Jigar Shah Discusses US Challenges, a $504 Million Hydrogen Facility, and Small Nuclear

The US Department of Energy now has Jigar Shah in charge of the Loan Programs Office, where he has $40 billion in jurisdiction over manufacturing, innovative project financing, and tribal energy. That, however, is only the most recent chapter in his career as a pioneer in clean energy. Shah just had a lengthy conversation about the practical difficulties of modernizing the US grid to meet the goals of 2035 with CleanTech Talks. This is a synopsis of part 2, however part 1 is available for those who are new to the subject.

The Utah hydrogen project that the DOE loans program office recently funded ‘s economics make for an interesting topic of conversation. For the initial construction of 220 MW of alkaline electrolyzers with the intention of injecting the hydrogen into two already-existing salt caverns, the project earned more than $500 million from the program. Natural gas would initially power combined cycle gas turbines, followed by a natural gas and hydrogen mixture, and finally, pure hydrogen.

However, it is evident from Lazard’s LCOE material that the hydrogen won’t be inexpensive. Even with the cheapest electrolyzers available, operating 24/7/365, and electricity priced at $10 per MWh (or one penny per kWh), the cost of hydrogen per unit of energy would still be more than that of natural gas. And that doesn’t include several capital expenses related to the electrolyzer.

Shah admits the higher expenses, but he views them from the standpoint of the entire system cost as opposed to component costs. He makes mention of the recent two-year instability issues with energy in California and emphasizes the Los Angeles Department of Water and Power’s (LADWP) lack of issues. On the Utah location, they operated a 1,800 MW coal plant that supplied power to LA. What is the value of system stability then becomes the question. Salt caverns already exist and a transmission line already connects the Utah site to Los Angeles.

In the area, there are 7 pumped hydro projects that were planned in the 1970s but were never completed or were in the planning stages. In the meantime, the Utah facility is already converted to natural gas and might be enlarged to 2,000 MW of electrolyzers if the economics work out. That’s a big if, in my opinion.

I didn’t think to inquire about the source of the firm power the electrolyzers will receive. The location does not currently receive large amounts of electricity; instead, it generates electricity using coal and then gas. The hydrogen electrolyzer will be powered by what type of electricity? Obviously, burning the hydrogen to produce more hydrogen is impossible because doing so would be against a fundamental tenet of physics. Will they use natural gas to generate green electricity? In reality, that wouldn’t be green. Will a new renewable energy transfer from the site to a facility where green hydrogen can be produced, put in salt caverns, and used in gas generators to provide much less electricity to Los Angeles be built?

And from where do the generators get their natural gas? To supply energy to the location so that the transmission infrastructure can be reused, that is an unrealized piece of infrastructure is being built.

It could be more sensible to just store natural gas in the salt caverns as a strategic reserve and use it in the gas generators on a falling capacity factor over time given the salt domes and the increased requirement to pipe in natural gas. However, even in that case, the natural gas pipeline is coming from a location where there is already natural gas, so how does storing it locally benefit anything other than in a sort of suspenders and belt manner?

There is little validity from that standpoint either because it is unlikely that any created hydrogen will be supplied for a reasonable price from the tiny town of Delta, Utah, with a population of about 3,600, to any location where hydrogen is used in industrial processes.

Shah believes that we are unable to enter Sim City and create whatever we want in relation to the Utah site and the absence of pumped hydro. Working with already-built facilities is necessary. In any circumstance, it is essential to consider the opinions of the local population, the infrastructure that will be used, and the people who will be paying for the resilience. If any of them are out of alignment, the project will not proceed. Even if spreadsheets show that one option costs half as much as the other, if it can’t be built because of the other issues, the cost difference is only theoretical and not actual money.

According to Shah, politics are important, which is why SMRs are important. Every coal and gas facility employs 200 unionized personnel to operate the plants, contributes a few million dollars annually to the community, and the towns are frequently 500 people or fewer. The villages will vanish since there won’t be any operational jobs if solar and storage are used to replace the coal or gas plant. None of the workers will have their jobs kept. A replacement technology that generates a lot of property taxes and jobs is particularly appealing to the local communities.

But if the best the US can manage is to take a coal plant and a small town and repurpose them with federal funds in a way that doesn’t pass muster in order to keep the community alive and claim that reuse of existing infrastructure is the idea, then the US is entering an era of ever-worse decisions.

