That's something that you, you smile as you smile when you hear the, that phrase, because it's a, it's a current, you're, it's all on your mind a lot lately, it seems like right [00:26:00] now. I've heard you talk about it in several different places. Um, Maybe let's just start.
We've talked about virtual power plants on this show before, but for people that haven't listened to those episodes, you said there's simply no other cost effective way besides VPPs to integrate electric vehicles and heat pumps at scale. I think that's a nice summary, but can you just talk about why that is and why VPPs are important to you?
[00:26:24] Jigar Shah: Yeah, I think, I think, look, when you think about what we did in the 1970s and eighties, the 1970s and eighties, basically very few people had air conditioning in this. . Then starting around 1980, people started installing air conditioning, like there was nobody's business, right? And then by the 1990s people had air conditioning.
You can imagine that greatly increased the load in every residential home. The way we solved that problem was by building a whole bunch of natural gas peaker plants, along with [00:27:00] increasing the transmission and distribution system to feed those folks. And as a result, electricity rates have. up by faster than inflation, right?
Um, and so we, we took our t and d infrastructure and we had an asset utilization rate of roughly 60% in the 1970s, and today we have roughly an asset utilization rate of 40%. So because the peaks are peak year and the, the troughs are lower, right, then the utilization of that infrastructure is lower cuz you have to build it for the peak, right?
and even back then we had those radio devices that would go onto people's air conditioning systems. And I know I lived in the DC at Pepco would like pay you four bucks a month to, you know, be able to shut off your air conditioner if they had an emergency situation and then use radio signals to, to, to, to talk to 'em.
So it's not like they did. They, they had a V P P back then, it was limited in scope. And also I'd say like if you look at rural electric co-ops, [00:28:00] many of them have managed people's water heaters for 30 years.
[00:28:04] James Dice: Yeah, so this isn't new.
[00:28:06] Jigar Shah: So that's not new either, right? Um, so now the question becomes we're going to, um, go into this next phase of electricity growth.
Remember, we have not grown electricity load since like 2003. So the last 20 years we've basically been. now we expect growth. And depending on who you talk to, it could be up to 1% a year. It could be a half percent a year, you know, we'll sort of see. Um, and some of that growth's gonna come from electric vehicles and heat pumps.
Some of that votes. The growth's gonna come from, uh, electrifying everything on the industrial side, et cetera. So it's a lot of growth coming. Um, . And so now we're going through the same exercise as we did for air conditioning. Do we want to increase distribution systems even more so that everybody who comes home from work or picking up their kid from school can plug in their car at the exact same time.
It charges for the one hour and 20 minutes it takes to fill up the tank, [00:29:00] and, um, and then it, the car is left plugged in for 11. , right? So you could like schedule everybody's loads for that 11 hours and make sure everyone's full. Or you could like actually use the app on their phone to figure out how much power is in their car and whether they're at, whether they're at 71% state of charge or 21% state of charge, right?
And give people a different experience based on whether state of charge is. , and so there's all these things you can do and remember, we also have like five apps on people's phones, right? Whether it's the smart building system app, right, where you have a smart panel, right? Or whether it's like a smart thermostat or a smart water heater.
People are doing smart refrigerators where they can like order food directly from their refrigerator app, right? They've got smart batteries and solar systems where their solar plus storage has an app as well. So you got all these smart apps. that allows you to turn on and off loads that does all these things, right?
And the question becomes, right, would you [00:30:00] rather pay those people for demand flexibility or do you wanna like, you know, pay to increase the cost of the, um, of the distribution system? Right? So like, and that to me, that's the challenge, right? And so like, you know, so fundamentally, um, you know, virtual power plants are aggregate.
Of distributed energy generation storage and responsive loads that are integrated with the grid for the purpose of a more efficient, clean, cost effective, and resilient energy system. Right? So that's what it is. Um, but you know, the other quick and dirty way to say it is basically, um, we pay roughly 10 billion or more per year for balance.
The grid using natural gas, peaker plants, and lots of other stuff, right? Because supply and demand have to equal each other, and we could be paying that to households for those services instead. [00:31:00] Some households want that money, or businesses for that matter.
[00:31:05] James Dice: Absolutely. Can you talk about how you think about this in terms of, this is really the first time I see, you know, and I come from what you might call the behind the meter world, right? Helping building owners on the, you know, the building side, the building system side. The V P P is really the connecting point between all the complexity happening on the grid and all the complexity happening behind the meter.
How do you think about when you guys are trying to give out money, uh, like that being this new nexus, right? Where for the first time there's communication happening between. building owner, or like you said, homeowner and this grid entity, and then now there's this V P P aggregator sitting in the middle.
How do you think about that sort of disruption happening right now?
[00:31:54] Jigar Shah: Yeah, I mean, I think that the data streams are the hardest part, right? And the, [00:32:00] the transparency of those data streams. But in some ways, right, for order 22, 22 is supposed to mandate access to those data streams, right? Like how do you integrate? Like all of the independent system operators are expected to treat VPPs.
exactly the same that they treat natural gas, peaker plants and other things, right? That's really what F quarter 2222 says. And so now you have to make sure that that data stream is available in a granular enough fashion, um, to be able to do things with it, right? And like in PJM, you have nodes. So what they said in their, you know, in their, uh, fe order 2222 rules is that you need to aggregate at least a hundred kilowatts of. per node to be able to compete in the market, right? And so, um, but that's pretty easy to do, right? I mean, when, if someone puts in a water heater, usually they fill out a warranty card, you know where that water heater sits. They have the ability to change the temperature with their app on their phones so you can actually turn, you can control when it turns out [00:33:00] and off, et cetera.
And now the question becomes like, you know, what is the amount of, um, of. That a household or a business wants to get paid for that service. Right. So it's a dial. It's not on or off. It's do you want Less disruption? More disruption? Right. Some people are gonna say, full disruption, just pay me as much money as I can and I'm happy for my thermostat to, to, you know, go from 66 degrees to 74.
Right? And others are gonna say, mm, now I'm happy to like keep it from 69 to 71, right? Or I'm happy for you to control my water heater as much as you want, but you know, I don't want my battery in my garage to ever go below 80% state of charge because it's there for back up my house. And so I don't want it to be drained for this purpose, right?
And so you have all of these like consumer [00:34:00] preferences and each person is gonna have a different set of preferences, um, and different set of things that they're optimizing for, right? But it all starts with getting a proper signal from the ISOs and from the utilities, right? Because if they can't send you a proper signal, then the software and the hardware that is controlling your, uh, you know, virtual power plant contribution doesn't actually know what to.
on a passive basis, right?
And so, yeah. Or when to do it right. So, so that that data stream, I think to me is the big missing layer and has been for a long time. And once that data stream is available, I mean, when you talk to Matt Golden over at Recurve or some of these other players, he'll tell you that like it's shocking.
Like once that data stream comes in and you back test, the regulators look at it and go, oh my God, we could have done this at a 90% cheaper cost than what we. this is crazy. We didn't know it was so cheap, but it is that [00:35:00] cheap and you're paying homeowners, um, you know, to get involved, uh, and be part of the solution.
[00:35:05] James Dice: Absolutely. A lot of buildings. So if I just like speak for our audience right now, a lot of buildings don't have access to that information right now. How do you see, you know, a building getting connected into that ISO data communication stream? Is it through one of these aggregators or is it through open?
Uh, communication methods from the utilities, is it through something else? How do you see that connection point happening?
