“To me what matters is American dominance in these sectors of the future.” Q&A with the DOE’s Jigar Shah

In President Joe Biden’s mission to build a US battery supply chain to compete with China, the Department of Energy plays a central role.

The department’s Loan Programs Office has the authority to disburse billions of dollars in loans at US Treasury rates to help mature companies reach full commercialisation – helping to fill a key funding gap that will then hopefully unlock additional capital.

Biden’s Inflation Reduction Act increased the amount of money the LPO can lend under the Advanced Technology Vehicles Manufacturing Loan Program, which was set up in 2007, by an additional $40 billion.

As a result Jigar Shah, the head of the Loan Programs Office, has become one of the most well known people in the US battery supply chain. “He’s literally the most popular guy in town,” one US battery manufacturer told Benchmark. “Everybody knows his name.”

He has made the first loans to the critical minerals sector under the program. In July last year the DOE lent $102.1 million loan to Syrah Technologies for its graphite anode facility in Louisiana. And last month it signed a $700 million conditional loan commitment to Ioneer for its lithium-born project in Nevada.

Benchmark Source sat down with him to learn more.

Could you tell us how many applications you have for how much money in the battery supply chain?

We don’t have the ability to answer the questions specifically but I’d say we have several applications for critical minerals in the Loan Programs Office, which include processing facilities as well as recycling facilities. I think it exceeds $7 billion. So it’s been an exciting time in the critical mineral space.

What is the distribution of loans across mining, processing and batteries?

I would say that today the requests are probably half for recycling and half for processing in general. The Loan Programs Office focuses on the very end of the process – projects have probably been in development for, you know, upwards of six to 10 years before they come to the Loan Programs Office. So I do think that because of our success, and because people now believe that the Loan Programs Office will be there for them we’re seeing a lot more confident capital formation in earlier stages – because they believe that over time there will be more debt available from the Loan Programs Office.

A lot of the funding you’ve committed is more for the mineral processing side rather than actual mineral extraction, why is this? Is it true you won’t lend to actual mines?

In general, I’d say that we try to narrow our scope to areas where the DOE [Department of Energy] has expertise. So we have expertise in mining processing technology, as well as mining equipment like the big trucks if they want to electrify them or some of that work. But in general, we don’t really have a lot of expertise in the digging up of the ground and, you know, some of the environmental issues there. So, I think we try to stick to the scope of work where we bring expertise.

Permitting has sometimes caused delays for new mines in the US, and some are calling for permitting rules to be reformed – is there anything DOE can do to streamline that process?

Well, the Loan Programs Office has its own environmental team, which works on projects. Of course, if the projects are on BLM [Bureau of Land Management] land, federal land, then BLM would take the lead, but we would partner with BLM on the NEPA [National Environmental Policy Act] process. And I think in terms of permitting reform, I mean, certainly there’s been a bipartisan desire to do it. So I think we’re hopeful that a lot of these projects can be successfully taken through the environmental review process and, you know, brought to a commercial status.

How important is it for the DOE to step forward to fund mining projects – given record high lithium prices why isn’t capital going into these projects?

I certainly think that the mining industry has a lot of scar tissue from the commodity supercycle. And the subsequent, you know, sort of crashing of prices during the financial crisis. And so as a result, high priced commodities doesn’t necessarily mean enthusiasm for long term investments. And so I think having the Department of Energy come in early in the process, and demonstrate that we are putting our stamp of approval on a project, I think has gone a long way to helping companies raise the equity necessary to complete projects.

There’s lots of innovation in minerals processing with Direct Lithium Extraction and other methods. How much do you look to support new technologies, or should the US just go with what’s proven?

I don’t think we have a point of view on that. The advanced technology vehicle manufacturing programme does not require innovation to use the programme. That being said, I think many of our applicants are using innovative approaches, like if you look at Redwood Materials or Ioneer.

We do have experts who have an ability to opine on whether the project and the technology will work. Clearly, we’re taking execution risk. I don’t think that we are taking resource risk in the case of Ioneer. I think everyone believes that the lithium content in the clay is there. I think what we’re taking is the risk that it can be extracted, you know, profitably and be turned into a commercial product.

So, you know, those are risks that we are prepared to take.

When you look back at the period after the financial crisis, China scaled up not necessarily the best clean energy technologies but the ones that worked. What lessons do you draw from that past experience about what clean energy technologies need to scale up?

I think the lessons are that there needs to be a comprehensive approach to building an industry. And I think when you look at what we’re doing in the critical minerals space, I think the Department of Defence is doing great work on earlier stage efforts with the Defence Production Act. I think when you look at the $2.8 billion worth of grant funding that we put out the door for next generation technologies and demonstrating them; when you look at what the Loan Programs Office is doing … and you also see a the $35 a kilowatt hour production tax credit [in the IRA] I do think that the US has been quite comprehensive about what it takes to succeed.

