Episode 76: Jigar Shah, Generate Capital
Today's guest is Jigar Shah, President & Co-Founder at Generate Capital.
Jigar was the founder and CEO of SunEdison (NASDAQ: SUNE, TERP), where he pioneered “no money down solar” and unlocked a multi-billion-dollar solar market, creating the largest solar services company worldwide. He is the author of Creating Climate Wealth: Unlocking the Impact Economy. After SunEdison, Jigar served as the founding CEO of the Carbon War Room, a global non-profit founded by Sir Richard Branson and Virgin Unite to help entrepreneurs address climate change. Generate Capital, the Carbon War Room and SunEdison all follow from Jigar’s vision that business model innovation will unlock the largest wealth creation opportunity – resource efficiency. Jigar is committed to helping entrepreneurs and large companies alike implement resource efficiency solutions using “pay as you save” project finance models. Jigar holds an MBA from The University of Maryland and BS in Mechanical Engineering from the University of Illinois, Champaign-Urbana. He sits on the boards of sPower and the Rocky Mountain Institute. Jigar lives in New York City and is trying to find the perfect cocktail.
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In today's episode, we cover:
Overview of Generate Capital
'Generate’s business model and approach
Industries and solution types they are interested in
Example project
Jigar’s backround and experiences leading up to Generate
How Generate measures success beyond returns
How Jigar thinks about the nature of the climate problem
The role of the new blood coming into the space
Capital types and capital gaps
Capitalism, GDP growth, and climate change
Where economists get it wrong
How optimistic is Jigar for the future?
The most effective ways to address this issue
How Jigar would allocate $100B to maximize its impact on the problem
How you and I can help
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Jason Jacobs: Hello everyone, this is Jason Jacobs and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change and try to figure out how people like you and I can help. Today's guest is Jigar Shah, the president and co-founder of Generate Capital. Generate is an investment and operating platform that builds, owns, operates, acquires and finances innovative resource infrastructure. Since its launch in 2014, the firm has built more than $500 billion of sustainable infrastructure across power, transportation, water and waste sectors. Jigar was the founder and CEO of SunEdison where he pioneered no money down solar and unlocked a multibillion dollar solar market creating the largest solar services company worldwide. He's also the author of Creating Climate Wealth: Unlocking The Impact Economy.
Jason Jacobs: After SunEdison, Jigar served as founding CEO of the Carbon War Room, a global nonprofit founded by Sir Richard Branson and Virgin Unite to help entrepreneurs address climate change. This guy has been around the block and he's not shy with his opinions. His views are also different than many of the guests I've had on the show and they've been hard earned with a ton of battle scars in the climate fight. Jigar Shah, welcome to the show.
Jigar Shah: Thanks for having me.
Jason Jacobs: It's an honor. I feel like you are one of the legends in the space and it's funny because I come in with my new blood and beginner mind and everything, but then as I was prepping for this interview, there's so many things that I think are novel and then it's like, well, wait a minute. Jigar was doing this 15 years ago and so he can tell me where all the bodies are buried.
Jigar Shah: Well, I'm not too sure about that. I think frankly, the thing that inspires me the most about you're coming into our industry is that it's been what I've been waiting for for a long time is to get the country's best and brightest minds to be focused on these topic areas instead of some of the other areas that have attracted those minds in the past.
Jason Jacobs: Eric from SoundCloud put us in touch and he's been on a similar journey to me only he's the European version and the quiet version where I'm like the US version and doing everything publicly, but it seems like you already tried this back with the Carbon War Room. So I guess what makes you or me or anyone like why is this time any different?
Jigar Shah: Well, remember, so my own point of view on these things is that things happen when they're supposed to, sort of Victor Hugo style. So I don't think that any of my actions are going to lead to a renaissance and climate change solutions thinking or any of those things. I think that what I'm doing is helping people understand what it would take to attract mainstream capital, mainstream entrepreneurs and mainstream capitalism thinking in this sector at the time at which we declare world war zero according to John Kerry or whatever it is that politicians do, then I want to be ready with a series of 40 solutions with a supply chain ready to go that can be ramped up a hundred X. But it can't be ramped up a hundred X if all it is is some small idea where five test units have been deployed and so it's got to have a lot more track record I think before the government can get involved.
Jason Jacobs: Even with what you just said, there's a lot to dive into, but before we get too far down that path for the benefit of listeners who may or may not be familiar with your background, why don't we just take it from the top? What's Generate Capital?
