“We were a bit of a hot potato,” Jigar Shah, the man appointed in March 2021 with the task of revitalising the US Department of Energy’s Loan Programs Office, tells Infrastructure Investor in a recent interview. Established under the Energy Policy Act of 2005 to provide loans and loan guarantees to innovative energy, infrastructure and mobility projects, the office had been largely dormant for the best part of a decade.

“Hot potato” might even be generous. The LPO had been tainted by its $535 million loan guarantee to solar panel manufacturer Solyndra, approved in 2009 only for the company to go bust two years later. As a 2012 report from the House Energy and Commerce committee stated: “DOE knowingly violated the law when it restructured the terms of the loan guarantee and subordinated taxpayers’ interest to the interests of private investors.”

The episode dogged the LPO’s ability to operate in the intervening years. Now it’s back, looking to leverage the expertise of Shah, a successful pioneer in the private sector with the creations of solar developer SunEdison and clean energy financier Generate Capital, the latter of which now counts QIC and AustralianSuper as major shareholders. Shah, however, does not see a great deal of difference between his private sector experience and the rigours of managing a government programme.

“People ask me ‘is working in government bureaucratic?’ If you’re writing billion-dollar cheques, no matter what institution, it’s very bureaucratic,” he reasons. “The streamlining we’ve done now means the amount of time it takes to get a billion-dollar deal done is roughly the same amount of time it takes to get a deal done of this complexity in the private sector for these first-of-its-kind deployments. The government does have an ability to lean in on reviewing projects that the private sector otherwise feels it doesn’t know enough about.”

If anything, Shah adds, the LPO has brought new perspectives to its army of recruits from the private sector, rather than the other way round.

“People ask
me ‘is working
in government
bureaucratic?’ If
you’re writing billiondollar
cheques,
no matter what
institution, it’s very
bureaucratic”

“We were able to attract over 100 people from the private sector to join the office,” he says. “Getting those people gave the office a different perspective than [previous applicants] were used to. That has made it more vibrant and more diverse in terms of ideas. People feel comfortable reaching out to our office and knowing they will be treated fairly. People feel comfortable they understand what we offer. Starting up an office that was largely dormant for the last 10 years really is a large trust-building exercise.”

Legislative tailwinds

It’s been a historic 12 months or so for US infrastructure and energy financing with the passage of the Bipartisan Infrastructure Law in November 2021 and August 2022’s Inflation Reduction Act. However, Shah credits more the bipartisan American Energy Act of December 2020; the act revitalised the LPO’s programme, streamlining the application process and expanding the list of qualifying technologies to include carbon capture and sequestration, advanced nuclear reactors and energy storage technologies.

Subsequent legislation, according to Shah, merely provided additional tailwinds and clarity to how the American Energy Act helped direct the $40 billion available to the LPO.

“Before the BIL passed, we had 77 active loan applications seeking [between] $60 billion and $70 billion. We were very busy and had good support for getting that $40 billion out the door before those bills passed,” he explains. “The loan volumes are increasing based on those laws passing, but I don’t think our work has changed substantially since they passed. In general, we’ve continued to try to talk to every applicant eligible for the programme. Those efforts we put forward were rewarded within the IRA by Congress, which believes today we’ve been able to turn the page and earn the trust of potential applicants again.”

It certainly would appear the page has been turned. At the end of October, the LPO had 98 active applications seeking $104.5 billion in loans. That’s up from the 91 seeking $91.2 billion at the end of September and representing 1.3 new applications per week. The LPO aims to complete its initial review within 60 days, before heading to further evaluation, due diligence and term negotiations before closing.

Shah name-checked projects in the sustainable aviation fuels, hydrogen, CCS, transmission and battery manufacturing sectors as those attracting particular interest, while the LPO’s monthly updates also highlight the advanced vehicle manufacturing and advanced nuclear sectors as sizeable loan applicants but declined to provide a breakdown of the funds.

In April, the LPO made arguably its most significant commitment since Shah’s arrival. It provided a $504.4 million loan guarantee to the Advanced Clean Energy Storage project in Utah, which would be a first-of-its-kind clean hydrogen production and storage facility, combining alkaline electrolysis with salt cavern storage for grid-scale energy conversion and storage. It was the LPO’s first loan guarantee for a new clean energy technology project since 2014 and backed a group of equity sponsors comprising GIC, the Ontario Teachers’ Pension Plan, Alberta Investment Management Corporation and Manulife Investment Management.

“We picked them because they were ready to move,” explains Shah. “It was fortunate those were the ones which were ready. It did highlight to the community just how flexible we could be. Those [first loans] were the most descriptive as to how the LPO has been able to transform itself based on the guidance from the 2020 energy act and the reconfirmation of that from the BIL.”

Avoiding the next Solyndra

Despite both the nascent stage of hydrogen in the US and the first-of-its-kind nature of the ACES Delta project, Shah maintains that the landmark loan does not have a technology bet attached to it.

“The LPO is not supposed to take real technology risk, we’re taking perceived technology risk,” he outlines. “There are some CCS technologies proven through grant projects over the last 15 years so it’s full commercialisation of those technologies where I would say we are most active. For next generation technologies not yet fully proven, there are grant programmes some of our other colleagues at DOE are running.”

Shah adds: “We’ve reached out to applicants in 20 sectors where we believe technologies are ready for commercialisation assistance. Projects were far enough along that we got aggressive interest such that people spent several hundred hours alone to fill out a loan application.”

The LPO portfolio, the bulk of which predates Shah’s arrival to office, achieved an internal investment-grade rating of BBB- during the first eight months of 2021, according to its 2021 annual report published in March. Rating updates processed at year-end returned the portfolio rating to ‘BB+’, and the portfolio is likely to again achieve an investment-grade rating in full-year 2022, it stated at the time. Shah, though, is both keen to avoid stepping on commercial lenders’ toes as well as keep the LPO’s best practices, which he says sees some applicants opt out.

“I find most borrowers would rather work with commercial banks than us, if they had a choice. A commercial bank will give up collateral if the project is doing well, or they might have it refinanced out to something else. Doing that with us is a lot of paperwork. You don’t come to the LPO unless we are your preferred approach,” he states.

That, it seems, is a rather different approach than years gone by.