Ep9: Jigar Shah 'Creating Climate Wealth'

Transcript

My guest today on cleaning up is Jigar Shah. He's a real Renaissance man of the clean energy space. In 2003, he founded SunEdison - single handedly inventing the solar as a service business model. He ran SunEdison for a few years before moving on, he'll tell us a story about what happened next and it's a fascinating story. But he became the inaugural CEO of a Carbon War Room, which was founded by Richard Branson. In 2013. he wrote a book called Creating Climate Wealth. And then he founded Generate Capital, which he continues to lead today, investing in clean energy. He's a prolific media figure, he's very active on Twitter, he writes articles, and it's my great pleasure to welcome to Cleaning Up - Jigar Shah. Jigar, welcome to Cleaning Up.

My pleasure. It's good to have... It's good to see you joining the podcasting movement.

Well, you know, it had to happen, I guess. And you know, it's great to see that you got yourself a beer, you know, we have this thing that we're trying to have a fairly informal conversation. So the hook is that we, you know, we should have beers. The problem is I keep interviewing people in the US, who're sort of sipping mineral water and looking very abstemious, and I look like the alcoholic. So anyway, you know, cheers, first of all. Great to see you and see you safe after six months or so of this terrible pandemic.

Oh, it's nuts, it's really nuts.

And it seems not to be over, particularly in the US, and particularly in Latin America, and developing world.

Yeah, I think we're gonna live with it for a long time in the US, unfortunately.

So what I want to do is: we've got an hour, and we'll try and stick to that. And I'd love to really go at a canter through, you've got this incredible resume. But you've also got deep thoughts about you know, where we've come from, and where we're headed. And you've got anecdotes. I want to cover as much ground as possible. But I want to start, you know, you and I, well, you were at BP Solar, even before I was doing anything in clean energy, I was this kind of burnt-out dotcom failure, and you were already in solar, but only by a year or so. And then you have this, what happened? How did you go from there to SunEdison? I mean, was it just like, you had a dream, and you invented this business model for pay as you go solar, or? What happened?

Yeah, no, I started in the solar industry through an internship in 1995, with Astro Power, and was, you know, talking to customers then. And even then you start to see glimmers of the catalyst for SunEdison, which was that you'd have somebody on the hook, they really wanted to do it, they, you know, understood the value proposition, they had the money even set aside to buy it. And then something happened, right, their tractor broke down, and they needed to use that money for their tractor. And then I went to go work for Atlantic Orient Corporation, which built a 60-kilowatt wind turbine. So you can imagine for such a small wind turbine that was mostly for farmers, that kind of stuff. And same thing would occur, you have somebody on the hook, six months into the sales cycle, they're ready to close. And then something would happen. And they needed to use that money for a different purpose, right? And you sort of realize that at some point, if they could be using someone else's money, and actually just paying it back over time, that that actually might help you close the sale, right? So when I joined University of Maryland for their business school, that was the business plan I wrote in business school. So, and then I joined BP roughly around the same time. And I pitched the idea to BP and they, they didn't want anything to do with it.

Okay, so it wasn't quite sort of beyond petroleum enough for them. And how long were you at BP?

Four years.

Same time as University of Maryland, the MBA, was that right? You were part time?

Yeah, part time and I finished most of my coursework before I joined BP.

So then SunEdison, and what was the catalyst... and if you think your way back... because also you know, you're like me, you know, we do a bit of everything, commentating and entrepreneurial, and investing whatever, you know, you've also got an amazing entrepreneurship story. So what was the thing that got you to start, you know, to embark on SunEdison?

So I had already written the business plan in business school so I had it, it was on the shelf, because as you know, nobody wanted to invest in infrastructure in the 90s, they wanted to invest in dotcoms. And while I was at BP Solar, the German market took off. And financing was a really big deal. And, you know, people knew that I wanted to talk about financing. So they sent the German team over to me. And we were the ones who invented the whole going to your local accountant in Germany, raising 100,000 euros from every grandmother, because the Germans love working with their accountants to save on taxes. And then basically, after the depreciation period was over, they would donate their hundred thousand euro unit to their grandchildren who didn't pay taxes, and then you know, and then they would keep avoiding taxes, right? So that was, that's how half of all solar in Germany was funded, was through these grandmothers who want to save taxes. And, so then after that, like, you know, there were some folks who wanted similar financing support in the US. And so Target Corporation had come to me, a couple other folks have come to me and said: hey, we want to try to figure this out. And so we worked pretty hard on it. And then after I figured out the solution, BP said: I really have no interest with like BP is... like we don't want to be in the business of raising money for Target or doing tasks for those.

For those who are non-Americans, who don't know what Target is, this is the big home sort of home improvement store, right?

Oh yeah, some other Walmart or these kind of things, exactly. And so BP was like, I mean, it was actually so bad that BP thought that under Sarbanes-Oxley, they would have to report that they were actually selling a tax loophole financing structure as like a disclosure requirement as a publicly traded company, if they want to do this. So then at that point, I was like: look, this is not working for me. Like, there's clearly a market for this, and you guys don't want to support it. So I'm going to leave. And so I left and, you know, we signed Whole Foods, four weeks after I left BP.

And you had a quoted vehicle pretty quickly, right?

We had no, it took two years. So we...

I call two years pretty quickly. You know, because around the time, just to put this in perspective, I said that we both have these entrepreneurial stories. You know, I started New Energy Finance because I was a sort of busted flush, you know, dotcom flameout, I had no choice but to start a company, you actually made some positive decisions. And then you know, but it took me two years and you did your did your IPO and you had a quoted vehicle?

Oh, no, we never got the quoted vehicle. So that was, yeah, so we'll go through that story. So we so I, I got customers to sign right away. So customer signed at Whole Foods, <inaudible>, IKEA, you know, a bunch of people signed up. And then we closed the very... the world's first project finance vehicle for solar within two years with Goldman Sachs. So that was the first dedicated project finance vehicle for solar.

These...So the structure was not quoted then. So because I was going back through the records. I mean, it's now getting a little dusty, as you can tell, but uh, you raised a lot of money in that, 2003 to 2006, you raised a lot of money, right?

We raised over $2 billion. So we raised a lot of money, which back then was a huge amount of money, right? Because, you know, the largest...