Jigar Shah: So Generate Capital is the latest in my own personal evolution and then the evolution of my two partners, Scott Jacobs and Matan Friedman. My beginning into this space was through the solar industry, and my claim to fame is popularizing a concept known as a power purchase agreement in solar where you could buy the service without having to buy the power plant. And we got Target, Walmart, Staples, Whole Foods, State of California and others hooked on signing longterm power purchase agreements over having to make a capital decision to buy solar for the rooftop, and that led to the first institutional capital fund that was funded by Goldman Sachs, and then it led to, I think at this point, over $1 trillion of capital being deployed through the financial model that we pioneered at SunEdison. And what we found was that the lessons we learned in that experience weren't really being translated to the other 70 sectors that's been identified for climate solution. So whether it's anaerobic digesters or battery storage or electric vehicles or compost facilities or whatnot, these other areas have not become master or PhD level deployers of project finance into their sectors.
Jason Jacobs: Where can I find that 70 area list?
Jigar Shah: McKinsey has a report called the Resource Revolution, and then that report is the famous McKinsey cost curve where you have all the little bars of what the measures are that are cost-effective without subsidies today. And they did a separate cost curve for every country in the world leading up to the 2009 Copenhagen negotiations, and so it's really that work that I'm borrowing from... The International Energy Agency has done their own analysis separately with 70 different sectors from heating and air conditioning to industrial energy use, et cetera, and all the different technologies that can be used to save carbon in those sectors.
Jason Jacobs: Got it. And so you said at Generate, it's essentially taking the learnings from working in one area, solar, and trying to build similar bridges so that the types of technologies that are maybe more ready for wider scale deployment but maybe are less understood, can get the capital that they need and that candidly they're ready for when they're ready to do so.
Jigar Shah: Yeah, and we've simplify it because we have our own capital at Generate. So we deploy our money into those project finance opportunities. So whether it's fuel cells or anaerobic digesters, we're now the largest owner of food waste digesters in the US, one of the largest owners of fuel cell deployments in the US behind the meter battery storage in the US. So like you have a lot of these sectors where frankly most of the technology is 20 plus years old, and you just never found entrepreneurs to really be at the level of figuring out how to get them ready for mainstream project finance.
Jason Jacobs: And when you say owner, all of my experience prior to thinking about climate change for the last year has been primarily around traditional... Well, I say traditional to me because it's the world that I come from, but I was going to say traditional venture capital, but it's not actually traditional, it's just traditional to me. It's just one asset class of a sea of different asset classes, but it's where my experience was where you have a cap table and the investors come in for a some type of minority investment. Typically it's 10%, 15%, 25% some type of ownership, but with project finance, there's the company themselves and then there's specific projects. And I guess what does ownership mean in the project finance world and then how does that translate to what ownership means in the Generate world?
Jigar Shah: Yeah, so in the world that we're talking about, we're talking about physical infrastructure. Fundamentally, we're not going to solve climate change through AI and machine learning, we're going to solve climate change through new ways of purifying our water, dealing with our waste, making electricity, figuring out transportation, all that stuff. And so what you end up with is, let's call it $5 trillion to $10 trillion a year of investments that we're already making. We're already building new roads, we're already building new ways for our dream plants, we're already building new tractors, more passenger cars, all that stuff. And figuring out how to make that less carbon intensive every year is how we're going to solve climate change. It's not going to come through some sort of advertising model through clicks.
Jigar Shah: And so the venture capital model work in our space,. People can say, I invested in a new type of solar tracking company and that tracking company reduce the cost of trackers by X dollars and made it able to be manufactured in many other countries like NEXTracker, but if NEXTracker didn't exist, then some other tracking technology would have worked and solar would have just came down the cost curve regardless. So in this space, venture capital is less important than it is in other spaces because venture capital is less than 3% to 4% of the total capital base of what we're doing. Venture capital might be a couple billion dollars a year into our space maybe.
Jason Jacobs: What space do you mean when you say this space?
Jigar Shah: Infrastructure, climate solutions. So when you think about, when we talk about project finance, that includes everything. It includes everything from all the backup generators that people are buying in California to save themselves from the public safety shutoffs to all of the employee shuttle buses that Facebook buys to bring their people from San Francisco down to their headquarters. All of that physical infrastructure is what we're talking about here. And project finance is just one way to isolate non-core investments. So for Facebook in that example, they don't really want to own the buses or hire the drivers and certainly don't want to give them Facebook benefits, they just want to buy a service from somebody who makes sure the buses work every day and shows up to pick up their employees on time. And that's project finance.