[00:35:34] Jigar Shah: So, I mean obviously DOE doesn't have an official point of view. I mean, we're pro every option, but I'd say that in the first few years of this rolling out, which is where we are today, you're gonna wanna partner because rules are changing every three months. So you want a partner to help you through all those rule changes so that you don't have to, you know, become an expert in all that stuff.
Right. So, so I mean, I do think that a lot of folks [00:36:00] are choosing to go with aggregators or, you know, some sort of platform to help them through this process and, and they're deciding which loads, uh, they're comfortable with. Like Walmart, for instance, for years, has been fine participating in demand response programs with half of their lights.
So they wired their lights in the store where you could shut off every other. In a demand response, you know, situation, right? Others have been fine with like boilers and, you know, and, and figuring out how to like, you know, use thermal storage, right? And so I think each group is gonna have a different set of loads, and I think they're also gonna be more comfortable over time as they see what their, you know, tenants.
Comfort level is with the level of disruption or lack their own right. And so, so my sense is that's probably where this starts. And then as the market becomes a lot more stable, then you end up with folks choosing to, you know, cut out the middleman and maybe use more open source software or other things.
[00:36:58] James Dice: Totally. Yeah. [00:37:00] Can we talk about a little bit how the, like which specific technologies you're talking about, um, you guys. You know, funding right through the program. So the way I think about it is like, it seems like solar and behind the meter storage are maybe the, the easier ones, right? The more, uh, traditional ones, um, Once you get into, we've been talking about data access.
We talk a lot on this podcast about, um, just like connecting devices themselves. So you talked about the refrigerator in commercial buildings, obviously there's like the EV charger and there's all the other HVAC system connected to the internet, all that. Getting all of that connected, getting control systems in general.
So we've done research and, and see, and the DOE has done research, um, on the fact that 87% of commercial buildings under 50,000 square feet don't even have control of their HVAC systems today. So you can't connect them to A V P P unless you have that control system ability. So how do you guys think about where the money [00:38:00] needs to go?
Do you just install solar everywhere or is. We need to start connecting all these different devices as well.
[00:38:07] Jigar Shah: Well, so I can only answer the question on behalf of the loan programs office, not necessarily doe broadly. So at, so the fact that we're a loan programs office means that our Nexus are loans, right? So what you find is, is that pick a number one 15th of stuff breaks. , right? Maybe it's one 19th or whatever, right?
Of all the stuff out there breaks every year, whether it's the H V A C system or whether it's, you know, lighting or, you know, or other things. And so, so when that breaks, then you have an opportunity to put in something that's new. , right? And when you put in something that's new, you have the opportunity to pretty cost effectively, also connect, um, that new piece of equipment to some sort of, uh, you know, system that then lets you dispatch.
Um, that new appliance, [00:39:00] right? And while you're there, if they give you permission, you can actually, um, add sensors and, and, um, capabilities to some of the other existing loads that are there that might be well suited for this by putting something on it externally. Because you're not paying for the truck roll.
You're already going to the building, right. So, um, so my sense is, is that because we're a loan program's office, we're basically looking. , um, the measures that people install that are new to replace broken stuff and where they're using a loan to actually do it and not paying cash, right? And in the residential space, that turns out to be roughly 43% of everything that gets fixed every month, which is probably around five to, you know, 8 billion a.
so, you know, pretty substantial quantity. Um, and then you probably have a roughly similar number in commercial buildings, particularly the small buildings, right? And many of those small buildings, as you know, [00:40:00] their credit comes from their personal FI score. , right? They generally have to guarantee most of those loans, right?
So, so in some ways, those small business loans are actually operating exactly the same as personal loans, um, in terms of the way in which they're underwritten. So, so that's the nexus where the loan program's office comes in. And what we've found is that when you look at the data that DOE has collected over the last 20 years, the loss rates of those loans, Far lower than the loss rates on credit card receivables and healthcare receivables.
But s and p, Moody's and Kroll are largely using healthcare receivables and, and, and, uh, and credit card receivables because they're like, ah, we might as well be conservative. But in doing that, they're basically, um, inadvertently really hurting L customers, right? Because there's a lot of low, moderate income customers and, you know, low FICO customers, some of which are overlapping and some of which aren't.
Um, , you know, basically end up paying an unsubsidized interest rate right after expected [00:41:00] losses of like 12, 13% when they could be getting it at 9% if they use DOE data. Right? And so, you know, I think that's critically important because those are huge differences in interest rates. Um, and then while they're at it, now you can connect someone to a VP p and.
Revenues for participating in the V P P, which now furthers your, lowers your payment even more so that it becomes even more cost effective to go this way. So I would say that, and so we have the ability to go to s and p Moody's and Crawl and saying to them, we will guarantee these loans using federal backstop using.
Our, um, data at doe in a way that you're not comfortable with yet, but we're comfortable with. And as long as we're guaranteeing it, you should just, you know, view that guarantee as, as federal, federal, uh, government, you know, uh, you know, uh, credit rating.
[00:41:59] James Dice: [00:42:00] Got it. Got it. So if I, if I just repeat this back to you a little bit in my own words, if I'm a building owner and I have, you know, a 15 year old HVAC control system that I need to replace, I can say, Hey, I'm gonna go replace that right now. It's old, we need to replace it, but I'm also going to hook it up to a v p and provide x kw and demand flexibility. In order to do that, we need a loan on the extra cost versus like for like replacement, and that's what the application would look like.
[00:42:31] Jigar Shah: Well, it could be for the whole thing, not just the extra cost, but I would say that it, it operates a little bit differently than that, right? So a finance program would come to us and say, we want to guarantee a billion dollars of loans, right? We have 200 million. You know, lined up and, you know, sort of signed and we're signing 50 million a month of new loan, uh, volume every month.
Right? And they're going to that business owner and saying to them that, you [00:43:00] know, when your H V A C system breaks, you're used to paying 18% interest for that. We're happy to give it to you for 9.9.
[00:43:08] James Dice: Hmm.
[00:43:09] Jigar Shah: You know, and so sign this loan document when you know when your stuff breaks and you're ready to replace it, right?
And, but the only equipment that qualifies is the equipment that can be registered with a VP p, which at this point is pretty much everything.
[00:43:25] James Dice: Okay. That
[00:43:26] Jigar Shah: pretty much all new stuffed, you know, can, and you know for sure by next year everything will be, cuz everybody wants to control their stuff with an app, right?
And so, So then they put in their stuff and we say in the loan documents that you must, uh, register it with a V, VP P.
[00:43:43] James Dice: Okay.
[00:43:45] Jigar Shah: And we separately say, once you're registered with a VP P, because you can imagine some geographies have no v p, right? So you can't register anything. So we say, you know, when it becomes available, you have to register into a vpp, right?
And we separately say, [00:44:00] once you register with a VP P, you can opt yourself. . So you know, you might decide five days later, 30 days later, two years later, you no longer wanna be part of a vpp, so you opt out. So the full consumer protection is in there as well. But you know, you and I both know that like putting in V PPP functionality doesn't mean that anyone's gonna actually opt in,
[00:44:21] James Dice: Yeah.
[00:44:22] Jigar Shah: right?
So we sort of in the loan agreement say, you gotta get op, you gotta get opted in, and then you have all the rights in the world opt.
[00:44:30] James Dice: Absolutely. Very cool. All right, last question on, on how these work before we kind of wrap up here. Um, where does like infrastructure fit? Right? So, and when I say infrastructure, I'm talking about like, For example, a network in a building, right? So I'm gonna hook up my new boiler or my new heat pump to this control system.
