Jigar Shah on DOE’s big new loan for a hydrogen plant and what’s coming next

Materials company Monolith has received conditional approval for a $1.04 billion loan from the U.S. Department of Energy to support renewable-powered production of hydrogen, ammonia and carbon black via an expansion of its facilities in Hallam, Nebraska.

This is the first such loan approval from the DOE Loan Programs Office in five years for anything other than nuclear power.

Shayle Kann, partner at venture capital firm Energy Impact Partners and host of the Catalyst podcast, interviewed Jigar Shah, the director of the Loan Programs Office, along with Rob Hanson, CEO and co-founder of Monolith.

Here are some edited and condensed highlights from the interview. Listen to the complete conversation on the latest episode of the Catalyst podcast.

Shayle Kann: Today we look at how to solve the daunting challenge of building a first-of-a-kind, billion-dollar plant for a climatetech startup — told, in this case, from both sides of the negotiating table.

When venture capitalists first fell out of love with quote-unquote ​“cleantech” a decade ago, one of the biggest reasons was capital-intensity. They had spent the previous years funding tech companies that were looking to make a new kind of solar panel or a new way to produce biofuels, but before any of those companies could disrupt the markets they were trying to disrupt, they needed to build the first-of-a-kind commercial-scale plant.

Here’s the challenge with those plants, particularly if they’re going to produce something for a large commodity market like electricity or fuels or chemicals: They need to be big. They’re inevitably going to require big capital investment, hundreds of millions of dollars, often billions of dollars, to build these things. They’ve never been built before, so by definition, they’re unproven. The economics sometimes look great on paper, but the company trying to build the plant needs to convince somebody to take that first-of-a-kind risk.

But there are solutions, and we have a really interesting case study of one of them today.

The two of you recently got engaged, in a manner of speaking. Jigar, through the Loan Programs Office, offered a conditional loan guarantee of up to a little over a billion dollars to Rob’s company, Monolith. We’re going to talk through the anatomy of that deal and what it means and, more broadly, what it takes to build big, capital-intensive climatetech.

Rob Hanson: At Monolith, we have a technology called methane pyrolysis, and it’s one of those big primary technologies. We take natural gas or methane and we heat it up using electricity. Methane’s got this really cool thermodynamic property: If you heat methane up to 1,600 to 1,700 degrees Celsius, it actually splits into solid carbon and hydrogen. What that does for you is two things: One, you’ve just made hydrogen without producing any CO₂. Second, if you do it just right, you can get this solid carbon product that’s got a bunch of utility, and thus a bunch of value.

We’ve been working on this process for close to a decade now. It’s been a long journey that started in the wake of Cleantech 1.0’s demise. We started in 2012 and have raised a lot of equity over the years. We have taken technology that was almost there and got it to full commercial scale. The promise here is you can clean up some really hard-to-otherwise-clean-up industries on the solid-carbon side. But you also make hydrogen without making CO₂, which is going to be super critical for a bunch of those other hard-to-decarbonize sectors, like ammonia, perhaps steel, some of the harder transportation sectors.

Kann: There’s a core distinction that I think people need to understand. You’re producing clean hydrogen via natural gas. The other way that people talk about doing that is with post-combustion carbon capture where you’re basically just sucking the CO₂ out, and you get a CO₂ gas, which then you have to do something with. The distinction [is that Monolith is] separating out the carbon from the hydrogen precombustion, and you have this side product which actually maybe could be the primary product, depending on how you look at it: carbon black, which has its own market attached to it.

Do you think about a primary product? Is it hydrogen or carbon black, or are they coequal to you?

Hanson: I think the answer is both. What really got us interested when we were planning to start a company 10 years ago is this concept of almost switching carbon capture on its head. Instead of ending up with a waste product, CO₂, that’s super hard to deal with if you want to sequester it permanently or find some other use so it doesn’t just end up back in the atmosphere, you replace that with something that has a ton of value. It’s got economic value, but it’s also got environmental value because the current way that this product carbon black is made is super dirty — tons of CO₂, lots of sulfur oxides, lots of nitrogen oxides.

That was actually the light-bulb moment at the company 10 years ago. When we put those pieces together, we were like, ​“Man, this is something we want to work on because the impact could be huge.”

***

Kann: Jigar, give us an overview of the Loan Programs Office mandate. You’ve been in the role for how long?

Jigar Shah: 10 months.

Kann: This is the first publicly announced conditional commitment that you’ve made in that time. So what’s been the focus in your early days on the job?

Shah: Part of this is trying to make sure that we have greater clarity on the risks that we really want to take at the Loan Programs Office. We were designed to help commercialize technology and take it across the bridge to bankability. Once you get lab-scale demonstration, the question becomes how you get it to first-of-a-kind plant, plants two through five, the learning curve, full securitization, and then over the bridge to mainstream capital.

Folks have got to be able to raise equity. I think that for a long time, cleantech wasn’t necessarily in the right place to raise equity. My entry into the Loan Programs Office coincided with renewed interest by equity into climate-related technology, some of which I think had to do with the election results of 2020 and some with where the technologies are, and the fact that Tesla had gotten to a very high valuation and other things. Having that level of equity interest has made my job way easier.

There’s a lot of people who want the Loan Programs Office to be sort of your fairy godmother in Cinderella, where you show up in rags and I create a carriage for you out of a pumpkin and turn all the mice into horses and all that stuff. But it’s just not the way it works. In general, we’re a liquidity instrument. We’re not a subsidy instrument. So maybe our interest rates are more competitive than commercial debt might be, but that’s not intended to be a subsidy; it’s intended to be market-rate debt.

***

Kann: Jigar, I know you can’t tell us what’s actually coming next in terms of announcements out of the Loan Programs Office, but you published a report around the end of 2021. You have 66 active applications totaling $54 billion in loan requests. It’s everything from nuclear to biofuels to transmission, all sorts of different things. What should we be expecting to come out of the Loan Programs Office post-Monolith?

Shah: I think you’re going to see a lot of EV manufacturing facilities, battery gigafactories and critical minerals, as well as renewable energy, nuclear and fossil project finance deals, fleet deployments of EVs or clean vehicles. And then you’ll see our Tribal Energy Loan Guarantees.

Listen to the full Catalyst podcast.