Jigar Shah is currently Director, Loan Programs Office at the US Department of Energy, where he has $40 billion in authority on manufacturing, innovative project financing 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 for a broad discussion on the practical challenges of transforming the US grid in line with the 2035 goals.
Jigar’s modus operandi dealt with the commercialization of technology. When he was young, he was fascinated by the fact that both nuclear and solar energy were commercial offerings, but still relatively stagnant. He then set out on the path of commercializing solar energy. One important thing he learned was that it didn’t help to rogue someone in the effort to bring low-carbon electricity to the market. Instead, it is necessary to identify the barriers to commercialization and break them down slowly. However, his optimistic attitude on the nuclear front was probably a necessary condition for a higher role in the US DOE, such as about: half of the $88 billion budget is devoted to the technology, something that surprised a previous energy minister who thought it would be almost entirely fossil fuels.
His background in mechanical engineering leads to a certain humility about what it takes to build infrastructure that will last a hundred years. We agree that Silicon Valley has missed the necessary slowness of the essential transformation of the electrical infrastructure. From Shah’s perspective, they leaned too much on the comparison with using fiber, but missed a few key factors, the first is that the cost of submerging fiber is inconsistent compared to the expenditure on the final product, but has a much greater impact. on the basis for electricity.
Another factor is that while HVDC alleviates many of the challenges associated with its AC alternative, including much lower resistance at the underground and greater capacitance, it is not in the same ballpark as laser multiplexing which increases fiber capacitance by orders of magnitude.
Additional costs for underground transmission, similar to pumped hydro, are now beginning to be considered within the system context, rather than just as a component cost. In the US, while others have pointed me to the control pressure for pump waterShah does not see that as a barrier. Everyone now recognizes the systemic value, but the markets don’t allow for reasonable returns with price-based adjustments. There is a clear value proposition in the HVDC grid being considered for the Northeast US, especially for attracting offshore wind energy to the coast and transporting it efficiently in the region, but who is paying for it?
Breakdown of US DOE Loan Program Spending as of May 2022 Courtesy of American DO
For the $8.25 billion in loans the lending program office has available for transmission, resilience is a factor, as their mission statement says. But the DOE only funds requests submitted to them, it does not create new projects. Public service commissions (PUCs), if they could, would provide only the cheapest transmission alternatives. However, estimating transmission through forest fire areas is not an option now, so such proposals are not being put forward.
From Shah’s perspective, diversification of generations is key to climate change adaptation. Wind and solar are great and cheap, and through SunEdison and subsequent ventures, Shah has supplied many and made a lot of money for himself and investors, but he also sees nuclear as an important part of diversifying the electricity supply. But even in Texas, where wholesale electricity costs regularly exceed $500 per MWh, private companies find it challenging to build things like nuclear power plants. Over-financing the markets during the Enron era of the 1990s is posing challenges for all assets in the US, and that pendulum has not yet returned to the middle.
The UK is an interesting counterexample. First it introduced a regulated asset base (RAB) which will include nuclear power by 2021, a mechanism it has historically applied to infrastructure components such as water, gas and electricity networks. This allows investors to share some of the project’s construction and operation risks with consumers, significantly reducing the cost of capital, which is the primary driver of the cost of a nuclear project to consumers. The UK is also in the process of introducing a hood and floor mechanism covering pumped hydro. The UK has one of the largest offshore wind fleets in the world and is seriously considering getting fixed electricity from wind, solar and storage from Morocco via HVDC under water.
Shah thinks the UK has invested well in diversification, even though it has been criticized for things like the significant network interconnections with Europe and the rising costs of the Hinkley plant, which was funded under a contract for differences model prior to the launch. RAB. But he sees they weather the commodities supercycle better than jurisdictions that didn’t have as much diversity.
Building on the nuclear thread, Shah’s perspective is that investing 3-5 times more in transmission and expecting improvements in battery storage is a risky strategy. Shah is optimistic about nuclear, especially by placing new SMRs on outgoing coal plants where the transmission has already been built.
The conversation started to get animated at this point. I’m bearish about small modular reactors because they are not commercial products today, they are not used commercially today, the physics of thermal generation means that bigger is better, while the problems with larger nuclear power are well understood, and in large part because the 17 designs that exist for SMRs, including several in the US alone, make it unlikely that there will be an economy of production and deployment scale. It would require major economies like the US to pick a design and use it as the only option to reach enough numbers to make a difference. This decade has been all about pure development for SMRs and creating regulatory and policy structures that would accommodate and support them. It wouldn’t be until the 2030s that they could be manufactured in small numbers, and then the sigmoid curve of Wright’s law would take years to reach the point where they produce a sufficient number of them to double the cost by 20% to 28%. per unit decreases .
As such, I consider betting on SMRs a much riskier strategy than expanding HVDC, wind, solar and pumped hydro, all of which are fundamentally proven technologies. I believe SMRs are cheap when I see them on the grid providing transparently priced electricity.
Shah curbed my “believe it when I see it” statement, claiming that the US is going to do that, and that tough decisions are needed to meet the 2035 climate goals. From Shah’s perspective, believe it when you see the US not working. It sets big goals, like putting a man on the moon and doing it. And to be clear, the second half of the discussion is about why many people hope, perhaps desperately, that SMRs will actually be cheap and common. But it also makes clear why the US federal government’s hands are tied to electricity moonshots.
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