2.4 billion, I believe, was the number, according to was then the New Energy Finance data set, now, of course, it's Bloomberg NEF. $2.4 billion. And this, so these were these were in project vehicles.

They were mostly in project vehicles, but then we did raise more money than any other company in clean tech. In 2008, we raised roughly a $900 million round of financing.

Okay, so, you know, this was a, you know, a big deal back then. And, of course, now that there's, you know, 300, 400 billion flowing in the sector. But at the time it was massive, right? Why did you not ride it all the way? You then, you know, turn up at the Carbon War Room, which was founded by Richard Branson. How did that... How did... Why? What happened?

Yeah, so what happened was, so we had written our S-1, we were actually moments away from filing our S-1, when Lehman Brothers failed. And, so we were prevented from going public because the markets were tanking. And, and so I called up our good friend, Nabeel over at MEMC, right, who was you know, shaking people down on silicon at the time, and then, and then he was replaced by Ahmad Chatila and I was able to get Ahmad to buy our company. So I got him to buy it. Because you could imagine: when things are going down, right, then you have to do a down round. And if you do a down round, then all of the employees and people like myself get wiped out, right, by the investors. So I prevented a down round and instead sold the company to MEMC.

MEMC's business at that time was silicon.

Was just silicon, right. And they were sitting on cash, if you remember, silicon was hot, hot, hot in 2005, 2006, 2007, 2008, right?

The silicon bottleneck, I still got the charts, I still use them.

But we all knew that the bottleneck was going away in 2008 anyway, because there were a bunch of large silicon manufacturing facilities coming on. And, and then, of course, with the financial crisis, like their stock plummeted, but they were sitting on 3 billion of cash.

Right? When you say we all knew, of course, you know, somebody should have told the <inaudible> investors. That's a whole other story.

Well, many of us did know, some of us didn't know. And so I sold ourselves to silicon, because I was like, this is the perfect hedge, right, like your product is going down to 20 bucks a kilo, which is where it's been historically...

It went up from 20 to 400. And now it's headed back down, right?

And my stuff is hugely profitable at $3 a watt. And now you're going to be at $1,50 a watt installed. So that means that you're going to keep another $1,50 a watt in profits.

But if I can ask you, though, you know, you'd put this money to work in projects, effectively, and there were many projects or aggregations of projects. Why would it be a down round? Why would the valuation? You know, I'm assuming from that story then, that your investors who put the 2.4 billion, they would not hold. I mean, this was sold at a discount? Why?

No, no, it wasn't sold at a discount. So everyone made money, right? Everyone made money. Everyone got a return of their capital, and everyone made money. So it wasn't that. It was more that, you could imagine that when you have a financing event with an IPO, right? You're expecting some proceeds from that financing event. And so, going into 2009, we actually had money, that wasn't the issue. We had $150 million in the bank. But we said there's all this opportunity around, we need to raise more money. And the investors said: well, we're not going to honor the previous valuation. We're going to do a down round.

And this is of the corporate entity, not the project vehicle.

Of the corporate entity, because they said this is opportunistic. And I was like, well...

So you sold it to MEMC and you decided that you had other... Did Branson come after you, or did you go off to Branson, or how did that work?

Yeah. So basically, when I sold to MEMC, they asked me to stay on and I said, you know, I'm not interested. And then I took six months off, because I, basically I sold the company by January. It didn't close until June, but I didn't have to be a part of that process. And then, so I took time off. And I got a call from a headhunter that said: hey, you know, I've got this interesting, weird idea. Because I've been getting calls from headhunters saying: do you want to set up a solar division for XYZ company and I thought that would be boring. And, and so this headhunter was like: do you want to run a global nonprofit for Richard Branson? I was like: sure, I'll take the meeting. Let's do it.

You know, I'm smiling. I got a call from the headhunter too.

Did you?

Well, yeah. And of course I was: are you kidding me? I'm running New Energy Finance, I, you know... If this goes okay, I should be alright. Yeah. I'm not gonna suddenly just because it's Richard Branson. You know, drop everything and run. But I said that there is this guy Jigar Shah, who looks like he's coming free, you should talk to him.

That's a funny story.

I made that last bit up. But it's a good story, right?

It probably did work. Actually, I do think that one of my buddies from McKinsey actually did put my name forward. Because they were helping Richard put it together.

There were a bunch of McKinsey people who came to talk to me about also, what should Carbon War Room do. You know, how can I put this very nicely? Richard is not a detail guy.

No, Richard... So when, so when I met with him, they said you have to fly to SFO because they were launching Virgin America, this new route or something for Virgin America. So I met him at the lounge for Virgin. And all he gave me was a paper napkin, literally a paper napkin.

With something written on it or just a napkin?

No basically said: I want to figure out how entrepreneurs fit into defeating climate change. And that's basically all that was written on. And there was nothing else there. And so none of the McKinsey stuff, none of the other stuff was sent to me. It was all just like, that's all it was.

And I did see that other stuff and let's put it this way, you probably were just as well off not seeing it. There were a lot of very, very beautiful, you know, two by two matrices and things but I don't think it would have really, you know, done the job. Okay. Now, this is very interesting, you know, because when Richard said he wanted just to know how entrepreneurs fit in, and this has become one of your sort of calling cards, but this is about opportunity. You do this right and we create value. This is not about top down regulation, destroying value, subsidies up the wazoo and so on. This actually is a financial opportunity. And did that thought come together at that point? Or, I mean, you'd already been highly commited...

I certainly believed it before that I don't know that I was ever asked to articulate it. So I never did. But I think, remember what was going on at this time, right? We were getting the exact opposite message, right? Remember, Lord Stern had published his report at the time and Lord Stern's report said it will, we will only have to sacrifice 1% of GDP growth, to be able to solve climate change, right? And I remember then that year, Bono and Al Gore were pitted against each other at Davos, in a, you know, main, like rumble in the jungle, around, you know, development versus greening, right? And I thought that framing was always terrible. I mean, to suggest that we were going to remake the entire energy system, and remake the way we, you know, the reason we actually produce carbon, and that level of deployment of innovation was going to hurt GDP was ridiculous on its face. So, you know, I welcomed the challenge.

