Interview: DOE's Jigar Shah on Lending to Nuclear Projects

The Biden administration in March 2021 tapped climate tech start-up entrepreneur Jigar Shah to reinvigorate the US Department of Energy’s Loan Program Office (LPO). This office currently oversees more than $40 billion in debt financing available to eligible clean energy applicants. Some $8.9 billion of that is dedicated to nuclear power facilities, including small modular reactors (SMRs), uprates of operating reactors, upgrades at both non-operating and operating reactors, and nuclear-generated hydrogen production. Another $2 billion is available for the "front-end" fuel cycle. Last week Energy Intelligence's Jessica Sondgeroth spoke with Shah to discuss the LPO’s outlook on nuclear and to clarify its role in ensuring nuclear is part of the next-generation electrical grid. Below is an edited and shortened transcript of that interview.

Q: You've spent a good deal of time talking to the nuclear industry about advanced reactors. What needs to happen today to get SMRs to bankability, to project financing?

A: Yeah, it's a good question. The Department of Energy is very active in first-of-a-kind deployments, from NuScale to TerraPower and X-energy. I'd say that in terms of the Loan Programs Office, it really depends on what the application is for. If they're asking for us to fund a nuclear power plant, that is something that we have the capability of doing and we can underwrite a nuclear power plant in the same way that we did for the Vogtle nuclear plant that's currently under construction and that's hopefully going to be turning on this year.

But I think that once people ask us for money for the supply chain, then we need to know that that supply chain provider has more than one order. Because we can't get paid back through shipping parts just to one nuclear plant. That's where I would say that having a more robust pipeline of orders becomes really important.

Q: How much should consortiums and international collaboration be a part of that?

A: International can play a big role in that, as you saw with announcements that for GE Hitachi's BWX-300 reactor have been coming out from Canada to the United States, and it looks like maybe even the UK, as well as NuScale, where they not only have shown some progress with Uamps [the Utah Associated Municipal Power Systems, project developer of a first-of-a-kind NuScale SMR] but also a lot of progress with a European order [in Romania] as well.

Q: Speaking of NuScale and, for that matter, X-energy going public, how should these vendors be thinking about raising equity while applying for US government debt financing? And with these vendors going public, do we have a better idea of how Wall Street is perceiving SMRs and advanced nuclear?

A: It's a difficult question. We have over 125 active applications in the Loan Programs Office, and we are expecting each applicant to raise equity for their loan application. Some of them choose to stay private and raise equity, and others choose to go public and raise equity. To us, the nature of whether a company is private or public is their decision around how they want to raise equity. I don't know that we have a preference for private versus public as much as we want to make sure that our companies can raise equity.

I'd say separately on the Wall Street side, it is true that when companies go public, Wall Street tends to have more interest and you start to have an ecosystem of stock analysts that cover the stock and write more research reports in that area. You see S&P and Moody's and other credit rating agencies getting more involved and so from that perspective, it's a great thing to see more publicly-traded nuclear names.

Q: Typically we don't typically see conversations about risk allocation until we get to engineering, procurement and construction (EPC) contracts. Since we don't have a lot of clarity on how that will work right now with SMRs, how should these vendors, developers, and investors be thinking about risk allocation?

A: There's been a lot of lessons learned from the Vogtle experience. One of those lessons is that we should be spending roughly 10% of the entire cost of the plant upfront to make sure we're measuring everything 25 times and cutting once. I think that there is a stated desire by all of the SMR players to learn from those mistakes and to invest more capital upfront, to make sure that the engineering drawings and the as-built drawings [are completed], and to ensure that some of the other de-risking efforts that can be made upfront are pursued.

Q: What are the broader lessons we should learn from the early-2000s Nuclear Renaissance bubble?

A: I think there was a sense that we could stand up a nuclear supply chain and a workforce. I think that that clearly was not the case. And whether it was the EPC contractors or whether it was the workforce, it took a considerably longer period of time to train that workforce and to build up that supply chain than I think was expected.

I also think that as I suggested, there was a rush to start construction that in hindsight would have been better to have taken the extra time to really complete all of the engineering work and the final drawings before construction started.

The last thing I would say is I do think that Vogtle is a lesson in American persistence. The persistence was shown not only by our office and the men and women who work in our office that have supported this project for the better part of 10 years, but also of course by Southern Nuclear and its partners, along with their partners, with the IBEW [International Brotherhood of Electrical Workers] and others. Building big things in America today is more possible because of their efforts.

Q: And regarding today's economic conditions, do you see that as an impediment to support for SMRs? Especially when compared to other technologies? We've seen the argument that renewable energy projects are also under the same pressures and given the energy crisis in Europe and the push for decarbonization.

A: With all of the weather events that we've faced over the past five years, there is a growing recognition that we need clean firm power. That clean firm power can come from renewable energy with long-duration energy storage, usually probably multi-day to a week worth of storage. It can also come from nuclear or geothermal or offshore wind with storage or biomass or low-impact hydro.

I think people are recognizing that clean firm power is often coming in at $89 a megawatt hour or higher, whether it's renewable energy with a week of storage or whether it's nuclear power. People are recognizing that clean firm power does come at a higher cost, but that within a well-modeled electricity system, it can reduce the costs of electricity and increase resiliency for all electricity users.

Q: How competitive an energy landscape do you envision in the 2030s, when many of these advanced reactor designs are expected to be demonstrated?

