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Podcast Jigar Shah

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Jigar Shah Talks About $504 Million Hydrogen Facility, Small Nuclear, & US Challenges

Shah’s perspective is that we don’t have the ability to go into Sim City and design whatever we want. We have to work with pre-existing facilities.

Jigar Shah is currently Director, Loan Programs Office at US Department of Energy, where he has $40B of authority within manufacturing, innovative project finance, and tribal energy. But that’s just the most recent chapter in his career as a clean energy leader. Shah sat down with CleanTech Talks recently for a broad ranging discussion of the practical challenges of transforming the US grid in line with 2035 targets. This is the summary of part 2, but for those just arriving at the discussion, here’s part 1.

The economics of the Utah hydrogen project that the DOE loans program office recently funded are an interesting point of discussion. That project received over $500 million from the program to initially construct 220 MW of alkaline electrolyzers with the plan to inject the hydrogen into two pre-existing salt caverns. Combined cycle gas turbines would run on natural gas initially, then a mixture of natural gas and hydrogen, and then, eventually, pure hydrogen.

However, Lazard’s LCOE material makes it clear that the hydrogen won’t be cheap. In the best possible case, with $10 per MWh electricity (that’s one cent per kWh), the cheapest electrolyzers that exist and running 24/7/365, the hydrogen would still be double the cost per unit of energy as natural gas. And that’s excluding a lot of capital costs that surround the electrolyzer.

Shah acknowledges the greater costs, but his perspective is on overall system cost vs component costs. He references the California challenges with electricity stability over the past two years, and points to the Los Angeles Department of Water and Power (LADWP) lack of problems. They had an 1,800 MW coal plant on the Utah site providing power to LA. The question becomes what the value of system stability. The Utah site already has transmission leading to LA and has pre-existing salt caverns.

There are 7 pumped hydro facilities in the region that were designed in the 1970s, have never been built, and aren’t under construction. Meanwhile the Utah facility is already being converted to natural gas, and, should the economics work out, could be expanded to 2,000 MW of electrolyzers. That’s a big if from my perspective.

A question it didn’t occur to me to ask is where the electrolyzers will get firmed electricity from. The site is currently a source of coal-powered and then gas-powered electricity, not a recipient of massive amounts of electricity. What electricity will be powering the hydrogen electrolyzer? Obviously the hydrogen can’t be burned to make more hydrogen, as that violates a basic law of physics. Are they going to burn natural gas to make ‘green’ electricity? That wouldn’t actually be green. Will they be building new transmission from renewables that leads to the site so that green hydrogen can be manufactured, put in salt caverns, then burned in gas generators to deliver a lot less electricity to LA?

And where is the natural gas coming from for the generators? That’s a non-existent piece of infrastructure which is being built to the site to deliver energy so that the transmission infrastructure can be reused.

Given salt domes and the new requirement to pipe in natural gas, it might make more sense just to store natural gas in the salt caverns as a strategic reserve and use it in the gas generators on a declining capacity factor through time. But even then, the pipeline for natural gas is leading from a place with existing natural gas, so how does storing it locally benefit anything except in a suspenders and belt sort of way?

It’s not like any manufactured hydrogen will be inexpensive delivered from the remote town of Delta, Utah, population 3,600 or so, to anywhere hydrogen is used in industrial processes, so there’s no merit from that perspective either.

Regarding the lack of pumped hydro and the Utah site, Shah’s perspective is that we don’t have the ability to go into Sim City and design whatever we want. We have to work with pre-existing facilities. Every single situation requires asking what the existing community thinks, what infrastructure will be leveraged, who will be on the receiving end paying for the resiliency. If those all don’t line up, then the project doesn’t move forward. Even if spreadsheets make it clear that one alternative is half the cost of the other, if it can’t get built due to the other factors, it’s a theoretical half, not real money.

Shah’s perspective is that politics matter, and it’s why SMRs matter. All of the coal and gas sites have 200 unionized workers operating the plants, invest a couple of million a year into the community, and the towns are often 500 or fewer. If the coal or gas plant is replaced with solar and storage, none of the workers will keep their jobs and the communities will disappear because there are no operational jobs. The communities are very interested in a replacement technology that pays a lot of property taxes and provides a bunch of jobs.

But if the best that the US can do is take a coal plant and a small town and repurpose it with federal money in a way that doesn’t stand up to scrutiny just to keep the town alive and make the claim that reuse of existing infrastructure is the point, then the US is heading into an age of worse and worse decisions.