I would also say that in general, I don’t think that we subscribe to the notion that there is this difference in the cost structure from the United States, to China, in general. We believe that the next generation of battery technologies – all of which really have been invented here in the United States – that they themselves, when scaled up, will provide a cost and leadership position versus the last generation of technologies.

Given the Ford-CATL news this week – do you look at the level of Chinese ownership in projects?

The Loan Programs Office has allowed foreign ownership of the projects that we fund for our entire lifetime, right. So, we have been evaluating foreign ownership in projects since day one and have asked projects to withdraw from our queue based on evaluation that we’ve done. So whether it’s Russian oligarchs that have been in some of the deals or whether it’s state sponsored companies that have been part of the deals, the goal here is to make sure that we are not having our loan be susceptible to national security issues.

But there are some areas where foreign ownership can be mitigated. For instance, having control positions on boards, or being able to limit the total amount of ownership that they can have such that they don’t have the ability to make decisions on behalf of the company in terms of the disposition of their IP. I think that we have a thoughtful approach to foreign ownership and you know, and that doesn’t just include China, but it includes any foreign owner.

We don’t want to cut out any foreign company that wants to create jobs here in the country and onshore and restore manufacturing capacity, but we do want to make sure that we are being protective of our national security concerns.

Do you think the US should be aiming to cut China out completely or just diversify its reliance on the country?

I think that whether it was oil and gas in the past or whether it’s critical minerals today, you don’t want all of your primary energy sources to be flowing through one country. You want to make sure that it’s balanced through many countries …

I think that Covid has taught people that we should have a diversity of supply chains and more importantly, we should have localization of supply chains to the extent possible – we should try to make a lot of these supply chains shorter. And so I think you have seen a tremendous amount of partnership between the United States and Canada and Mexico and many of our trading allies and partners to make sure that that diversification is occurring across many countries.

The US is blessed with a lot of lithium. But we certainly have very little naturally occurring graphite for instance. And so, there’s a requirement to do more there. And so I do agree that we need to partner with allies and trading partners around the world to meet our needs.

Can you give us a sense of the timeline to get a loan?

I would suggest to you it’s exactly the same process as commercial debt…So I don’t think it’s any less rigorous than what you would experience at a commercial bank.

We want to get the balance right. I need to meet the reasonable prospect of repayment, which is why I don’t think Solyndra [solar company that went bankrupt in 2011] would make it through the office today. That being said, we are going to have a lot of failures in our portfolio. Otherwise we wouldn’t be meeting our mission. I think that the Loan Programs Office takes its time to be able to process these loans properly.

For those applicants that are fully prepared for our office, we’ve been able to get projects through in six months. And then there are other deals where applicants need a tremendous amount of mentoring because it’s their first ever commercial loan process and those projects can often take 15-18 months to get through the office.

You’ve said elsewhere we need to have a World War II mobilisation mindset to tackle climate change, what did you mean by that?

Well, I think that when you think about what success looks like, the mobilisation post Pearl Harbour was truly impressive. And it shows you what’s possible when everyone is deployment forward. I think that the same thing is true, frankly, out of the Ukraine crisis. When you look at the just the heroic efforts that our friends in Europe have made to compensate for the missing gas from Russia.

It really has been an extraordinary effort not only on the part of the United States to get more liquefied natural gas to our European allies, but also by our European allies to build LNG import terminals quickly, or to install record amounts and heat pumps.

And so I do think that whether it’s in critical minerals, or within all of these other sectors, we can rise to the occasion – but there has to be a shift in thinking from business-as-usual to real mobilisation.

It’s kind of shocking to me that when we have conversations around peak oil there’s an underlying confidence that we can do that.

But when there’s a conversation around the same exact topic for critical minerals, there’s a feeling like they don’t exist – that the Earth’s crust is somehow lacking and the expertise to find them and to bring them to markets is lacking.

I find it laughable that there is this confidence that we can find ever harder to find oil and gas resources but that we haven’t even scratched the surface of critical minerals resources and those are impossible to find.

What can we learn about industrial policy from China?

Well, I think that there is a level of intentionality that China has shown and I think that the US is showing the same level of intentionality through the Bipartisan Infrastructure Law, the Chips and Science Act, and the Inflation Reduction Act. I think our European colleagues are mobilising to provide the same level of intentionality, which is great to see.

But I also do want to caution that I do think that when you look at the profitability of many of the Chinese sectors, they really are quite lacking compared to the profitability that we expect out of our sector.

And so to me, what matters is American dominance in these sectors of the future, and our ability to provide these solutions to allies around the world. And I think that we have succeeded in solar and wind technologies, in lithium ion battery technologies, in auto EV manufacturing. [But] I don’t believe that the US should leave its principles behind around capital allocation.

I do think that if we lean in on the entrepreneurs and innovators of our country, that anything is possible.

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