That could open up, there's a whole huge, wonderful discussion about why GDP is such a stupid measure. We're framing it with GDP anyway. What actually we're going to do is we're going to destroy and strand a bunch of assets, and we're going to build a bunch of new clean assets, and GDP might well soar in the interim, who knows, because we're going to be doing all of that. And that's the whole, and the idea that you can produce research that says, oh, GDP will be, you know, 2.46803%, higher in 2100 if we do this, and if we don't, and meanwhile, you have COVID and GDP takes this kind of vast hit, which is far bigger, and it's in one year. Yeah, I just find that whole framing completely mystifying, to be honest. But it's just it's sort of fetishistic that people have discussions about GDP in this context.

No, you're exactly right. So when I first pitched Richard, you know, after I'd been in the job for six months, I said: look, we need to blow out this entire narrative, right? This... Remember, at the time, it was like a shared sacrifice narrative, right, of climate change? And I said: no, we need to say this is the largest wealth creation opportunity of our lifetime. And I even coined a phrase, you know, "creating climate wealth". And I remember, I got tons of blowback. Because all the philanthropist said: we hate the word wealth, we want to use the word prosperity. And I was like: that's ridiculous. Could you imagine saying "creating climate prosperity"? No, it's wealth, we need entrepreneurs who don't care, who basically want to make chaos, who want to go in and destroy markets and Schumpeter's, you know, creative destruction, and all that stuff. We need people to, like, be inspired, to, you know, revolutionize these markets.

And I think, to be fair, the way I tend to talk about this now is that it's kind of triage. There's stuff that you can just do right now and make money. Then there's a bunch of stuff that you can't do right now, but it's pretty clear with costs going the way they're going, and with a little bit of regulatory tinkering, and some barriers removed, and so on, you will be able to do. And then there's the final third, which really, really does need some sort of support. And it might be, you know, whether it's, you know, protecting the coastline in Bangladesh, or whether it's ultimately taking carbon out of the atmosphere, because we overshot, there is a third that's going to... But the problem you have is that that third dominates the narrative. And you get all of this stuff about how only a carbon price will work. You're like: why don't you just build some more solar? Why don't you build some wind? Why don't we just have better cars? Why don't we just stop polluting our cities? Why don't we... Just, you know, there's so much we can do. And yet that third, that's gonna be hard to (...). It's not that third, but you know, that difficult third, and then may even by the way, by the time we get to it, it may be a third of a third.

Well, that's the other big thing. And then, but there were a lot of uncomfortable narratives that needed a voice and Carbon War Room was a great place for that uncomfortable narrative. So to give you an example, the Royal Society, right, had published a paper on solar radiation management, right, on geoengineering. And if you remember, geoengineering was quite a difficult conversation to have back then, the environmental groups didn't want to hear about it. And Carbon War Room leaned in and did a big press conference with the Royal Society and we sponsored two major conferences with Ken Caldeira and all of the folks that people know today, but they were lesser known back then, around why it was important to study geoengineering because we probably were going to need it at some point, and some of the lessons from it.

Right. And I... geoengineering, I mean, we could do a whole show on geoengineering. Maybe we should, but you know, we should be studying it. But my goodness, I hope we never need to use it.

Well, we all agree with that. But at the time, remember, people were being ostracized for even talking about it. And we were saying you can’t ostracize people for talking about it. I mean, you know, it should be on the table as a discussion topic.

But it is interesting how Overton windows shift. Yeah, because there's another one, which is shifting now. And I think, hopefully, we'll get back to time to get back to it later in the show, which is nuclear.

Well, yeah, no, we should definitely talk about that, that is right. But this is where...

I want to stick with this thesis, or this theme of creating wealth through climate action, because that's, you know, at the same time you were doing that I was, of course, building New Energy Finance. When I started it, that only business people talking about climate change were the insurance companies saying: it's gonna get ugly, this is really bad, this risk is not being priced in. And I came along naive little me, straight out of the dotcom flameout world saying: aren't people gonna make a ton of money? And this is more inspiring, and more: are we going to get, and my thesis very early on was that this transition is a complete transition, that it's going to cost trillions of dollars, that you're going to need policy, but the government's just don't have the money. They just don't have the money. So it's got to be private funds that do most of the heavy lifting. So I'm, you know, and I guess it becomes really interesting when you start to look at things like the Green New Deal, which still seems to be built on the thesis that governments do have the money, which they don't.

I don't know if that that's true. I think that so on the one hand, I mean, just finishing up the Carbon War Room era, like so I think, what we successfully did by Paris, and I think we should take full credit for it, although many people helped. By the Paris Agreement, we had over 61 heads of state, including the Prime Minister of India, saying that this was the world's largest wealth creation opportunity. And I think that mattered, because I think up until that point, the COPs were all talking about shared sacrifice. And I do think that Richard Branson played a pivotal role in opening up the Overton window, when he said "largest wealth creation opportunity on the planet". And he said it every year, every COP, with shipping and all the other stuff. It got covered in 161 newspapers the next day. And I think that does matter. I think it was an Overton window exercise that the Carbon War Room did. But I think that and what it did for me was, frankly, give me an ability to learn about things other than solar. I mean, I know a lot about solar...

Can you talk us through some of the things I associate you .. or your Carbon War Room years with shipping, because you were trying to persuade ship owners or ship charterers to actually do something about these low hanging fruit and improve the efficiency of their ships. But what else were you working on?

Well, we did a lot of work on like, for instance, we did the first ranking of biofuels alternatives for aviation. Remember, at the time, the Department of the Navy as well as the Air Force was signing up these exotic contracts with Solazyme and LanzaTech and all these other companies.

I always remember George W. Bush talking about Baba Suna? Remember those?

That's right. And so we were the first group to actually put together a technical led list of like, here's who we think the top 10 you know, technology providers are, and here's why we think that they might actually have some merit, right, which was a big deal, because back then, I think, you know, Vinod Khosla was taking a lot of the air out of the room with stuff that we looked at. We were like, this doesn't even follow the laws of thermodynamics, what is going on here, right? And, and I think that like so we brought a lot of...

I remember him getting very annoyed when we pointed out that none of his investments and that, you know, that they were all sort of spiraling down the plug hole or most of them.

Yeah, that's another podcast that we should go through. Yeah, but no, but I mean, and then the Carbon War Room also did a tremendous amount of work around just existing sectors and why they were having problems like, for instance, combined heat and power. We did an entire effort on combined heat and power and what the structural challenges were around how the engineering work was super expensive, and they couldn't just do approximations and like why that caused a whole bunch of barriers to mass adoption. We did a lot of work on property assessed clean energy financing, as well as the utility bill financing...