Now Shah’s question becomes why are Americans incapable of building a manufactured product like small modular reactors. He asserts that the DOE has to use its resources to achieve what many consider impossible, simply because the politics means that a large group of stakeholders want the coal plants replaced with SMRs

Presumably that’s what he hopes will happen with the Utah site, although then new questions emerge. The first is why hydrogen generation and storage are necessary at all if the intent is a high capacity factor nuclear facility would be built on the site. The transmission isn’t sized for 24/7/365 nuclear generation and a lot of extra generation from storage, so will they double the transmission at great cost?

Assuming SMRs were to be built on pre-existing coal sites, a question becomes who pays for the security requirements. Having researched and published on this question, I know that various levels of government including local municipalities subsidize nuclear security to the tune of about $4 billion per year, that there are seven overlapping layers of security, and that the site itself has at least three rings of security that it pays for.

That will be true for small modular reactors. They are nuclear facilities and there are security concerns for proscribed technologies and potential dirty improvised explosive devices (IEDs) from domestic or foreign terrorist groups. Existing coal sites will require more security with SMRs on them than not, from my perspective.

Shah doesn’t consider this significant, and points out that most coal plants have 1,800 acres of buffer land and security, although less than nuclear plant levels, for a long time. Upgrading security at the coal facilities isn’t what the DOE is concerned about. And securing the waste on site isn’t a concern particularly as there is so little of it compared to both the coal ash and the amount of space available. Leaving the waste on site for decades, just as is done for virtually every nuclear plant in the world, is completely feasible.

Shah pivots to the significant heat output of small modular reactor designs. They are thermal generation units, and waste a lot of that heat. He indicates that many industrial facilities that need heat for industrial processes are interested in having SMRs located with their facilities to take advantage of that in addition to the electricity. That’s another revenue stream in his perspective. But then the question becomes how much security overhead will cost for a small reactor co-located with an industrial site and whether those facilities will actually pencil out, something I consider less likely.

In a recent debate for a global audience of over 200 institutional investors organized by one of the world’s larger investment banks I talked with Kirsty Gogan, a global nuclear expert, former UK Deputy Head of Civil Nuclear Security, Gogan highlighted modeling that her firm TerraPraxis had done regarding building a full batch of SMRs on a hydrogen manufacturing site in a shipyard. That’s at least spreading the overhead over a bigger set of nuclear units, but it’s an awful lot of new infrastructure as well, and as Gogan and I agreed, it’s a question of making choices. I’m scratching my head about SMRs and the claims, while Gogan and others seem to be using rather interesting numbers to assert that renewables won’t cut it, something that comes up later in my conversation with Shah.

Public opinion has shifted to be somewhat more supportive of nuclear energy. Shah wants us to be honest with one another about what a 2035 target for significant decarbonization looks like, and points to other countries going back to coal due to the high prices of natural gas the world is experiencing. We have to work through the difficult questions of diversification. While both Shah and I love solar and wind power and Shah made a lot of money with renewables in his early career, we agree completely that building a grid solely on solar makes no sense, not that anyone is proposing that. And so the question becomes, what else in addition to solar?

Shah likes advanced geothermal and low impact hydro as well, but dismisses the notion that you’ll run 50% of a grid off any one renewable technology. You might do it in Costa Rica, but unlikely to do it in China or India.

We pivoted to look at Germany, a major industrial economy with a strong focus on renewables. It’s an interesting case study as it’s reduced its GHG emissions across its economy far more than the US since 1990, by 35.1% pre-COVID, and that includes the post-Fukushima decision to mothball nuclear reactors instead of coal plants. Renewables in Germany now provide 41.1% of all electricity demand in Germany.

Shah asserted that a large percentage of the claimed renewables were from biomass. That’s accurate if the question is heat, but not if it’s electricity, and we went back and forth on this with competing citations a couple of times after the call. Biomass only provides 8% of Germany’s renewably generated electricity, with the lion’s share of that 41.1% of electricity supply coming from wind energy. As such, Shah’s points on how Germany is generating electricity and it requiring thermal generation are drawing incorrect conclusions. It’s unclear to me how pervasive this sort of gap is, but it is concerning if it’s ‘common knowledge’ inside US governmental energy circles.

Shah likes renewable methane as well, having invested in it in the past. But with electric vehicles and the like, the US is going to double electricity demand, which is a huge job. It’s not just decarbonizing the current grid, it’s adding a lot of new electricity, a number that Shah pegs at 1,700 TWh. It’s a humbling figure and people need to internalize it based on what is required for 2035.

As a person who built a lot of wind and solar, Shah doesn’t think the US is limited to 30 GW of new renewables a year due to transmission interconnections, but due to all of the counties that have to approve everything. There’s a lot of work that’s needed to integrate new generation into the grid. 80% of all new generation is clean. Shah doesn’t see that 30 GW going to 100 GW a year due to that patchwork of tiny, local approvals that are required.