This control system sits on network infrastructure only. If that is cyber secure, can we start to talk to the grid with that system, for example? Um, [00:45:00] is, is that sort of, you know, are, are those sorts of systems included in, in the scope of what you guys are incentivizing?
[00:45:07] Jigar Shah: Yeah, so anything that is specifically enabling to the VP P qualifies, right. So the network and the cybersecurity in and of itself doesn't qualify, but to the extent that it's part of what's required to get the building opted into this system, then it does.
[00:45:26] James Dice: Got it, got it. How about any investments that need to be made around interoperability? So it seems like that's a big obstacle here. Do you, I'm sure you see that as like this system has to talk to this system, which has to talk to the grid. You're saying any upgrades that need to happen to enable that communication or qualified as well?
[00:45:45] Jigar Shah: Yeah, I mean as, as long as it's part of the project scope, right? So like, you know, like. We also separately see that like everything that gets installed now is some version [00:46:00] of 1.0 and that you're probably gonna have over the air upgrades to your system every three to six months, and that four years from now, these systems are gonna be far more accurate and powerful than they are right now.
[00:46:12] James Dice: Cool. Cool. All right. We'd love to close down this, these episodes with ca, what we call carve outs. So, um, any books, TV shows, podcasts. I'm excited to hear what Jigar says about this, but, documentaries, movies that have had sort of a big, a big impact on you lately. A a anything come to mind.
[00:46:32] Jigar Shah: Yeah, I mean, look, I think that, um, on the podcast side. I love my friends at Odd Lots. I think they're just, um, you know, really amazing and, uh, and you know, like, just, it's fascinating to me how the whole supply chain works and how, you know, there's just a, uh, a level of interconnectedness that frankly I don't think any of us really understood until after, um, you know, the [00:47:00] Covid crisis and, and, uh, and all that stuff.
[00:47:03] James Dice: All right.
[00:47:04] Jigar Shah: From a, from a, a book perspective, you know, there's so many books and I like all of them. But, um, the one I most recently read was California Burning by Catherine Blunt on the pg e, um, you know, uh, fiasco and, and you know, and. It really was an extraordinary book and it, you know, even Patty Poppy at pg e recommended her employees read it.
Right. I just think that instead of demonizing these folks, you know, like really understanding why what happened happened and understanding how to be more helpful I think is, you know, fantastic. Um. Uh, way to do things. Um, in terms of inspiration on the documentary side, the History Channel has all these like series of things, like, you know, the engineering marvels that change the world, the, you know, the people behind, you know, building big things in the United States of America, right?
So I love watching all those things. It's just awesome to see [00:48:00] America has done extraordinary big things in its history, and I think. Somehow the American public has grown to believe that we can't do big things anymore. And you know, I, I really think that that is a misnomer and I really think when you think about what we're about to embark on today, like reminding yourself that we did all these big things in the past really inspires me to, you know, realize that we can do big things again.
[00:48:28] James Dice: Absolutely. Um, that's a great place to end off. Anything else to say to the smart buildings world from from Jer?
[00:48:36] Jigar Shah: you know, we gotta hit absolute outcomes. I, I honestly think that this industry, um, along with other energy efficiency industries, have largely, you know, focused on here's why we can't scale, here's, here are the steps in our way. You know, we have all these people who don't want us to succeed, whatever it is.
I think today it's no more excuses [00:49:00] like, We all gotta deliver, right? If you need something from me, tell me what you need, but I want you to deliver, right? We are in a global energy crisis and we need to figure out how energy efficiency and demand flexibility plays a critical role in that crisis. And, uh, so hold me accountable, but I'm gonna hold you accountable.
[00:49:20] James Dice: Beautiful. Well, thanks for coming on the show, Jigar
[00:49:23] Jigar Shah: Thanks for having me.
"We pay $10 billion per year for balancing the grid using natural gas, peaker plants, etc. when we could be paying that to households for those services instead."
-Jigar Shah
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Episode 137 is a conversation with one of my climate heroes, Jigar Shah. I read Jigar's book "Creating Climate Wealth" when I was 23 and it set me down the path I'm on today. So inspirational.
Jigar was most recently co-founder and President at Generate Capital, where he focused on helping entrepreneurs accelerate decarbonization solutions through the use of low-cost infrastructure-as-a-service financing. Prior to Generate Capital, Shah founded SunEdison, a company that pioneered “pay as you save” solar financing. After SunEdison, Shah served as the founding CEO of the Carbon War Room, a global non-profit founded by Sir Richard Branson and Virgin Unite to help entrepreneurs address climate change. A lot of us have listened to Jigar over the years on The Energy Gang podcast, which I’ve also learned so much from.
Jigar is now leading the DOE's Loan Programs Office and he's here to talk about loaning out money for deploying building technologies.
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Note: transcript was created using an imperfect machine learning tool and lightly edited by a human (so you can get the gist). Please forgive errors!
[00:00:00] James Dice: This is a conversation with one of my climate heroes. I'm gonna put 'em on the spot here with that, uh, it's probably a lot of people's climate heroes. Jigar Shaw. I read Jigars book, uh, creating Climate Wealth when I was 23, and I was just telling him before we hit record.
It kind of set me down on the path that led me to Nexus and what it is today. So thank you.
[00:01:32] James Dice: All right. Welcome to the Nexus Podcast. Jigar was most recently co-founder and president at Generate Capital, where he focused on helping entrepreneurs accelerate decarbonization solutions through the use of low cost infrastructure as a service financing.
And then prior to that, he founded Sun Edison, uh, a company that pioneered the pay as you save solar financing after Sun Edison. Jigar served as the founding CEO of the Carbon War Room, a global nonprofit founded by [00:02:00] Sir Richard Branson to help, um, entrepreneurs address climate change. And a lot of us have listened to Jigar for years, uh, on the Energy Gang Podcast, uh, which we've also learned a ton from him on there.
He is now leading the DOE'S Loan Programs Office, and he's here on the podcast today to talk about loaning out money to all of you people that are listening to this. For deploying building technologies.
So Jigar, I know we have, uh, less than an hour for this, so we're not gonna go deep as we normally do into a lot of stuff, and I don't wanna waste any time.
But I have a sort of relevant icebreaker, which is , which is how smart and decarbonized is your home.
[00:02:39] Jigar Shah: uh, my home is, um, somewhat smart, uh, you know, smart thermostat, smart ev. Uh, smart. I have a solar plus battery storage system. Um, I'm building, um, a new house and that one's gonna be very [00:03:00] smart, so it's gonna have like all the features in it, et cetera. I have to say, like putting all the smart stuff in as a retrofit, I find to be hard to do compared to new construction.
[00:03:12] James Dice: Totally. Yeah. It's one of the things we talk a lot about on this show for sure, as you can imagine. Yep. Yep. Um, but I bet, I bet if we pulled this entire audience, you'd have, you'd have one of the greenest homes, if not the greenest home probably.
[00:03:26] Jigar Shah: Yeah, no, it's, um, and it comes in handy. We had, uh, that polar vortex where it got to like six degrees or whatever, and, uh, the house stayed pretty warm throughout without, uh, the heat pump having to work that hard just cuz it's, it's well insulated and all that stuff.
[00:03:44] James Dice: Totally. What are you doing for your new home? Just real quick.
[00:03:47] Jigar Shah: uh, well, we're looking at like the, sort of the Lutron system with like, I think Corbin Systems is like, you know, sort of smart panel. And then, um, then there's like smart EV chargers as [00:04:00] well. Like the, like the goal is to be able to take it off grid and for it to like, um, move the electrons, you know, to where it needs to go in an off grid fashion.