That's another great business model. So that just for those who are not familiar, that's the PACE model I associate with, with Dan Kammen at UC Berkeley, I think it is, pretty sure.

That's right, no, he's at Berkeley. But we did the definitive...

And that's where you get energy efficiency down on your house, and you add a little bit to your municipal taxes or to utility bills. And that seems to be now having another rush of life.

No, that's exactly right. So we focused on areas that I had expertise, which is...

So you went into a number of these sectors, which are absolutely seminal and important sectors. But I do want to ask you this: Richard Branson, you know, that word, that advocacy, you know, you kind of got to give him high marks, you know, 8, 9, 10 out of 10.

Yeah.

But for his own operations, he's really done very, very little. I mean, there's a guy who owns an airline, who wants to burn vast amounts of fuels putting people into orbit. I'm a member of the Virgin Gyms in London. And I will tell you, even though he only probably owns a tiny piece or whatever of the equity, but I will tell you right now, they don't even have recycling bins. Virgin Gyms do not do the... They do nothing on advanced heating. They, I mean, you know, you couldn't think of a less concerned business, frankly. Why doesn't he walk the walk?

Well, that's the whole thesis that I bring to the table. And I think you bring as well, right, is that this has got to be structural. The notion that individuals are going to make individual choices that allow them to, you know, to reduce carbon emissions, it's fanciful. It's the same argument that we made with...

He's not an individual, Jigar. He's this massively wealthy guy. And, you know, there is literally no evidence in his businesses that he's, or is there, maybe I'm missing something. But some of the ones I'm familiar with, you know... And as you know, you know, if you've got a chain of gyms, for sure, you can make money by being more energy efficient.

Yeah, no, look, I agree with you. But remember how Richard Branson makes money, right? Richard Branson goes into commodity businesses, right, that normally spend 20% of their total revenues on marketing. He dresses up like a woman and does all sorts of weird things to get earned media and spends less than 3% of their revenues on marketing. And he pockets the other 17%. That's his whole business model, whether it's Virgin Mobile, Virgin Airlines, Virgin Gyms, Virgin Trains, his whole model is that all the money that you would have spent on marketing, I do and get earned media, and I pocket that money, right? And then in the later part of his career, he was able to get other people to put up 100% of the money. All he did was label it Virgin and get 20% equity in the business, right? And so like, that's his business broadly, right? And I don't know that he has to change his business. But this is why I think that what we need to do is to make sure that technology's ready, which is what you're suggesting with energy efficiency and recycling, and that the government mandates are matching the technology. Because I think that you and I both believe that if what we're doing is expecting rational behavior out of all of these players, my sense is we're going to be waiting a long time.

Yeah, I guess I'm just looking for a little bit higher level of consistency between the talk and the walk, maybe I'm doing things wrong, because I try to bring that myself as a leader or as a voice.

No, I do too. But having met a lot of these people in the past, like, for instance, I've worked with large corporations that, you know, have asked me about, I don't know, like, soil carbon, for instance, and figuring out ways for them to get carbon credits and their soil carbon. And I was like, you're one of the largest purchasers of vegetables, why don't you just mandate soil carbon practices from all the people that you buy vegetables from? And they would rather just buy carbon credits from Indigo Ag or Nori. And I was like, but you could actually just force the people that you buy vegetables from, to like, you know, change their farming practices to put more soil... carbon in the soil and take those credits.

And I wonder, it's an interesting question about whether we've now reached a level of education and whether now, the kind of sustainable finance push will force a bit higher level of integrity into those supply chains. I'm thinking of things like, you know, the oil companies that are withdrawing from lobbying organizations. They say they want to be net zero or they want to be climate responsible and then they're in a lobbying organization. The great one was Business Europe, yeah, where all these companies were members of the WBCSD and putting out statements about how wonderful they were. And then they were also members of Business Europe which like: oh, I think we should slow down this initiative and we wouldn't want to do that and we mustn't do electric cars, and blah, blah, blah. So hopefully, we're now in an era where that becomes a little bit less easy to do. I don't know.

No, that's the hope, right? Exxon Mobil has publicly said that they want a price on carbon, because it will make their life easier. When you talk to their lobbyists, they have never talked about it with any elected official ever. And they would never lobby for a price on carbon. But it's just on their website.

Okay, another podcast we could do, right, about sort of mismatches between walking and talking, you know, in all sorts of industries and sectors, but I want to talk about subsidies, because you and I have both been vocal about remove all energy subsidies, and of course externalities to the greatest extent possible. Where did that come from in your case?

Well, I think the highest profile calling for removing subsidies on my part was on the tax credits in the US, right? Like, as the cost of solar and wind have come down, a couple of things occur, right? One is that the prices for solar and wind power were artificially high, because of the credits. I mean, the credits allowed you to... I mean, you see that, right? The cost of residential solar in the United States is three times what it is in Australia and two times what it is in Germany,

Even in states like Nevada, where there's the same solar resource.

Yeah, it makes no sense. But it does make sense when you think about maximizing the value of the subsidy, you want to artificially make it higher priced, right? So that's one piece of it. The second piece of it is somebody who is a bottleneck for tax credits, right? I have access to as many tax credits as I want access to monetize, because of the position I have in the industry. You know, I believe that we should reduce barriers to entry in the sector, right. And tax credits are absolutely a barrier to entry in the sector. So I'd rather have higher PPA prices. So instead of having a 1.5 cent per kilo...

And that's because somebody might not have their own tax to shelter, they may have to identify a player somewhere else. And you're saying that you've got the network, you've got the connections, you can do that easy. But if it's just you know, the equivalent of that German grandmother, but in Nevada, she's not gonna be able to do that. So she's out of the play.

We want to level the playing field. The third is that is it tax credits are a systematic way that we in the United States subsidize innovation, right? And the total market size of tax credits in United States varies, but it's somewhere between $9 and $10 billion a year of active buyers of these tax credits, right? If solar and wind is taking 8 billion of that money, well, how much is left for small hydro or anaerobic digesters, or fuel cells or other? Or geothermal? Right? I mean, you know, and it's, I don't fault the tax credit buyers, they say: why would I bother educating my investment committee on geothermal, when they already are used to buying solar? Unless there's no solar projects to buy I'm not gonna, you know, try to get smart on geothermal.