And so, on to China as another comparison case study. It’s adding as much wind and solar as the rest of the world combined, building more HVDC than the rest of the world combined, has built 40,000 km of high-speed electrified rail since 2007, is building far more pumped hydro grid storage than the rest of the world combined, and is diversifying with more nuclear generation as well, although that program isn’t doing as nearly as well as the wind and solar programs. But they are also building more gas and coal plants.

To compare and contrast, China has different challenges than the US. It doesn’t have the significant devolution of the authority to say no that has occurred in the US, with states, counties, and bodies below the level of counties as well as affluent NIMBYs making progress of the types that China is showing much more difficult. It does need an awful lot more energy and is more heavily dependent on coal generation today. China is diversifying and building clean technologies much more rapidly than the US.

Comparing China’s massive deployments to the US triggered Shah’s patriotic and competitive streak, and he asserted that vastly more countries around the world are looking to the US for lessons and leadership, something which isn’t apparent from outside of the US looking in, but is clearly part of the Washington consensus on China. Personally, that consensus baffles me, as one of their own, Henry Kissinger, published a major work, On China, in 2011, that makes it clear that the consensus is based on something other than reality. It’s not like I expect Americans to read and lend authority to British journalist and academic Martin Jacques’ When China Rules the World, or Singaporean and UN diplomat Kishore Mahbubani’s Has China Won, both of which provide even more useful perspectives than Kissinger’s and both of which I strongly recommend, but at least I would expect Beltway types to pay attention to Kissinger. Not a significant concern for Shah’s domestic energy focus, however, so not something we dwelled on.

US DOE LPO Loan Program

Break down of US DOE Loans Program Expenditures as of May 2022 courtesy US DOE

Instead, we pivoted to HVDC in the closing minutes of our discussion. The May 2022 update from the DOE loans program office is light on numbers, but has a useful visual. The transmission box at the bottom left isn’t a big chunk of the $78.8 billion in applications. Shah couldn’t get into too much detail on HVDC federal rights of way, but over $5 billion of the applications are for transmission. A good deal of that is for a northeastern HVDC mesh, and everyone apparently agrees that it is the right technology for the burgeoning offshore wind in that section of the country. (By contrast, in Europe serious people are putting forward proposals and doing studies of manufacturing hydrogen offshore and piping it ashore, a remarkably difficult and expensive process which is technically feasible, but once again a head scratcher compared to alternatives.)

However, the question of cost allocation for the transmission applications remains. Will they be rate-based for consumers or subsidized by the federal government, or some blended model. And reconductoring a line requires dealing with the entire circuit, and that leads back to the problem of multiple states having to agree on the plan. Reconductoring the grid or adding a layer of HVDC over the existing grid requires a great deal of coordination with state and sub-state bodies.

And the federal government’s hands, once again, are tied. It can’t lead on this file. It is allowed to educate and fund, but isn’t allowed on a top-down basis to tell people what to do. While Shah rightly points out that in the past the US has done moonshot programs, he’s also in the same conversation pointed out all the ways in which the US has trouble doing moonshot programs today, perhaps especially in energy. After all, getting to the moon only required federal money and existing federal facilities, no wires had to cross state lines, and no counties had to say yes. Anyone who has read Michael Skelley’s also recommended book Superpower: One Man’s Quest to Transform American Energy will recognize that moonshots and electrical generation and transmission in the US are deeply at odds with one another.

Shah closes our conversation with the following thoughts:

“I think that we have learned a lot since I was reading about solar power in the 1980s and into the 1990s about how we commercialize technology. Back then, people were not open minded about commercializing new technologies. Today, they absolutely have looked at the experience of solar and wind and electric vehicles and battery storage and see potential, see wealth creation in fact, coming from this commercialization. So I think every country around the world believes this to be the largest wealth creation opportunity of this century. The question becomes how do you align the technologists, of which we have many, and the venture capitalists who support them, with the education layer around infrastructure deployment. One of the challenges that we’ve had is that sometimes the valuations of these companies have gone faster than the implementation layer has been able to absorb these technologies. Therein lies the profit-making potential across the world.”

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Written By

is Board Observer and Strategist for Agora Energy Technologies a CO2-based redox flow startup, a member of the Advisory Board of ELECTRON Aviation an electric aviation startup, Chief Strategist at TFIE Strategy and co-founder of distnc technologies. He spends his time projecting scenarios for decarbonization 40-80 years into the future, and assisting executives, Boards and investors to pick wisely today. Whether it's refueling aviation, grid storage, vehicle-to-grid, or hydrogen demand, his work is based on fundamentals of physics, economics and human nature, and informed by the decarbonization requirements and innovations of multiple domains. His leadership positions in North America, Asia and Latin America enhanced his global point of view. He publishes regularly in multiple outlets on innovation, business, technology and policy. He is available for Board, strategy advisor and speaking engagements.

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