[00:04:11] James Dice: Totally
[00:04:12] Jigar Shah: We're
[00:04:13] James Dice: exciting. Exciting. All right, let's jump in. So I have a, a couple questions from the audience. So if I shout out to someone that you've never heard of, it's because I've, I've solicited questions from the audience for Jigar. So this one's from Corey Mosman. So shout out to Corey. Thank you, Corey. He said, um, with Sun Edison you changed the game.
Not with new technology, but with business and financial model innovation. Are you still of the opinion that business model innovation is one of the keys to unlocking decarbonization at scale?
[00:04:42] Jigar Shah: Yeah, I mean, look, I mean, when you're a hammer, everything looks like a nail, so. Sure. I mean, but like, I mean, look, I think that um, and the loan program's office actually has like sort. Unique role to play within that ecosystem too, right? I mean, when I started Sun Edison, [00:05:00] um, there was no loan programs office that was willing to provide debt first.
Right? Um, and you know, a lot of folks thought that solar PPAs were, were super risky. Um, but I would say that, you know, today I'd, I'd sort of broadened it a little bit to. Ultimately we have the greatest innovation engine, um, on the planet in the Department of Energy here, uh, in the United States right over the last 45 years.
What we need is to figure out a way to get this technology into the hands of consumers and business. You know, model innovation is my expertise, but there's certainly other people that bring expertise to the table too. But we just gotta move past that 1% early adopter, uh, phase, and really get into the mass.
[00:05:43] James Dice: Totally. Yeah. And we'll talk about how you guys are doing that in just a second. Um, another question we had from the audience is, um, this phrase that I think a lot of people associate with you, with you, which is deploy, deploy, deploy. Can you sort of explain to our audience what, why you've sort of [00:06:00] been shouting that from the rooftops and what that means?
[00:06:03] Jigar Shah: Well, I mean, I think the secretary is the one who started it, so I'm happy
[00:06:07] James Dice: can't take credit.
[00:06:08] Jigar Shah: her credit for it. But I look, I think that ultimately, . We really believe in innovation here at the Department of Energy, and we still believe in innovation, but I think there's a lot of people who got away with saying the technologies that we have today aren't worth deploying at scale.
We have to keep innovating first before we deploy, and that's just patently false. Like we have an extraordinary suite of technologies that need to depl be deployed right now, and deployment leads to more in. Because you learn so much from the deployment that it leads to more innovation and it creates that beneficial cycle, which is the learning curve, which we all know has reduced the cost of wind and solar and lithium and batteries and EVs.
And so I, I just think we're in a, in a place right now where we have to be deployment forward, um, uh, to compliment the innovation that we're already good at.
[00:06:58] James Dice: Yeah, I was listening to you on [00:07:00] the carbon copy with, with Steven and Catherine lately. It was kind of like a, a throwback to the, the energy gang. That episode. Um, you talked about moving to the, how. Can you talk about what you meant by that?
[00:07:12] Jigar Shah: Yeah, I think that there's a lot of people who, um, are comfortable with the what, right? We need to electrify everything. We need to move to more electric vehicles. We need to move to more heat pumps, right? We need to move, um, to smarter buildings. We've gotta like, you know, allow the. , you know, the independent.
System operators to pay for virtual power plants, right? So under third quarter. 22. 22. So you've got a lot of this, what stuff? And then the question becomes how do you do it? Like do you use aggregators? Like do you use homeowner associations? Do you use, like how exactly do you do that? And then where does the trust come from?
Like do you trust your home association? Like they say nasty things about you on Nextdoor. Like, do you go like an aggregator? Like how do you actually figure [00:08:00] this out? Like how do you make sure you treat people with respect so that if they don't want that level of sacrifice in their home on demand flexibility, that they're able to opt out of the system, but then they wanna be opted back in cuz they don't wanna like lose out on the dollars during those emergency events.
Right. And so I think when you think about, and the same things too with like nuclear, like everyone's, you know, really into nuclear. I'm in a nuclear, it's great, but like how do you actually build up a nuclear. Everyone's like, well, we know it's the answer. I'm like, okay, fine. Let's all assume that it's the answer.
Now we gotta build a nuclear plant who rate bases what, like what supply chain provider does this, right? And I think that that's where things get messy and that's where there's actually a lot of missing holes in the strategy. And so we gotta start identifying the missing holes and then finding the people that are smart enough.
[00:08:48] James Dice: Absolutely. Yeah. And, and I had, so a couple weeks on the go, on the podcast I had, um, The Institute for Market Transformation and he, and we really talked about, okay, these are all the places [00:09:00] there where someone from a third party must intervene in how the market is currently acting to transform how things are done.
So is that kind of, can you talk about why you sort of joined, you decided I'm gonna go from this illustrious career and join the loan program's office. Sort of why, why'd you take the job?
[00:09:17] Jigar Shah: Well, I, I've always had the luxury of being able to, um, you know, think about these things in a holistic way, right? And, um, you know, my experience at Sun Edison was, um, one where, you know, people just said, solar's too risky. Power purchase agreements are not bank. Never gonna happen. Right? . And you know, when you think about that experience, um, it led me on a pathway to figuring out, you know, how does one solve these big problems?
Right? So I joined the Carbon War room and, you know, figured out a way to get entrepreneurs around the world involved in climate change because we realized they're the change makers, right? That really wanted to change the status quo. And then, you know, we started to generate [00:10:00] capital because, you know, there was no natural place for me to go to when I was at Sun.
And so the question is like, for the people who are doing batteries as a service, or now Anor digesters as a service, or you know, buildings as a service or whatever it is, there was no natural place to go to get equity. Everybody just wanted to give you a venture capital, right? And so, so when they offered me this job at the loan programs office, I was like, huh, that wasn't on the plan.
And, but then, you know, you think about. There's all these people who have raised hundreds of millions of dollars of corporate equity, and now they need to build their first of a kind facility that's 2 billion. Where do you go for debt? On a 2000000001st of a kind facility. And the loan program's office, as the secretary suggested in her, um, confirmation hearing has been dormant.
And so even though you had a loan program's office, which at the time had 40 billion of loan authority, nobody thought that it was functioning. Right. And so, you know, after I got asked to [00:11:00] serve, you know when you're, when the President and Secretary of Energy like ask you to serve Yeah. It's hard to say no.
[00:11:05] James Dice: Mm-hmm. . Absolutely. So can you just give people an overview of how the, the o the office works, what goals are you guys trying to, and this is obviously all public information, so we can just do a quick context setting. But for people that are listening to this that don't really know what you guys are doing, can you just give an overview of, of how, how this process.
[00:11:24] Jigar Shah: Sure. So the loan program's office, um, you know, basically provides senior debt to projects, right? So we're not, um, providing equity. Um, so we provide money where the commercial banks won't. Bother. Right? And so we're not necessarily taking risk, um, from an, from a technology standpoint, right? Cuz we've got 10,000 engineers, scientists and experts that can evaluate whether the technology itself will work.
But we're taking, um, execution risk. We're taking, you know, um, management risk, right? A lot of those other [00:12:00] more typical risks. And so we. Have a couple of different programs. We have the 1703 program, which is the innovative Clean Energy Program, and then we have the Advanced Technology Vehicle Manufacturing Program, right?