Jason Jacobs: Are you actually, you're acquiring the assets and essentially leasing them to the company that needs to benefit from them?
Jigar Shah: Well, so leasing is one structure, but it's really just we operate it for them through a party. So if in the case of buses, it's a company called WeDriveU, and WeDriveU is a $1 billion company that operates buses on behalf of for Facebook and for Genentech and from all other companies, Google, et cetera, to be able to get employees and people to the right places at the right time. And in that case, it's actually just a service payment that Facebook pays. So they're not guaranteeing payments. At least there is a guaranteed payment whether the staff works or not, whereas a performance based payment would be, well, we only pay you per employee that you pick up for instance or...
Jason Jacobs: Are they tied to one specific client or can they be shared across clients? The assets that you own or does it depend on the type of asset or the transaction?
Jigar Shah: All the above. So like in an anaerobic digester for instance, we collect food waste from probably 25 of the fortune 500 companies, everyone from Procter & Gamble to Kellogg's to General Mills to others who have food waste and they need a place to dispose of it and they've announced that they're going to be net zero waste by X date and they have to figure out what to do with it and be part of the circular economy, and so we own an anaerobic digester and we [separately 00:12:00] in that particular project in Michigan, we turn it into gas, natural gas, and then we burn the natural gas in sort of a power to consumers energy.
Jigar Shah: So in other cases, we turn the food waste into gas, we clean up that gas and then inject it into a pipeline, ship that gas to California, and then we use that gas to provide renewable natural gas to vehicles that ATNT or UPS or some airport shuttle uses to move people around in their CNG buses or delivery vans. So we're taking food waste from number of companies on the front end and we're putting it into a number of companies' fleet vehicles on the backend.
Jason Jacobs: And I heard you say in another interview that you weren't necessarily climate motivated when you first got into the field many years ago, and it wasn't until you served on the Greenpeace board that it opened your eyes to climate and the issue became more front and center. Did I hear that correctly? And I guess if so or if not, talk to me about that transition and maybe what your motivations were when you started and what motivates you today.
Jigar Shah: Yeah, I'm an engineer and an entrepreneur like yourself, and so what I want to do is to solve problems. And I found it to be quite fascinating that solar had been this technology that was really truly unique. Before that, the way we made electricity was by burning stuff and boiling water. Even a nuclear power plant basically takes the deterioration of vision material and captures the heat from that process and boils water. And so when you saw a solid state technology like solar where you actually take photons that are hitting a surface of a semiconductor and actually releasing electrons, that's truly new and interesting. And I thought that given that the technology was invented in 1910 or 1894 or something like that, but was actually popularized by Bell Labs in the 1950s, I was ready for prime time and I really wanted to spend some time trying to figure out how to make that ready for prime time.
Jigar Shah: I didn't really think about it in the context of climate change, and it wasn't until I joined the Greenpeace board that I thought, "Wow, I actually am part of a bigger movement." There are people at Greenpeace that are writing the Energy Revolution report, which happened to be the most accurate reflection of what ended up happening in the world around the advent of solar and wind. It was written in 2006 and everyone else got it wrong and even Greenpeace got it wrong by a factor of almost two, but they were the most aggressive. So yeah, it put into context all of my learnings and capabilities and taught me that actually I could start using my brain for a public cause and not just solving discrete problems for the energy industry.
Jason Jacobs: Do you think that as the motivation shifts, does it actually change the tactics at the operational level? Or I guess to say it another way, does the motivation matter?
Jigar Shah: No, it doesn't change the tactics at the operating level. I do think it's true there are some people who are able to make things different than it would have otherwise already happened. Like certain things are inevitable and they're rolling and if it wasn't you, it was someone else that was going to make that money. Sort of like a coffee shop phenomenon. If you didn't create that coffee shop, somebody else would create a coffee shop there. But there are other things like what you've done and what I've done where if you didn't do it, it could have been the case that nobody would have done it and that we just wouldn't have had that solution.
Jason Jacobs: I don't think you can put my little podcast and SunEdison or Generate in the same category. I aspire to do things, but I haven't necessarily done a lot yet.