Right. And, I mean, I also think there's a kind of a messaging problem with activists saying: don't touch our subsidies. You know: we've got to keep the subsidies in place. It's the only thing that keeps this industry going. Otherwise there'll be all the job losses, and it's the standard script, right? But if... I'm a conservative 'small c' whatever you want to call it, I'm a member of the Conservative Party. So I'm actually a big C, as well. But you know, I know how people on the centre right, forget the far right, that we forget that. But I know how the centre right thinks. If you say, well, "don't touch our subsidies, because there'll be all these job losses and the industry blows up". All I hear is this is a non-viable industry. This is a non viable industry. So you're just the only reason you work is because of the subsidies. And then I'm going to go after them even harder, and rightly so.

No, I think you're absolutely right. So that, I think, is the next level of argumentation, right? So my first three were just really more about why I took such a high profile position around phasing out the subsidies in the tax credit market. But I think you're right, in terms of like raising it up a notch. If we're going to put, you know, I think what are the latest numbers one and a half trillion a year that we need to invest in clean energy solutions to get us, you know, down the curve, you know, at that level, subsidies are not going to be this big mover of the dial, right? I think with a big mover, the dial is really going to be, you know how we actually reduce barriers to getting these technologies in place.

Yeah. And I think, you know, spend money on R&D, and make sure that deployment can happen and get the barriers out there. I agree with you. The reason I mentioned geothermal is that both you and I have got sort of public interventions in geothermal You wrote, I'm now an adviser to a geothermal, advanced geothermal plant called Eavor, and you had a piece with Tim Latimer of Fervo. That's an EGS player. What do you think? How much hope should we put in geothermal?

Well, I think that it's the same as every other sector. And I learned a lot of this from the Carbon War Room, right? Which is that when you think about how a lot of these solar and wind farms get built, it's somebody who basically takes a Don Quixote-like attitude for four years, before a project gets built, right? It's imagination, it's an empty piece of land, they think: oh, I could build something here that's worth a lot of money, that actually generates jobs, that creates all this stuff. And unless that person is willing to work, in solar/wind case practically for free, for four years, you don't actually have a project worth funding. And in the geothermal space, that formula is yet to be created. If someone spent three to four years of their time, saying: let's map out the subsurface, let's figure out this, let's figure out that, let's do this, let's do that. Is there someone actually on the other side waiting to fund the deal? And the answer has been "no". Even though everyone knows that we need geothermal, right? Every modeling exercise that's ever been done around high penetration of renewables, says that we can afford to pay 10 cents a kilowatt hour for 20 to 25% of the power to come from technologies that can run 24/7 or be more dispatchable, or all those things, right?

And the great thing about geothermal is actually it's not just that it's 24/7, it's actually dispatchable. You can actually load follow really, that makes it just so interesting in my book

But we've allowed many of the decision makers around these financial instruments, the power purchase agreements, etc., to say: no, no, just now sign the lowest possible cost of energy, right, which is solar and wind, as opposed to balancing the grid and figuring out what characteristics we need, etc. And I think when you look at those characteristics, geothermal is at the top of the list, not only is it the top of the list, but we have 40 years, 50 years of experience on how to manage these kinds of assets, which makes a huge difference to a lot of the big players like Schlumberger, Halliburton and others who are looking for something new to do.

Okay, so let's talk a little bit more about financing gaps, because I don't know much about the deals, I know some of the deals that you've done at Generate Capital. But you've really sort of pioneered as an investment house, you've found models that have not been able to raise finance from others. So you're not the entrepreneur anymore. But now you're the financier of the entrepreneurs, how I kind of see it. Is that right? Is that the business model?

Yeah, I think about all the people I pitched in the fall of 2003. For money, and, you know, many reasonable people, many people who were friends of mine who said: Jigar, I honestly don't understand how this is gonna work, you're going to get Whole Foods to pay you for power for 20 years, you're going to put solar panels on their roof, you're going to actually, you know, save them money on their electricity bill. Like, I just don't understand why this even works. Like how does this even happen, right? And so we are now the pre-educated source of capital, that doesn't say, you know: oh, we don't know how this is gonna work. We say: interesting. So you're taking a bit of the business model from here, and a bit of the business model from here and a bit of the business model from here, and you're reconfiguring it this way. Now, here's 50 questions I have for you. And let's talk about it, right?

Give me a few examples of sort of new models that you've opened up that way?

Well, when you think about electric vehicle buses, for instance, right? So when we talk to... The way the United States works is you have these companies who are in the middle, who have basically no credit worthiness, right? Companies like Transdev out of France or WeDriveU out of San Francisco, and they manage the buses. And they, you know, get rented out to Facebook or Genentech or some of these other companies to provide transportation services to their employees to get to work, right? And it's a five year deal. But the buses are 20 year assets. But Wells Fargo is happy to finance it on a 20 year basis at 3% interest, because they've got a guy in Mexico, who takes their used buses and buys it at a fixed price. And so they've got the entire supply chain worked out. So they know what the residual value is going to be. They know what this is going to be. They know what that's going to be. And so they're okay. Even though WeDriveU has no balance sheet, they trust the collateral curve of the bus, right? So they say: that makes sense, I can take that risk, even though you may not be good for it, if I have to take the bus back, I know how to get my money back out of it. And electric vehicles, they don't have that level of confidence. They're basically saying: If I get stuck with this electric bus, that guy in Mexico isn't going to buy it, right? And I don't know if I can separate the battery from the bus, I don't know who to give the battery to even if I was able to separate it, who's gonna monetize it, etc. So then they're charging, you know, 9% interest, right? And they're saying: oh, by the way, WeDriveU, right, you guys have a billion dollar balance sheet, but you make $3.5 million of profits every year. Like that's not a good enough balance sheet for us to just give you a loan based on your balance sheet credit, right? And so the whole market was broken. And so we had to step in and say: we own batteries, so we know what they're worth on the grid. So we can actually do that calculation. We actually have a deal with BYD and here are the risks BYD and you have to take.

And this is BYD - one of the big Chinese electric bus manufacturers.