So 1703 is where we funded, um, the Solar and Wind Projects transmission, geothermal, uh, the Vog nuclear plant, right? , the Atvm Pro, uh, program is where we funded, uh, Ford, Nissan, Tesla, and some of those kinds of things, right? And so as we move forward into the, um, next phase of lpo, we have a couple of new programs, right?
So the 1706 program lets us help refurbish, repurpose, replace existing energy infrastructure, both in power and in petro.
[00:12:40] James Dice: Okay.
[00:12:41] Jigar Shah: And then we have the tribal energy loan program, which has been, you know, started in 2017 and scaled up under ira. And then we have the CO2 transportation pipeline to take CO2 and buried underground.
I'd say, you know, in this latest phase of loan programs office, we have to take more, um, perceived risk. [00:13:00] So in the first. Um, the loan programs office was largely a liquidity function, right? You had market seizes up and so a lot of standard 20 year PPA projects asked for loans from loan programs office.
Today a lot of our projects have merchant offtake agreements, right? So, uh, like if you look at sustainable aviation fuel, oftentimes you have a fixed volume of purchase, but the price fluctuates based on all prices. , that kind of stuff. Same with like critical minerals, like we know how much critical minerals is coming out and people are willing to buy those, but they want the price to fluctuate with whatever the market price is of lithium or cobalt or, or graphite.
Um, and so we're, we're having to take different risks and there's ways that we have to structure the deal to be able to meet what we call the reasonable prospect of repayment. , um, which means that we're more likely to get paid back than not. Um, and we've been able to bring in some really attract, uh, great people, right?
So we started with about a hundred, uh, awesome staff when I got here. And we were able to add another a hundred or so people, [00:14:00] um, to the loan programs office, many of whom came straight from the private sector. And so, uh, we're now staffed up. We're ready to go. Um, people put in. An loan application in their Part one application.
We tell them if they qualify for the statutory requirements, if they meet the innovation in greenhouse gas risk requirements. If they do, they drop hundreds of files into a data room, and then we do due diligence on their loan and then give them a conditional commitment.
[00:14:27] James Dice: Cool, cool. And, and if you think about, you know, there's a bunch of different frameworks for the technology adoption life cycle. Um, where do you guys sort of get involved or where are these loans sort of targeted in that life cycle?
[00:14:42] Jigar Shah: Yeah, in general, um, innovation is, you know, a real standard, right? It's gotta be technology innovation, not business model innovation. And, um, but what you find is, is that people are doing things differently all the time. Right, and so there's a lot of deployments of first of a kind [00:15:00] technology, so it doesn't have to be, you know, the.
Uh, you know, brand new, uh, fusion , nuclear fusion technology, right? It can be an incremental improvement over something else that it's replacing, right? And so when you look at a lot of the hydrogen electrolyzer projects that we looked at for like the Delta ACEs project that we did, um, you know, those are next generation electrolyzers.
Electrolyzers have been around since the 1950s, but this is the next generation far more efficient, you know, better materials being used, et cetera. When you look at like, some of the other projects that we funded, like the monolith materials, conditional commitment, you know, that methane pyrolysis approach has been around for 25 years, but they basically have figured out a way to do it better, better quality results, um, and, you know, a lot of incremental improvement as a result, right?
So, so, you know, the, the Loan Programs office, um, does want real innovation, but the bar is far more accessible, I think, than people, uh, otherwise think.[00:16:00]
[00:16:00] James Dice: Got it. Got it. Okay. Um, I know I heard you talk on, on a couple different places recently around you personally going out and engaging people in different industries and saying, Why aren't you applying for my money? Right. At least, at least I'm paraphrasing what, what you were saying, but how do you think about real estate specifically and um, you know, in the context of all these different industries, how do you think about real estate owners and getting them to use these loans to, to decarbonize their buildings?
[00:16:32] Jigar Shah: Yeah, it's a great question. I mean, we, um, there's some sectors that are obvious, right? So we do a lot of work in nuclear carbon management, carbon, uh, you know, hydrogen, um, transmission, you know, some of these other areas.
[00:16:44] James Dice: Mm-hmm.
[00:16:45] Jigar Shah: there's some areas that are less obvious, like, you know, virtual power plants or um, ev charging networks or some of that
[00:16:53] James Dice: Mm-hmm.
[00:16:53] Jigar Shah: And so we've talked to a lot of asset managers. Um, you know, they come into loan programs [00:17:00] office, they own, you know, billions of square feet of real estate. You know, they wanna like figure out what to do. And, you know, we talked to them, they're like, well, you know, we have this nav and we just don't wanna like actually mess that up by.
Extra capital into energy efficiency. We want to, but we don't wanna sign a contract with a third party and let them make money off of us. So we'd rather create our own fund and then have that fund actually invest in energy efficiency in our own buildings. And so, you know, what we said to people is we've said, look, you know, like get off the dime, right?
Like, like, I get it, you're being very intellectual about this, but like, get to a conclusion, get to the point, like, what are you gonna do to. , figure this out. Right. And then Ukraine hit and you know, energy prices went up, right? Cuz natural gas prices, uh, spiked. You know, they've come down recently or, uh, electricity, wholesale market prices went up and then came down recently.
But a lot of building owners are like, oh crap, maybe we should take these 20 years of, um, You know, [00:18:00] proposals that we've received and actually do something finally, right? Because the payback is no longer six years, now it's four years because you know where energy costs went. And so, um, so I think we've been very helpful in thinking this stuff through with them and saying, look, it doesn't really matter whether you left right up or down, but you can't do nothing.
You can't not do it right. And I'd say that, We haven't succeeded yet. I'd say we're on month 19 and some of these conversations with the largest real estate owners in the United States. Um, but we are seeing a sense of them realizing that they're now. Becoming laggards, right? That these empty promises that they've made at COP or other places about how they're gonna reduce carbon emissions or other things, but if they actually have to act upon it at some point, , they can't just sit there and keep making empty promises.
And so, so I think we sit here and we try to help them think through their, um, the way that they wanna solve it. And now that we've helped [00:19:00] facilitate this conversation with probably 20 asset managers, I'd. as well as corresponding entrepreneurs. Um, I'd say that we actually know that there's a path forward where they can use our money and get there, but they still have to chart that out for us, right?
We can't want it more than they do.
[00:19:17] James Dice: So what, what is that chart? That was gonna be my next question here is. What we do a lot on this podcast is sort of unpack that framework that sort of any real estate organization or any building owner organization can follow, right? I need to collect all my utility information. I need to benchmark.
I need to create a roadmap for all the retrofits that need to happen in my building. I need to install technology, blah, blah, blah. , where do you guys propose that these loans sort of come in? Um, and, and how, and what is that roadmap that you guys have said, okay, here's how you use us. Here's how you decarbonize.
Can you talk a bit more about that?
[00:19:54] Jigar Shah: Well, so our, our roadmaps are not absolute, and from the perspective of what does the country need, [00:20:00] our roadmap is tailored to what that asset manager needs or that entrepreneur needs. Right? Every one of our loans is sort of specific, but I'll give you an example. Like, one of company came to us and said, look, we really, um, you know, are ready to go.
Um, but. The real estate investment trust that we're talking to just refuses to guarantee the paper at the, the whole coal level. They really want to sign the contracts at the Bankruptable LLC level, right? Because they're already taking vacancy risks. They don't want to double down on vacancy risk by having to pay a payment back to us when they're building those empty, right?
And so I said, well, we're happy to take vacancy rest. They're like, what? You're the only group I've ever heard of say that. I was like, yeah, look. We can take vacancy risk. Now we have to like hire a CMBS provider and actually, you know, like a commercial mortgage backed security advisor and say, well, what is the likely.