Shah’s next concern is why Americans are unable to construct manufactured goods like tiny modular reactors. He claims that due to politics, a sizable stakeholder group wants the coal facilities replaced with SMRs, so the DOE must use its resources to accomplish something many see as being unachievable.

That’s probably what he expects to happen with the Utah site, but that raises fresh issues. The first is why, if a big capacity nuclear facility is to be built on the site, hydrogen generation and storage are even required. Will they double the transmission at tremendous expense if they want to accommodate nuclear generation that runs around-the-clock and extra generation from storage?

Who would be responsible for paying for the security needs if SMRs were to be constructed on coal sites that were already in existence? Having studied and written about this issue, I am aware that there are seven overlapping layers of protection at the site, at least three of which are paid for by the site itself, and that local communities contribute around $4 billion annually to nuclear security.

For compact modular reactors, that will be accurate. Since they are nuclear plants, there are security worries about banned technologies and potential terrorist organizations domestically or abroad using dirty improvised explosive devices (IEDs). In my opinion, existing coal sites with SMRs will need greater protection than those without.

Shah dismisses this as important, pointing out that most coal plants have 1,800 acres of buffer area and long-term security, albeit at a lower level than nuclear plants. The DOE isn’t worried about enhancing security at the coal facilities. Additionally, there isn’t much waste on site compared to the coal ash and the quantity of space available, so it isn’t an issue to secure it. It is entirely possible to leave the waste on site for decades, just as is done for almost every nuclear facility in the world.

Shah then turns to the large amount of heat that small modular reactor designs produce. Since they are thermal generators, they lose a lot of heat. According to him, many industrial sites that require heat for industrial processes are interested in having SMRs situated nearby so they may benefit from both the heat and the power. To him, that represents an additional source of income. But then the question is whether a tiny reactor co-located with an industrial facility can actually pencil out, which I think is less likely, and how much security overhead will cost for those facilities.

I recently spoke with Kirsty Gogan, a global nuclear expert and former UK Deputy Head of Civil Nuclear Security, during a debate for a global audience of over 200 institutional investors organized by one of the largest investment banks in the world. Gogan highlighted modeling done by her firm TerraPraxis regarding building a full batch of SMRs on a hydrogen manufacturing site in a shipyard. That at least distributes the overhead over a larger number of nuclear units, but it also requires a significant amount of new infrastructure. Gogan and I both agreed that this requires making decisions. While Gogan and others seem to be using very intriguing statistics to imply that renewables won’t cut it, something that comes up later in my chat with Shah, I’m left scratching my head regarding SMRs and the claims.

The general public is now somewhat more in favor of nuclear power. Shah wants us to be open and honest with one another about what a significant decarbonization target for the year 2035 looks like. He also mentions other nations turning to coal as a result of the high natural gas costs currently being experienced worldwide. We must resolve the challenging issues around diversification. Shah and I both adore solar and wind energy, and Shah earned a ton of money with renewables in his early career. Despite this, Shah and I both think that it makes no sense to design a grid that runs exclusively on solar energy—not that anyone is suggesting this, of course. So the question is, what else is there but solar?

Shah approves of improved geothermal and low-impact hydro, but he rejects the idea that any one renewable technology could power 50% of a grid. It is unlikely to be done in China or India, but it might be done in Costa Rica.

We changed our attention to Germany, a significant industrial economy with a strong emphasis on renewable energy. It’s a fascinating case study because it has cut its GHG emissions across the board by 35.1% prior to COVID, significantly more than the US has done since 1990. This includes the post-Fukushima choice to mothball nuclear reactors rather than coal facilities. Germany today receives 41.1% of all electricity demand in Germany from renewable sources.

A significant portion of the reported renewables, according to Shah, came from biomass. That is true if the topic is heat, but not if it is electricity. Following the call, we debated this issue several times using different citations. Only 8% of Germany’s renewable electricity comes from biomass, with wind power accounting for 41.1% of the country’s total renewable electricity production. As a result, Shah’s observations about how Germany generates power and how that requires thermal generation lead to the wrong conclusions. I’m not sure how widespread this disparity is, but if it’s known about inside US government energy circles, that’s worrying.

Shah has already made investments in renewable methane and loves it as well. The US will have to treble its electricity demand, which is a massive task, thanks to electric cars and other such technologies. Shah estimates that it will add 1,700 TWh of additional electricity in addition to decarbonizing the existing system. People must grasp this sobering statistic in light of what will be needed in 2035.