Large ownership stake by Warren Buffett, etc. Right? And, you know, like, here are the risks that we need you to take here there was that we need ourselves to take. And here's the risk that we need to put on this group and that group, right? And we were able to reformulate the entire risk reward and give them an offer.

And you put a couple of hundred million into this, so you own a couple of hundred million of electric buses by now.

Yeah, well, that's right. And even today...

And presumably you're doing it somewhere between the 3% and the 9%.

That's right. But even today, this market hasn't been fixed. So even today, if you go to a traditional bus financing group, and say: now that Generate's done a couple hundred million dollars of this stuff, do you feel more comfortable, you know, providing services? They're like: no, the market still isn't mature enough, we don't feel comfortable yet.

So just if you can rapid fire because we need to move on. I want to talk a little bit about what's happening in the run up to the election and maybe some of the details of the COVID recovery plan, but just rapid fire. Buses. What else have you done at Generate Capital?

Fuel cells, we're the largest processor of food waste digesters in the US, renewable natural gas behind the meter battery storage. So yeah, it's a lot of different things. And then now we're doing a lot of stuff in like demand response and load control. You know, another area where...

Will you stick with sectors as they mature, or do the margins go down, and then you'll always be the kind of innovator on the slightly higher margin bleeding edge?

Well, yeah, no, all of the above. I'd say that, you know, ultimately, when these sectors mature, we are able to access a lot more low cost debt to match our equity. So instead of having 100% equity, now we're 90%.

You're gonna follow these yields down...

At some point, people get crazy, as you know, and then we exit stage left, right? There's some people where we say: we have no idea how to justify what... the offer that you got from that other group, so you should take it.

Right. Okay. Well, good. Good luck with that. And, I yeah, you know, I've seen that curve where the margins can get bid down to such low levels.

No, that's right. And then we exit.

Sort of a planetary perspective, that's a good thing, right?

That's right. No, that's exactly right. I'm happy to see the bubble. I don't want to participate in it.

Ok, the pandemic. And, you know, I don't want to sort of jump immediately to talking about the impact on our sector without acknowledging that this is a huge tragedy. It's clear, it's already at 800,000 deaths worldwide. It's clearly going to go into the millions, we don't even know, it could be much more, we don't know about second wave. So, you know, everything that we talked about should be in the context, I think of horror really, at the situation that it's even arisen. The US response, big stimulus program. How can I put this nicely? It didn't really do much for clean energy. And it didn't feel like the Democrats, the current set of Democrats in Congress really fought particularly hard for clean energy. Am I wrong? Am I being uncharitable?

No, you're not wrong. And I certainly said the same thing in the press. And so, you know, I'm on the record there. And I got a lot of angry calls from the Democrats saying: why are you saying this stuff about us. But I think largely, I would say that almost all of the stimulus that's been passed in the US has been sort of relief related and not stimulus related. So for instance, these oil and gas companies truly were bankrupt, right, because oil prices went to negative actually at the hub here and the oil companies are not being buoyed by the Federal Reserve. It's more just that like the bonds that are underwater that were being held by Wells Fargo or the people have been refinanced out by the Fed, right, at lower interest rates. And those companies have all become zombie corporations, because they can't raise new money. And they, you know, can't make money work, they can't make oil work at 40 bucks a barrel. And the renewable energy industry basically continues to have free access to capital. And so that's why they haven't received a lot of support from these programs, because they didn't need to agree to the harsh rules and regulations around taking this money.

But you know, we're only halfway through this process, there is another round. I don't know whether it'll get done before November. But there's going to be clearly more support needed. And it's not just oil and gas versus renewables. There's car companies there's airlines, you know, there's... I've written and been very vocal about the role of energy efficiency, and this, you know, you've got low fossil fuel prices. But on the other hand, energy efficiency is such a no brainer to get lots of people to work, people who will spend money immediately. Huge multiplier. You know, and I don't know, what's sort of... maybe talk us through the future in terms of the chunk between now and November and then November onwards?

Well, look, I think the stimulus bill in the United States - it's very difficult to see how anything gets passed between now and November. I mean, everyone's out campaigning, I don't know if they can actually come back and do any work of the people. You know, I think there's a lot of hope, although I'm not sure it's well placed, that, you know, Biden's gonna win versus Trump. And if Biden does win, I think it'll be a large stimulus bill right after. I mean, hell, if Trump wins, there probably be a large stimulus right after. And the goal, I think, is to have a bunch of this clean energy stuff there. I mean, the bottom line is, look, the US has double digit unemployment rates, I don't see how we go below double digit unemployment rates for the foreseeable future. And the only industry that I know of, that can absorb the amount of money necessary to put five to 10 million people to work, and do it in a way that doesn't totally screw up the economy and create hyperinflation and all that stuff, is clean energy. Right? We did 1.2 million home weatherization, energy efficiency in 2009 with a stimulus package then. We have 12 million homes to go. I mean, three years ago, we had a polar vortex in the Midwestern United States, where...

Across the US surely more, no?

Well, 12 millions across the United States, but I think we have about 60 million single family homes in the United States. And 12 million of them, basically are on some sort of bill assistance with the utility.

Okay, so this is sort of the energy poor.

The energy poor. Right, right. And so you've got, you know, homes during the polar vortex three years ago, where it got to negative 20 degrees outside, right, that couldn't literally heat their homes to above 50 degrees Fahrenheit, because the homes were so leaky, right. I mean, people were freezing, right? And you can imagine the political support to get that done is pretty huge. But 12 million homes, I mean, that is a huge amount of labor. It's not possible to get that done without a lot of people.

Okay. But meanwhile, you know, the Democrats seem to have something of a war that's been going on between the Green New Deal side of the, you know, the kind of, you know, Alexandria Ocasio-Cortez and Ed Markey. And then on the other hand, you've got Nancy Pelosi saying: this isn't really our faith, and this is going to put people off, and I don't even know, you know. And I would say, I would call them the business-as-usualers. And Joe Biden, to my mind comes much more from the business as usual, you know, side of the Democrat Party. So, you know, how does this play out? And because there is now a Biden Plan, I know that you've been one of the members of Clean Energy for Biden. How has that sort of, I don't want to call it the civil war, but that, you know, those two very polar different views of what energy policy should look like under a potential Democrat. How has it been resolved, or is it just a truce? Or have they really come together in this, you know, between, halfway between those positions?