Vacancy rate that we'll have across this portfolio. And then we build that [00:21:00] vacancy rate into the spreadsheet model. Um, and then we, you know, say, well, instead of charging a hundred dollars, you're gonna have to charge $107 because we're gonna have to put the other $7 into a reserve account so that like, if there's more vacancy, that we can pull the reserve account so we, we can figure out solutions to the problem as long as they actually know what the problem is that's holding them back from getting their contract signed.
Right. . And so like, so I do think that there are solutions to every one of these problems, but I think the challenge is honestly that, um, for the vast majority of asset owners that we've talked to, they've said that they are, they are greatly disappointed at the ability for people to be turnkey, right?
They wanna just turn their entire real estate portfolio over to somebody and say, just. Right, and have the balance sheet to back it up. So we don't want it to be a startup company. We want it to be somebody owned by a billion dollar balance sheet that can actually, you know, make [00:22:00] representations and guarantees on the quality of the performance and all that stuff, right?
And so, um, and frankly, those companies are few and far between. There aren't a lot of folks you can just hand the keys off to that have, you know, all of the pedigree that you want, as well as cybersecurity experience, as well as all the other pieces. Um, are willing to do it in a systematic Turkey way.
There are some for sure, but not a lot. And so I think that that also is a big missing.
[00:22:26] James Dice: Yeah, absolutely. The, the, you know, the career path I came from is in the public side, right? Um, governments, you know, municipalities, universities, and that my. Model. That ESCO model is very, you know, prevalent over on that side. But in, for a reit for, you know, a, a private organization, privately held real estate organization is a little bit less common.
And yeah, you're right, the. , the companies are out there, right? We have people that are listening to this right now saying, I can do that. Right. But yeah, just, just [00:23:00] connecting those, those dots and getting the, you know, the, the REITs to trust those organizations because it's a kind of new model. So they would basically apply for that loan.
You guys would help them put together the right terms, you're saying, and then ideally what they're saying is give. A hundred million dollars and I'm gonna go out and do retrofits across my 50 buildings. Is that kind of the, the, what you're expecting the roadmap to be?
[00:23:23] Jigar Shah: Yeah, so most of them would come in and say, I have. Unified business plan where I'm using my proprietary software, hardware dispatch, you know, whatever it is, right? I've got 20 million worth of contracts already signed, and then I have letters of intent for another $300 million worth of projects where, you know, I expect 20% of that at least, or 50% of that at least to clear and over the next three years.
And so let's get started with the 20 million and then we approve you for a hundred million. loan and then the other 80 million has to look like the 20 million,[00:24:00]
right? So we can't give people blind capital. So we have to actually underwrite a specific contract, a specific business model, and then they have to, then those new projects have to match what we underwrote, right?
And so, but we can start with a smaller group of projects, fully booked and signed contract zone, and then more coming in the future. That would look exactly the.
[00:24:23] James Dice: Okay. And when you say turnkey, are you looking to write, give that loan money to someone that's going to be the turnkey implementer of all those retrofits for that real estate
[00:24:34] Jigar Shah: No, no. The person who borrows money from us has to agree to be the fiduciary,
[00:24:39] James Dice: Got it. Okay.
[00:24:40] Jigar Shah: right? So it could be that the fiduciary is just throwing out a random, you know, name like Hannah Armstrong. , right? And then Han Armstrong is partnered with these technology companies who are doing all this work and we're guaranteeing or providing debt to Han Armstrong, right?
And so like it's gotta be the fiduciary who's taking full responsibility for paying us back the [00:25:00] loan. And sometimes that's the technology provider and sometimes it's not.
[00:25:04] James Dice: Got it.
[00:25:46] James Dice: Cool. Uh, let's dive into virtual power plants. That's something that you, you smile as you smile when you hear the, that phrase, because it's a, it's a current, you're, it's all on your mind a lot lately, it seems like right [00:26:00] now. I've heard you talk about it in several different places. Um, Maybe let's just start.
We've talked about virtual power plants on this show before, but for people that haven't listened to those episodes, you said there's simply no other cost effective way besides VPPs to integrate electric vehicles and heat pumps at scale. I think that's a nice summary, but can you just talk about why that is and why VPPs are important to you?
[00:26:24] Jigar Shah: Yeah, I think, I think, look, when you think about what we did in the 1970s and eighties, the 1970s and eighties, basically very few people had air conditioning in this. . Then starting around 1980, people started installing air conditioning, like there was nobody's business, right? And then by the 1990s people had air conditioning.
You can imagine that greatly increased the load in every residential home. The way we solved that problem was by building a whole bunch of natural gas peaker plants, along with [00:27:00] increasing the transmission and distribution system to feed those folks. And as a result, electricity rates have. up by faster than inflation, right?
Um, and so we, we took our t and d infrastructure and we had an asset utilization rate of roughly 60% in the 1970s, and today we have roughly an asset utilization rate of 40%. So because the peaks are peak year and the, the troughs are lower, right, then the utilization of that infrastructure is lower cuz you have to build it for the peak, right?
and even back then we had those radio devices that would go onto people's air conditioning systems. And I know I lived in the DC at Pepco would like pay you four bucks a month to, you know, be able to shut off your air conditioner if they had an emergency situation and then use radio signals to, to, to, to talk to 'em.
So it's not like they did. They, they had a V P P back then, it was limited in scope. And also I'd say like if you look at rural electric co-ops, [00:28:00] many of them have managed people's water heaters for 30 years.
[00:28:04] James Dice: Yeah, so this isn't new.
[00:28:06] Jigar Shah: So that's not new either, right? Um, so now the question becomes we're going to, um, go into this next phase of electricity growth.
Remember, we have not grown electricity load since like 2003. So the last 20 years we've basically been. now we expect growth. And depending on who you talk to, it could be up to 1% a year. It could be a half percent a year, you know, we'll sort of see. Um, and some of that growth's gonna come from electric vehicles and heat pumps.
Some of that votes. The growth's gonna come from, uh, electrifying everything on the industrial side, et cetera. So it's a lot of growth coming. Um, . And so now we're going through the same exercise as we did for air conditioning. Do we want to increase distribution systems even more so that everybody who comes home from work or picking up their kid from school can plug in their car at the exact same time.
It charges for the one hour and 20 minutes it takes to fill up the tank, [00:29:00] and, um, and then it, the car is left plugged in for 11. , right? So you could like schedule everybody's loads for that 11 hours and make sure everyone's full. Or you could like actually use the app on their phone to figure out how much power is in their car and whether they're at, whether they're at 71% state of charge or 21% state of charge, right?
And give people a different experience based on whether state of charge is. , and so there's all these things you can do and remember, we also have like five apps on people's phones, right? Whether it's the smart building system app, right, where you have a smart panel, right? Or whether it's like a smart thermostat or a smart water heater.
People are doing smart refrigerators where they can like order food directly from their refrigerator app, right? They've got smart batteries and solar systems where their solar plus storage has an app as well. So you got all these smart apps. that allows you to turn on and off loads that does all these things, right?
And the question becomes, right, would you [00:30:00] rather pay those people for demand flexibility or do you wanna like, you know, pay to increase the cost of the, um, of the distribution system? Right? So like, and that to me, that's the challenge, right? And so like, you know, so fundamentally, um, you know, virtual power plants are aggregate.
