How Jigar Shah Thinks About Risk

Jigar Shah might have more control over America’s new wave of industrial policy — not to mention its climate policy — than anyone not named Joe Biden. And he’s not even a Cabinet-level official. As director of the Department of Energy’s Loan Programs Office, which is akin to its in-house bank, Shah oversees how roughly $400 billion in lending authority will be spent. That money will help finance new EV factories, geothermal wells, carbon capture sites, and more.

On this week’s episode, Rob sits down with Shah to discuss the philosophy that he brings to his role. When financing new projects — many of which are the first of their kind — how does he think about cash flow, about technological innovation, about risk? Robinson Meyer is executive editor of Heatmap News; Jesse Jenkins, an energy systems engineering professor at Princeton, is off this week.

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Here is an excerpt from our conversation:

Robinson Meyer: I think one thing you’ve said often is that we have — and you alluded to at the beginning of the conversation — is that we haven’t built manufacturing in this country, basically, for 40 years. I think one note we’ve seen both from the president and from the partisan laws passed by Congress and the president — but also, frankly, from a more bipartisan set of lawmakers — is that there’s a lot of eagerness for that to change. So from your point of view as someone kind of in the weeds every day, what needs to change for the U.S. to build manufacturing and heavy industry domestically again?

Jigar Shah: Well, let’s start by saying that I think that the BIL and IRA that’s passed has been a huge success story, right? We’ve gotten 500 announcements of new factories in the United States. And so, these are communities like the one that I grew up in, that had the seventh largest steel mill in the country that shut down while I was there. And all of the people who went to high school there expected to have a job there, and they don’t. Right? These are folks who are pretty pissed off about the fact that their lot in life, really, was destined to not have family-sustaining jobs for 40 years, right?

And so now we’re giving people hope again that, for folks who have high school educations, that they can actually support their families and do these things, right? So in that perspective, we’re winning, right?

But on the other side, we still have a lot more work to do, right? So when you think about the underlying conventional wisdom, the conventional wisdom is that you’re going to start a factory, China’s going to dump product in the United States and going to put you out of business, right? And so the local bank is saying, prove to me that China’s not going to dump product and put you out of business. Those old habits die hard, right?

Now, the president has put together all sorts of belts and suspenders, but I don’t think that’s clear. I’ll give you an example. So in the EV supply chain — we have an extraordinary amount of lithium in this country. We made the announcements at Thacker Pass and Rhyolite Ridge, as well as recycling for Li-Cycle and Redwood. But we’ve got additional abilities to get lithium over in Arkansas and Salton Sea in California.

And a lot of folks are saying, lithium prices are down 70% from their highs, right? So therefore there’s no way you can make it work right now. Lithium was $5,000 a unit in 2020. Today it’s $20,000 a unit. It was as high as $80,000 — $20,000 is still 4x what it was in 2020. And so there’s a way to make it profitable, but we also have the 30D program where a lot of automakers get incentives to buy locally for domestic content.

And so I feel like there’s just so much in the IRA, that the belts and suspenders approach that the administration took is not something that most people understand. And as a result, a lot of dollars are not moving from the commercial markets. We’ve got to step in and move them.

This episode of Shift Key is sponsored by…

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Music for Shift Key is by Adam Kromelow.