Well, I think, I mean, they have come together because I think American democracy really is at risk under Trump. Certainly American global leadership. I think, in terms of AOC, right, I would say that she's probably one of the smartest people I've seen and met, you know, in my, you know, sort of observing politics for a long time. When you talk to her, she's very clear that all she's doing is moving the Overton window, right? She's very clear that her job is to make sure that, that the Overton window moves closer to the actual middle. Because for 20 years, it's been moving further and further to the right, right? And because the Republicans in this country have been the unyielding party, the party of craziness, and you know, and the Democrats have been reasonable, and so all the compromises have been to the right. And so I think she's just trying to move the Overton window over. So I think, you know, once the sausage making process occurs, sausage will be made, and people will cut deals, and we're going to get something passed. I'm not worried about that. The other thing, I would say that the US has a legacy of which Europe, I think, has, you know, some issues with. But, you know, less, I would say than the US. When FDR passed the Green New..., sorry, when FDR passed the New Deal, the way he did it was with the Southern Democrats, right? So with red line districts and said, you know, African American people are not eligible for mortgages, right, African American people are not eligible for the G.I. Bill to get education, right, African American people are not eligible for wealth creation, basically. Right? And so it wasn't until the Civil Rights Acts of 1964 and 65, that some of that stuff was remedied, the Fair Housing Act and all those things, right? And so you could imagine that we have systematically in this country, right, said the right thing about equality, and done the wrong thing. Right? And it's led to, you know, white people in this country having five times more wealth than black people in this country. And so it's no wonder that in the renewable energy sector, most entrepreneurs are white, because it takes a little bit of money to like, actually develop a solar development company. And if you don't have you know, $200,000 available in your mortgage in your house, home equity, well, then you can't borrow money to start a business. And so it's not wrong for them to acknowledge that the more inclusive this wealth creation is, the more political support we're gonna get for it.

You're talking to somebody who has, you know, been very vocal, you know, I went out very early and said that we got to have women up on the on the stage at Bloomberg, New Energy Finance, or even New Energy Finance summits. And I've tried to invest in women entrepreneurs, I've done, I'm on the advisory board of two women in energy groups, and so on. And I'm still, I'm uncomfortable. And so it's kind of like, I agree that there's a clean energy agenda. And I agree as an inclusion and a justice, social justice agenda. I just find it difficult when the two are linked. And when you start to say: well, you know, we sort of we're going to set the climate agenda has to also solve all of these other problems, including, you know, police violence and housing, and etc.

Yeah, no, I don't. So they're not linked in that way. Right? They're linked from the perspective of a policy position on a website. But remember, we don't have a parliamentary system in this country, right? So at the time at which, you know, Biden gets elected, or Trump gets elected, they still have to duke it out with the House and Senate. And at the end of the day, whatever passes, passes. So if some of these provisions are in there, great. If they're not in there, fine. Right? They're gonna, like, no one's gonna veto the bill, because this stuff is not in there. Right? But they are going to start with a bill that has all of it in there. And then slowly, they're going to start making compromises, right?

And so the bill as it stands, though, the Biden platform is what - a couple of trillion dollars, all clean energy, nuclear is in there, right? You and I will be pleased that nuclear is in there. And, you know, in Europe, of course, you've got the taxonomy for sustainable finance, which excludes nuclear which I think is an absolute...

The Germans have excluded nuclear from all BlackRock ESG funds. So the Germans have said that we will not support any BlackRock ESG funds, if they invest in nuclear.

To me that is so crazy, because even if you had a, you know, a sub window, the founder and investment, just all we want to do is run safe nuclear power, existing nuclear power stations for longer. That's all we're going to try and do as an investor. That's our thesis. And you know, you've already got the waste. It's not like you're going to get less waste by shutting these things down early. It's not like you're gonna have a tsunami in the middle of Germany or in the middle of, you know, the Baltic republics or the Balkans wherever these things are operating, and that is excluded. And I find that, you know, and conversely what it's doing is continuing to burn coal and killing people through air quality. It's just an extraordinary thing.

I would say to take that up a level: it's also been a problem broadly with the sustainable investing, social investing movement, right? Like so when you think about the companies like Calvert, or Domini, or others from the 1980s, right? They had been pursuing exclusionary investing for years, whether it's no military or no gun manufacturers or no whatever, right? And I think what everyone has proven by back testing all these theories, is that exclusionary investing actually is sacrificing something.

Yeah, sacrificing returns.

And so what you want to do is to actually pick the most responsible of each of the component S&P 500 companies. So you want to pick the best energy company, the best defense company, the best company, and on these ESG factors. And what you find lo and behold, is the ones that actually have better governance and better social and environmental factors are also better run companies. Right? And so it's actually better in the long run. And so, look, I think that this is a fight that we're going to continue to have to have, right, because environmentalists, like being exclusionary and clean energy entrepreneurs like winning.

So let's be practical here. If I come to you in a few years, and I want to build a first of the kind, or maybe, you know, probably first of a kind, small modular reactor. And I say, you know: Jigar you said that you know, that you're not scared of technologies, this thing is just great. It's the best in class. Here's the financials, would you look at it?

Well, we don't take technology risk, right? So Generate Capital doesn't take technology risk, we take perceived technology risk, right, so things that are misunderstood.

Okay, so let me twist the scenario just a little bit. So we can like, push you on this. Yeah, they built one at, you know, I don't know, Oak Ridge National Lab...

It's been running for 3 years.

It's been running, you know, the technology risk... I mean, frankly, you know, all the pieces are known. And now it's been put together once. I want you to finance number two.

Yeah, we might finance number two. I mean, that's the thing. It's like, it depends on the structure. So if they said: hey, Jigar, it's a pure PPA, right? You have to own it and these guys will buy the power if it gets produced, and the best you're going to do is an 8% return. My answer is probably no. Right? But now if they say: hey, Jigar, you know, we're gonna pay a fixed capacity payment of x for it to be around, and then we're going to pay a variable payment of y, you know, so are your capacity payment return is now 4%.

And by the way, I'm going to give you some warrants, because if this thing works in number 3, 4, 5, they're going to be queuing to finance, so you should be well off that.