A: When you look at comprehensive decarbonization models by 2035, every one of them features clean firm power, and nuclear is one of the technologies that we think will be featured in the deployment of clean firm power. And when you think about our existing coal fleet and natural gas fleet, some of the best uses for those existing sites and the trained workers that are there is to convert these coal and natural gas sites into nuclear plants. And so we're very excited about nuclear's role, but we do agree that we need a diversity of generating capacity to really create the most resilient system.

Q: How does LPO think about investments in technologies that are competing with each other? For example, might battery storage at some point obviate the need for any new nuclear?

A: We look at each project and the circumstances around each project. We do keep in mind, at the Department of Energy, the relative competitiveness of technologies: as technologies come down the cost curve, you see improvements that are made. But each geography has its own preferences and those come through in terms of contracts that are signed by public service commissions and utilities. And once those contracts are signed, all generating technologies, including nuclear, are welcome to come to the Loan Programs Office and use our resources to build those projects.

Q: I know you mentioned long-duration storage solutions in combination with renewables, for example, but do you see batteries storing large quantities of power over weeks or months in the future?

A: In general, the vast majority of battery storage that will be deployed in our country will be inside electric vehicles. To put it in perspective, we are looking at 800-gigawatt hours of battery storage being shipped in vehicles in 2030 alone, in one year. And so my sense is the vast majority of batteries deployed on the grid will be short-duration storage that are in electric vehicles. And they will be deployed as grid resources through virtual power plants, but that is generally daily or maybe every-other-day storage. It's not really weekly or monthly storage like you look at pumped hydro or some of these other storage mechanisms.

Q: Interesting. Back to our SMR vendors, I know the program was modified to allow for early engagement.

A: Yeah, we do a lot of pre-consultations with applicants before they submit an application. We lean in with each and every small modular nuclear reactor design to help them understand what the rules and procedures are to use the loan program's office so that when they're ready we can be there to assist them.

Q: So at what point beyond those pre-consultations would you say an SMR vendor definitively qualifies for a loan? How many unit orders should they have?

A: Well, I think there are two different pieces to this. It is pretty obvious to me that all SMR designs qualify for the Loan Programs Office: they meet the innovation requirements and the requirements of the nuclear [project's program] under Title 17 Innovative Clean Energy Loan Guarantee Program [authorized by the Energy Policy Act of 2005].

Separately, there's meeting the reasonable prospect of repayment. And that is a fairly straightforward standard for a nuclear plant. If you have a power purchase agreement from a utility and you have an EPC contractor that believes that they can build that nuclear power plant at a reasonable cost, then we can evaluate whether that particular power plant deserves debt from the Loan Programs Office. I'd say where things get more complicated is where we’re being asked to fund a supply chain vendor. It's hard for us to underwrite an entire loan for a supply chain vendor with one nuclear reactor order. When they need, let's say maybe 20 orders to be able to pay back our loan, we need to see more traction there.

Q: And on that subject, are you seeing interest from other aspects of the industry beyond SMRs? I know that the qualifications include investments in plant upgrades and uprates as well, front-end fuel supply, parts and components, and pink hydrogen. Beyond SMR vendors are you seeing anybody go through the pre-consultations?

A: We're certainly talking to many utility companies to use our program to do uprates. Basically the new 1706 program, the Energy Infrastructure Reinvestment Program. I think that's exciting. And for the supply chain, we're seeing a lot of interest from fuel suppliers, primarily I'd say. But we're excited about frankly the enthusiasm in the nuclear industry and continue to network within the industry to see how we can be helpful.

Q: Where do you think LPO can have the greatest impact, both short-term and long-term? I know especially with fuel supply, there's the potential for high-assay low-enriched uranium, or Haleu, but that requires so much investment. Is there a role for LPO to play there?

A: The loan program's office is best suited in providing a commercial framework within which our loans are evaluated. And by providing that framework, we're actually discussing risk/reward with the applicant, but also with the industry at large. So we try to restrict ourselves to the things that we're very good at — which is evaluating loans — and not the things we're not good at, like R&D and other aspects of nuclear, which our friends at the Office of Nuclear Energy are the lead on.

Q: In your conversations, does waste factor into the risk analysis?

A: Well, I think, as you know we have a current approach to waste, which we evaluate and make sure that people are using best practices. There are other efforts underway on waste, including ARPA-E [Advanced Research Projects Agency–Energy] has done a number of grants in the waste space, and next-generation waste to process waste. You have some reactor designs that use nuclear waste as part of their fuel supply and then you still have other plans to find permanent storage for nuclear waste. But in general, we don't see nuclear waste as the issue holding back nuclear power.

Q: In the Southern US we have seen Google touting its interest in dismantling regulated market structures — in favor of the merchant market — to bring more renewables online. For LPO, how much does market structure matter when you're considering applications?

A: I think in general, we're agnostic to market structure. What we care about is long-term offtake agreements. So in the case of Google, they sign virtual power purchase agreements and they can sign those agreements for nuclear power to support the 24/7 efforts, as well as renewable energy. And so yes, I just think it's a different contract structure in an unregulated market versus a regulated market.

Q: And then on fusion, do you think that the private sector can bankroll that technology to fruition? Will the LPO be providing debt for fusion?

A: LPO evaluates loan applications, so I can say to you definitively that we have zero fusion loan applications in our current pipeline, but we're excited about the prospects of the technology,

Q: That covers my questions. Is there anything that you'd like to add that we didn't touch on?

A: I just think that it's very important to recognize that we need a variety of tools to provide the next generation electricity grid, and to meet the needs of electric vehicles and heat pumps — and all the growth that's coming — and we think nuclear is an essential part of that.