Of distributed energy generation storage and responsive loads that are integrated with the grid for the purpose of a more efficient, clean, cost effective, and resilient energy system. Right? So that's what it is. Um, but you know, the other quick and dirty way to say it is basically, um, we pay roughly 10 billion or more per year for balance.
The grid using natural gas, peaker plants, and lots of other stuff, right? Because supply and demand have to equal each other, and we could be paying that to households for those services instead. [00:31:00] Some households want that money, or businesses for that matter.
[00:31:05] James Dice: Absolutely. Can you talk about how you think about this in terms of, this is really the first time I see, you know, and I come from what you might call the behind the meter world, right? Helping building owners on the, you know, the building side, the building system side. The V P P is really the connecting point between all the complexity happening on the grid and all the complexity happening behind the meter.
How do you think about when you guys are trying to give out money, uh, like that being this new nexus, right? Where for the first time there's communication happening between. building owner, or like you said, homeowner and this grid entity, and then now there's this V P P aggregator sitting in the middle.
How do you think about that sort of disruption happening right now?
[00:31:54] Jigar Shah: Yeah, I mean, I think that the data streams are the hardest part, right? And the, [00:32:00] the transparency of those data streams. But in some ways, right, for order 22, 22 is supposed to mandate access to those data streams, right? Like how do you integrate? Like all of the independent system operators are expected to treat VPPs.
exactly the same that they treat natural gas, peaker plants and other things, right? That's really what F quarter 2222 says. And so now you have to make sure that that data stream is available in a granular enough fashion, um, to be able to do things with it, right? And like in PJM, you have nodes. So what they said in their, you know, in their, uh, fe order 2222 rules is that you need to aggregate at least a hundred kilowatts of. per node to be able to compete in the market, right? And so, um, but that's pretty easy to do, right? I mean, when, if someone puts in a water heater, usually they fill out a warranty card, you know where that water heater sits. They have the ability to change the temperature with their app on their phones so you can actually turn, you can control when it turns out [00:33:00] and off, et cetera.
And now the question becomes like, you know, what is the amount of, um, of. That a household or a business wants to get paid for that service. Right. So it's a dial. It's not on or off. It's do you want Less disruption? More disruption? Right. Some people are gonna say, full disruption, just pay me as much money as I can and I'm happy for my thermostat to, to, you know, go from 66 degrees to 74.
Right? And others are gonna say, mm, now I'm happy to like keep it from 69 to 71, right? Or I'm happy for you to control my water heater as much as you want, but you know, I don't want my battery in my garage to ever go below 80% state of charge because it's there for back up my house. And so I don't want it to be drained for this purpose, right?
And so you have all of these like consumer [00:34:00] preferences and each person is gonna have a different set of preferences, um, and different set of things that they're optimizing for, right? But it all starts with getting a proper signal from the ISOs and from the utilities, right? Because if they can't send you a proper signal, then the software and the hardware that is controlling your, uh, you know, virtual power plant contribution doesn't actually know what to.
on a passive basis, right?
And so, yeah. Or when to do it right. So, so that that data stream, I think to me is the big missing layer and has been for a long time. And once that data stream is available, I mean, when you talk to Matt Golden over at Recurve or some of these other players, he'll tell you that like it's shocking.
Like once that data stream comes in and you back test, the regulators look at it and go, oh my God, we could have done this at a 90% cheaper cost than what we. this is crazy. We didn't know it was so cheap, but it is that [00:35:00] cheap and you're paying homeowners, um, you know, to get involved, uh, and be part of the solution.
[00:35:05] James Dice: Absolutely. A lot of buildings. So if I just like speak for our audience right now, a lot of buildings don't have access to that information right now. How do you see, you know, a building getting connected into that ISO data communication stream? Is it through one of these aggregators or is it through open?
Uh, communication methods from the utilities, is it through something else? How do you see that connection point happening?
[00:35:34] Jigar Shah: So, I mean obviously DOE doesn't have an official point of view. I mean, we're pro every option, but I'd say that in the first few years of this rolling out, which is where we are today, you're gonna wanna partner because rules are changing every three months. So you want a partner to help you through all those rule changes so that you don't have to, you know, become an expert in all that stuff.
Right. So, so I mean, I do think that a lot of folks [00:36:00] are choosing to go with aggregators or, you know, some sort of platform to help them through this process and, and they're deciding which loads, uh, they're comfortable with. Like Walmart, for instance, for years, has been fine participating in demand response programs with half of their lights.
So they wired their lights in the store where you could shut off every other. In a demand response, you know, situation, right? Others have been fine with like boilers and, you know, and, and figuring out how to like, you know, use thermal storage, right? And so I think each group is gonna have a different set of loads, and I think they're also gonna be more comfortable over time as they see what their, you know, tenants.
Comfort level is with the level of disruption or lack their own right. And so, so my sense is that's probably where this starts. And then as the market becomes a lot more stable, then you end up with folks choosing to, you know, cut out the middleman and maybe use more open source software or other things.
[00:36:58] James Dice: Totally. Yeah. [00:37:00] Can we talk about a little bit how the, like which specific technologies you're talking about, um, you guys. You know, funding right through the program. So the way I think about it is like, it seems like solar and behind the meter storage are maybe the, the easier ones, right? The more, uh, traditional ones, um, Once you get into, we've been talking about data access.
We talk a lot on this podcast about, um, just like connecting devices themselves. So you talked about the refrigerator in commercial buildings, obviously there's like the EV charger and there's all the other HVAC system connected to the internet, all that. Getting all of that connected, getting control systems in general.
So we've done research and, and see, and the DOE has done research, um, on the fact that 87% of commercial buildings under 50,000 square feet don't even have control of their HVAC systems today. So you can't connect them to A V P P unless you have that control system ability. So how do you guys think about where the money [00:38:00] needs to go?
Do you just install solar everywhere or is. We need to start connecting all these different devices as well.
[00:38:07] Jigar Shah: Well, so I can only answer the question on behalf of the loan programs office, not necessarily doe broadly. So at, so the fact that we're a loan programs office means that our Nexus are loans, right? So what you find is, is that pick a number one 15th of stuff breaks. , right? Maybe it's one 19th or whatever, right?
Of all the stuff out there breaks every year, whether it's the H V A C system or whether it's, you know, lighting or, you know, or other things. And so, so when that breaks, then you have an opportunity to put in something that's new. , right? And when you put in something that's new, you have the opportunity to pretty cost effectively, also connect, um, that new piece of equipment to some sort of, uh, you know, system that then lets you dispatch.
Um, that new appliance, [00:39:00] right? And while you're there, if they give you permission, you can actually, um, add sensors and, and, um, capabilities to some of the other existing loads that are there that might be well suited for this by putting something on it externally. Because you're not paying for the truck roll.
You're already going to the building, right. So, um, so my sense is, is that because we're a loan program's office, we're basically looking. , um, the measures that people install that are new to replace broken stuff and where they're using a loan to actually do it and not paying cash, right? And in the residential space, that turns out to be roughly 43% of everything that gets fixed every month, which is probably around five to, you know, 8 billion a.
so, you know, pretty substantial quantity. Um, and then you probably have a roughly similar number in commercial buildings, particularly the small buildings, right? And many of those small buildings, as you know, [00:40:00] their credit comes from their personal FI score. , right? They generally have to guarantee most of those loans, right?
So, so in some ways, those small business loans are actually operating exactly the same as personal loans, um, in terms of the way in which they're underwritten. So, so that's the nexus where the loan program's office comes in. And what we've found is that when you look at the data that DOE has collected over the last 20 years, the loss rates of those loans, Far lower than the loss rates on credit card receivables and healthcare receivables.