But that is precisely what we do is we educate entrepreneurs and say: here's the box of which what we'll do, and oh, by the way, here's a loan guarantee program at the federal government level that you can apply for a second of a kind unit that then derisks our investment. Right? And here's another financial structure you can do. But that's the whole point, like these technologists in general are experts in their technology. And they're experts in figuring out how to get their technology to be better, and their cost to come down. They're not experts in project finance. So that is what we do is we provide free consulting for two years before their first project is ready for financing.

As you say that I'm thinking of a bunch of very smart people who have, you know, subsurface drilling capabilities but do they know the electricity markets? And then do they know, the financial structuring that might be required in the policy environment? The answer is: that's the new bit they're gonna learn. Okay. All of this sounds great. But there are also, I mean, there are people who are really, really digging in against this, there are people who will use every argument in the book and every policy tool to try to slow down. Now we're making it sound too easy, I guess that's what my worry is. And I'll give you an example. California right now, and you could look also at the, you know, the power outages in Australia a couple of years ago, and yeah, pylon blew down. And apparently that was the fault of the wind farms. But, you know, California feels like, you know, there's at least some merit and the argument that says resilience is being challenged, is being harmed by this stuff. Is that fair? Or even that argument has no merit?

Well, I mean, the details matter, right? I mean, we can't argue all of it at the 50,000 foot level. I mean, the bottom line is California is not a big C or a small C conservative state. And ultimately, California has been the nanny state, right? It has prescribed every single detail of its transition. I can show you where two to three gigawatts of backup natural gas generators are available in California that are privately held. We own a lot of those generators in Texas. We have a full ability to get paid by the market if the market is short capacity, they pay us to turn them on. In California no such mechanism exists. By the way, we've been lobbying for five years for that mechanism to be put in place. Had that mechanism been in place, which they could just copy from Texas, they would have had no blackouts. Right? And so California was so against these natural gas generators being used that are on private property, you know, for eight hours a year, that they basically ran out of tools by which to load level the grid, and they had to black people out, right? To me, just because in the long arc of technology deployment we're decarbonizing everything, doesn't mean that we should say, that these existing assets that are currently available, should not be able to access the market. But California has consistently said that for five years. So my sense is... in Australia, by the way, is far worse in that aspect. So the way that markets are designed matters, right? And I think for folks to say: well, it's renewable energies fault, this group's fault or resiliency's fault, or whatever it is. No, like, we can be consistently trying to figure out how to decarbonize the market and reduce stranded costs, while still saying that all of these other options are available. For instance, Nest has been testing and piloting changing the thermostat settings for five years in California. Was Nest allowed to get compensated to save the grid last week? No, they were not. They were not allowed to do it, even though they've been piloting for five years. Whose decision was it to not allow that tool to be in the toolbox? California.

I mean, this is great, because I need to get more into the detail. In fact, to be fair, some of the detail hasn't been revealed yet.

No, of course.

The investigations... But, you know, in Australia, there was some pylons, you know, blew down, and then some wind farms tripped out. And it turns out that the wind farms had been set to switch off if the voltage dropped. Well, you know, that's kind of dumb, right? So I think what you're saying is that in the detail, you can avoid these situations.

Well, not just dumb, but remember that in the US, the IEEE standards mandated that solar had to trip off if the grid went down. We have known since 1982, that solar inverters can provide all sorts of grid services to the grid. It wasn't until a modification in the code three years ago, that we were even able to legally provide those services in the United States. Right? And so I just think that, you know, we have to be cognizant of the fact that like, that these little details matter, because otherwise we don't get fully compensated for all the benefits that we provide.

Okay, now, we are almost out of time. And there's just one other thing that I want to ask you about. And that is, actually, you hinted that you may, that you are not as confident in a Biden victory as many of our circle appear to be. And I agree with that. I think this thing is far from a done deal. But you know, and maybe it may be your answer is not going to depend on whether Biden wins or doesn't win. But over the next year, if we watched the news, and we put in a Google Alert on Jigar Shah, what are we going to see?

Well, I think we're going to continue to see more of the same, right, which is...

From you, specifically news about and involving you. Come on, there must be some big thing that's going to...

Well, like for instance... I mean, I'm on the leading edge of lots of things, right? So like we're working really hard on green hydrogen, because our portfolio already buys 27 tons of hydrogen a day. Right? So while everybody else is...

And these are for fuel cells presumably...

While everybody else off pontificating... These are fuel cells for forklifts. And so from Plug Power, so (...), we're actually looking at real green hydrogen facilities to fund, right? Like, you know, when you think about Uber and Lyft, and the ride hailing platforms and their desire to go to net zero vehicles, right, and electric vehicles, like we're actually in the weeds saying, who would maintain these vehicles? How would you return the vehicles? How would you do this stuff? Like, where would you get the financing from and how will the construction happen? If the platform goes bankrupt: How would we reallocate those electric vehicles to someone else so they could pay us for it, right? Like we're in the weeds on all that stuff. So when the regulation comes down in California or someplace else have mandates them to do EVs, we're the first group and the only group that's actually capable of financing.

Okay. So could be hydrogen, could be something around ride hailing. But you're hinting that it's going to be more innovative stuff through Generate Capital, it's not going to be a role in a potential Biden administration.

I did see the rumor that I was being positioned for Energy Secretary but with all the stuff I've said on your stage, I'm not sure that I can get through a confirmation hearing.

Well, I'll tell you, it would be a wild and exciting ride, I for one would be, I would watch and I would wake up, you know, every..., I'd stay up late every night to follow the twists and turns of that one. Jigar, what a huge pleasure. Thank you so much for joining us here tonight. And I'm just down to my last sip of beer. I'm going to finish that off. Cheers. Thank you so much. It's been absolutely a pleasure.

My pleasure. It's always fantastic to talk with you.

So that was Jigar Shah - entrepreneur, investor, media figure, an all-round guru on clean energy policy, clean energy technology, clean energy finance. My guest next week on Cleaning Up will be Angela Francis. She's the chief advisor on economics and economic development at WWF. And no, I don't mean the World Wrestling Federation. I mean, the World Wildlife Fund in the UK. She's an extraordinarily clear thinker about the transition to a net zero economy. That's of course enshrined in UK law. And there are many other countries that will be pledging that sort of transition at COP 26 in Glasgow in 2021. So that's what we're going to be talking about. And please join us. Thank you.

Ep9: Jigar Shah 'Creating Climate Wealth'

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