Jigar Shah: No, but I think that in terms of what you were doing on the running app and other things, I do think that there are certain things that people do where if you hadn't have done that, it's not natural just to say, well, somebody would have done that. And that somebody that would have done it other than you may not have been as driven and successful as you are, and so they may have just had a false start and would have just shut down and failed and that solution wouldn't have come into the world. And so I do think that there are certain solutions that wouldn't come into the world if it wasn't for a successful competent entrepreneur putting them into the world.
Jason Jacobs: But that isn't motivation though. That's grit.
Jigar Shah: No, that's right. That is grit. And so now once you have this smaller group of people, which I don't think is everybody in the world, but there is a smaller group of people who have the temperament, financial means maybe, whatever it is to be able to make this change in the world, if they decide to use it in one area or the other, that does matter. So the operational details of what happens once they've made their decision on what to work on is the same, but whether they choose to work on a socially significant problem like climate change or whether they choose to work on figuring out how to capture more people's data to use to sell them more advertising, I think it does matter what they decide to spend their time on.
Jason Jacobs: But for example, I've come across certain entrepreneurs. I'm sure there's examples in other categories as well, but I'll stick to innovation for now since it's top of mind, but who are doing things that if they're successful can be quite impactful in the climate fight, but they tell me flat out that they're not motivated by climate change. So I guess in that example, does motivation matter?
Jigar Shah: No, of course, it doesn't matter in that example, but there are certainly lots of other people who have decided that they were going to start a communications platform that allows people to take 10 or 15 second videos and share them with everybody across the internet and figure out how to get more likes and clicks and whatever, and they could have used their entrepreneurial genius for something that was more impactful in the world than that. And I do think that that matters.
Jason Jacobs: And does that require conceding in other aspects such as either timing or risk or upside potential?
Jigar Shah: No, I think that the amount of money that you can make in our sector and in those other sectors is the same. We certainly lionize people who become the richest people in the world who have north of $40 billion net worths, but in general, the vast majority of entrepreneurs that I know in the DC area or in San Francisco who have created apps or created other things, didn't make $1 billion. They barely got out with the money they put into it. And so the same bell curve of outcomes are true in all these areas of innovation. And so people can choose to work in areas that are more socially meaningful than areas that are...
Jason Jacobs: Does Generate have outside institutional LPs.
Jigar Shah: Yeah, they're not LPs in our case, they're shareholders. So our investors all own stock in Generate, it's not a GP/LP vehicle, but yeah, we've got some of the world's largest pension funds and sovereign wealth funds invested in Generate.
Jason Jacobs: Interesting. And so when you go to them or when you went to them for, is it structured more, I'm going to use words that I'm still learning about so that's the caveat, but is it more of an evergreen way or is there an actual fund with a life cycle?
Jigar Shah: Yeah, that's why we structured it as a corporate is because by definition a corporate is evergreen, so you don't have the right to demand the money back in a corporate structure. You have the right to sell your shares to someone else who wants to buy them for more money than you paid for them or less money than you paid for them, but you don't have the right to tell me to sell all of the assets that I've invested in to give you back money. But in the GP/LP structure, you do have that right. So a lot of people have a seven year fund and at the end of seven years, the funder has the right to say, "Okay, seven years or up. Sell everything that you own and give me back my money," even if it's an inopportune time to sell it.
Jason Jacobs: So liquidity in this structure is just like another equity holding?
Jigar Shah: That's right. You have to find a third party to buy your shares and we obviously facilitate that in some cases. So if we're raising primary capital, we might also raise secondary capital for existing investors to cash out at the same share price, but we've loosened the restrictions for people to buy our stock. And so individual people can find someone else who wants to buy the stock from them and sell it to them.
Jason Jacobs: And the institutional shareholders that are involved, is it purely return story when you go and ask them for money?
Jigar Shah: Oh, yeah, we're by far the best return that they have in the infrastructure class they've invested in.
Jason Jacobs: Okay, so it's a return story. And when you think about impact, where does impact on climate change fit into the mission, if at all?
Jigar Shah: Oh, it's central to what we do, but again, this is what I'm saying is that Scott, Matan and I and then the other 55 plus employees that we have on our platform, they're all super talented people and they could have been working on life settlements where they buy people's life insurance policies and wait for them to die. And they're basically doing statistical analysis around when they're going to die and what the returns are from them die. The work that people do for Generate could be used on spreadsheet models for life settlements just as well as they're working on spreadsheet models for anaerobic digesters, but they choose to work on socially meaningful work, which I think is useful.