But s and p, Moody's and Kroll are largely using healthcare receivables and, and, and, uh, and credit card receivables because they're like, ah, we might as well be conservative. But in doing that, they're basically, um, inadvertently really hurting L customers, right? Because there's a lot of low, moderate income customers and, you know, low FICO customers, some of which are overlapping and some of which aren't.
Um, , you know, basically end up paying an unsubsidized interest rate right after expected [00:41:00] losses of like 12, 13% when they could be getting it at 9% if they use DOE data. Right? And so, you know, I think that's critically important because those are huge differences in interest rates. Um, and then while they're at it, now you can connect someone to a VP p and.
Revenues for participating in the V P P, which now furthers your, lowers your payment even more so that it becomes even more cost effective to go this way. So I would say that, and so we have the ability to go to s and p Moody's and Crawl and saying to them, we will guarantee these loans using federal backstop using.
Our, um, data at doe in a way that you're not comfortable with yet, but we're comfortable with. And as long as we're guaranteeing it, you should just, you know, view that guarantee as, as federal, federal, uh, government, you know, uh, you know, uh, credit rating.
[00:41:59] James Dice: [00:42:00] Got it. Got it. So if I, if I just repeat this back to you a little bit in my own words, if I'm a building owner and I have, you know, a 15 year old HVAC control system that I need to replace, I can say, Hey, I'm gonna go replace that right now. It's old, we need to replace it, but I'm also going to hook it up to a v p and provide x kw and demand flexibility. In order to do that, we need a loan on the extra cost versus like for like replacement, and that's what the application would look like.
[00:42:31] Jigar Shah: Well, it could be for the whole thing, not just the extra cost, but I would say that it, it operates a little bit differently than that, right? So a finance program would come to us and say, we want to guarantee a billion dollars of loans, right? We have 200 million. You know, lined up and, you know, sort of signed and we're signing 50 million a month of new loan, uh, volume every month.
Right? And they're going to that business owner and saying to them that, you [00:43:00] know, when your H V A C system breaks, you're used to paying 18% interest for that. We're happy to give it to you for 9.9.
[00:43:08] James Dice: Hmm.
[00:43:09] Jigar Shah: You know, and so sign this loan document when you know when your stuff breaks and you're ready to replace it, right?
And, but the only equipment that qualifies is the equipment that can be registered with a VP p, which at this point is pretty much everything.
[00:43:25] James Dice: Okay. That
[00:43:26] Jigar Shah: pretty much all new stuffed, you know, can, and you know for sure by next year everything will be, cuz everybody wants to control their stuff with an app, right?
And so, So then they put in their stuff and we say in the loan documents that you must, uh, register it with a V, VP P.
[00:43:43] James Dice: Okay.
[00:43:45] Jigar Shah: And we separately say, once you're registered with a VP P, because you can imagine some geographies have no v p, right? So you can't register anything. So we say, you know, when it becomes available, you have to register into a vpp, right?
And we separately say, [00:44:00] once you register with a VP P, you can opt yourself. . So you know, you might decide five days later, 30 days later, two years later, you no longer wanna be part of a vpp, so you opt out. So the full consumer protection is in there as well. But you know, you and I both know that like putting in V PPP functionality doesn't mean that anyone's gonna actually opt in,
[00:44:21] James Dice: Yeah.
[00:44:22] Jigar Shah: right?
So we sort of in the loan agreement say, you gotta get op, you gotta get opted in, and then you have all the rights in the world opt.
[00:44:30] James Dice: Absolutely. Very cool. All right, last question on, on how these work before we kind of wrap up here. Um, where does like infrastructure fit? Right? So, and when I say infrastructure, I'm talking about like, For example, a network in a building, right? So I'm gonna hook up my new boiler or my new heat pump to this control system.
This control system sits on network infrastructure only. If that is cyber secure, can we start to talk to the grid with that system, for example? Um, [00:45:00] is, is that sort of, you know, are, are those sorts of systems included in, in the scope of what you guys are incentivizing?
[00:45:07] Jigar Shah: Yeah, so anything that is specifically enabling to the VP P qualifies, right. So the network and the cybersecurity in and of itself doesn't qualify, but to the extent that it's part of what's required to get the building opted into this system, then it does.
[00:45:26] James Dice: Got it, got it. How about any investments that need to be made around interoperability? So it seems like that's a big obstacle here. Do you, I'm sure you see that as like this system has to talk to this system, which has to talk to the grid. You're saying any upgrades that need to happen to enable that communication or qualified as well?
[00:45:45] Jigar Shah: Yeah, I mean as, as long as it's part of the project scope, right? So like, you know, like. We also separately see that like everything that gets installed now is some version [00:46:00] of 1.0 and that you're probably gonna have over the air upgrades to your system every three to six months, and that four years from now, these systems are gonna be far more accurate and powerful than they are right now.
[00:46:12] James Dice: Cool. Cool. All right. We'd love to close down this, these episodes with ca, what we call carve outs. So, um, any books, TV shows, podcasts. I'm excited to hear what Jigar says about this, but, documentaries, movies that have had sort of a big, a big impact on you lately. A a anything come to mind.
[00:46:32] Jigar Shah: Yeah, I mean, look, I think that, um, on the podcast side. I love my friends at Odd Lots. I think they're just, um, you know, really amazing and, uh, and you know, like, just, it's fascinating to me how the whole supply chain works and how, you know, there's just a, uh, a level of interconnectedness that frankly I don't think any of us really understood until after, um, you know, the [00:47:00] Covid crisis and, and, uh, and all that stuff.
[00:47:03] James Dice: All right.
[00:47:04] Jigar Shah: From a, from a, a book perspective, you know, there's so many books and I like all of them. But, um, the one I most recently read was California Burning by Catherine Blunt on the pg e, um, you know, uh, fiasco and, and you know, and. It really was an extraordinary book and it, you know, even Patty Poppy at pg e recommended her employees read it.
Right. I just think that instead of demonizing these folks, you know, like really understanding why what happened happened and understanding how to be more helpful I think is, you know, fantastic. Um. Uh, way to do things. Um, in terms of inspiration on the documentary side, the History Channel has all these like series of things, like, you know, the engineering marvels that change the world, the, you know, the people behind, you know, building big things in the United States of America, right?
So I love watching all those things. It's just awesome to see [00:48:00] America has done extraordinary big things in its history, and I think. Somehow the American public has grown to believe that we can't do big things anymore. And you know, I, I really think that that is a misnomer and I really think when you think about what we're about to embark on today, like reminding yourself that we did all these big things in the past really inspires me to, you know, realize that we can do big things again.
[00:48:28] James Dice: Absolutely. Um, that's a great place to end off. Anything else to say to the smart buildings world from from Jer?
[00:48:36] Jigar Shah: you know, we gotta hit absolute outcomes. I, I honestly think that this industry, um, along with other energy efficiency industries, have largely, you know, focused on here's why we can't scale, here's, here are the steps in our way. You know, we have all these people who don't want us to succeed, whatever it is.
I think today it's no more excuses [00:49:00] like, We all gotta deliver, right? If you need something from me, tell me what you need, but I want you to deliver, right? We are in a global energy crisis and we need to figure out how energy efficiency and demand flexibility plays a critical role in that crisis. And, uh, so hold me accountable, but I'm gonna hold you accountable.
[00:49:20] James Dice: Beautiful. Well, thanks for coming on the show, Jigar
[00:49:23] Jigar Shah: Thanks for having me.
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