Shah, who has constructed a significant amount of wind and solar energy, believes that the US is not restricted to 30 GW of new renewable energy per year due to transmission linkages, but rather due to the several counties that need to approve everything instead. The grid integration of new generation requires a lot of labor. All fresh generation is clean to an average of 80%. Shah doubts that the requisite patchwork of tiny, local permissions will result in that 30 GW increasing to 100 GW annually.

Next, let’s compare China as a new case study. It has built more HVDC than the rest of the world combined, more pumped hydro grid storage than the rest of the world combined, 40,000 km of high-speed electrified rail since 2007, and more nuclear generation than the rest of the world combined. However, the nuclear generation program isn’t performing nearly as well as the wind and solar programs. However, more coal and gas power facilities are also being built.

Comparatively speaking, China faces distinct difficulties than the US. With states, counties, and bodies below the level of counties as well as wealthy NIMBYs, it lacks the major devolution of the authority to say no that has occurred in the US, making progress of the kinds that China is demonstrating much more difficult. Today, it does require a tremendous amount more energy and is much more dependent on coal-fired power. China is developing renewable technologies and diversifying its economy more faster than the US.

Shah became patriotic and competitive while comparing China’s big deployments to those of the US. He claimed that while it may not be obvious from the outside looking in, a large number of nations around the world are turning to the US for guidance and leadership. That consensus confuses me personally because one of their own, Henry Kissinger, published a significant book in 2011 called On China that makes it quite plain that the agreement is not grounded in fact. Even though I don’t expect Americans to read or listen to Singaporean and UN diplomat Kishore Mahbubanis Has China Won or British journalist and academic Martin Jacques When China Rules the World , who both offer perspectives that are even more valuable than Kissinger’s and both of which I highly recommend, at least I would expect Beltway types to pay attention to Kissinger. However, it wasn’t a major issue given Shah’s concentration on domestic energy, so we didn’t linger on it.

US DOE LPO Loan Program

Instead, in the final minutes of our discussion, we changed our focus to HVDC. The May 2022 update from the DOE loans program office has few numerical values but a helpful picture. Not a significant portion of the $78.8 billion in applications may be found in the transmission box at bottom left. Shah was unable to go into great depth regarding HVDC federal rights of way, but transmission is the purpose of more over $5 billion of the applications. A sizable portion of that is allocated for a northeastern HVDC mesh, and it appears that everyone agrees that it is the best technology for the region’s expanding offshore wind industry. (In contrast, serious individuals in Europe are proposing and researching the technical viability of producing hydrogen offshore and piping it ashore, a highly challenging and expensive procedure that is still baffling when compared to alternatives.)

The allocation of costs for the transmission applications is still an issue, though. Will they be based on rates for consumers, government subsidies, or a hybrid model? Additionally, reconductorizing a line necessitates taking care of the full circuit, which brings up the issue of several governments needing to concur on the strategy once more. It takes a lot of coordination between state and sub-state authorities to conductorize the grid or put a layer of HVDC on top of the current grid.

And once more, the federal government’s options are limited. On this file, it cannot lead. While funding and education are permitted, telling individuals what to do from above is not. While Shah correctly notes that the US has implemented moonshot programs in the past, he also highlights all the ways in which the US is currently having difficulty implementing moonshot initiatives, perhaps most notably in the energy sector. After all, reaching the moon only required federal funding and already-existing infrastructure; there was no need for wires to traverse state borders or for counties to give their consent. Moonshots and electricity generation and transmission in the US are fundamentally at conflict with one another, as anyone who has read Michael Skelley’s likewise highly recommended book Superpower: One Mans Quest to Transform American Energy will understand.

Shah gives the following closing remarks to our discussion:

Since I was reading about solar energy in the 1980s and into the 1990s, I believe we have learnt a lot about how we commercialize technology. People were less accepting of the commercialization of new technologies back then. They have undoubtedly examined the history of solar, wind, electric vehicles, and battery storage today and see potential, in fact they see wealth creation coming from this commercialization. Therefore, I imagine that every nation in the world considers this to be the greatest chance for wealth creation in the twenty-first century. The issue then becomes how to coordinate the large number of technologists we have with the venture capitalists who fund them with the infrastructure deployment education layer. One of the difficulties we’ve seen is that occasionally these firms’ valuations have increased more quickly than the implementation layer has been able to take in these technologies. Therein lies the possibility for global profit-making.

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