Jigar Shah: And I think that that's why I'm saying I divorce profit maximization with what you choose to work on. There's a lot of people who say, "Well, I'm working on what makes me the most money," which is just simply patently false that every single really smart person in the world today could choose to work in the climate solution space and make the same amount of money or more than they chose to make in the field of their choice.
Jason Jacobs: So Breakthrough Energy Ventures, for example, they say that there's a ticket of admission, which is this gigaton threshold that it's got to have the potential to reduce the CO2 in the atmosphere by a gigaton at scale if it's successful, but then once it passes that filter, they operate just like any other venture firm. So how does Generate think about impact in that regard? Is there any type of filter? Is it on the front end of the process? How do you measure, if at all?
Jigar Shah: Yeah, I think most of that stuff is made up, so we don't do that stuff. In general, you could imagine some esoteric set of facts coming together and then us saying, "Well, we're not going to invest in that because that set of esoteric facts are never going to happen again." So for instance, there could be a person who basically has leftover orange peels and those orange peels are toxic and someone's figured out how to convert those orange peels into some sort of chemical that was used by the chemical industry and you could make 40% returns on that. We would choose not to make that investment because there isn't 30 more orange peel to chemical plants we can build. And so we're not going to do a one off private equity investment that doesn't have eight or 10 more facilities that can be built the same way, but if those eight or 10 facilities that get built are not a gigaton, we'll still invest in it.
Jigar Shah: In general, I find this whole concept of gigaton we invented gigaton at the Carbon War Room. Sunil Paul invented the gigaton throw down under the Clinton Global Initiative and then we adopted that framework from Sunil at the Carbon War Room and we wrote gigaton reports and that's how that has become popular, and Breakthrough Energy Ventures is using that framework, which is great. And I appreciate Sunil's expertise there, but ultimately, Breakthrough Energy Ventures doesn't know whether investing in is a gigaton scale solution or not. And so I feel like that's just a false choice.
Jason Jacobs: So I'm going to try asking the question a different way because I feel like I'm asking it poorly or we're dancing around it a little bit, but so you have a financial framework through which you use to know if something is a good investment in terms of the type of risk matching with the type of return to fit your model, correct?
Jigar Shah: Yeah, I agree.
Jason Jacobs: Yeah, okay, so that's what you're doing. I'm sure there's a lot more to it than that, but I'm just oversimplifying for purposes of discussion here, but then on the impact side, how do you assess if, is it only returns that you're using or because you're talking about the solution.
Jigar Shah: It's only returns that we're using.
Jason Jacobs: So how do you know if something fits that social good or not?
Jigar Shah: Well, we only do things that obviously fit the social goods. It's already been in the McKinsey Resource Revolution report, it's been studied by the International Energy Agency and it's already been third party identified by somebody else as part of that framework. So we're not inventing anything here. That list of technologies is so long that we could work for the next 50 years and never get through it. So that's not, that part of it is not hard for us. And I find that the whole notion of this estimate has saved more carbon than that investment or this investment has hired more people than that investment or whatever it is, to somewhat be a little bit false because you're making one investment. You've got $5 million to invest, you've got $50 million to invest and you're trying to be catalytic to what you're trying to do. And so it's not like I'm going to save a gigaton of carbon by myself.
Jason Jacobs: But is there anything in your charter that would prohibit you, for example, from backing a coal plant or a natural gas?
Jigar Shah: No, if we thought that we could invest in a coal plant via some technology that Craig Venter has invested in that uses biological microbes that eat coal and poop out good stuff and absorb CO2, then we might do that, but it's got to be good for the planet. It can't be bad for the planet. We're not just chasing returns just to chase them.
Jason Jacobs: I've heard you say in prior interviews that or actually when we had our prep discussion before we recorded, we talked about this as well. You talked about how at Generate you aren't really looking for new scientific breakthroughs, but you're looking for technology that's maybe more proven, but thus far misunderstood. Is that a fair characterization?
Jigar Shah: Yeah, I think going back to your questions around relevance, relevance in our sector, which is as we discussed, infrastructure, climate solutions, is only at trillion dollar scale. And when you look at how technology works in infrastructure, the minimum amount of time that a technology has to be in the field in one location before people would be willing to even consider it for $1 billion investment is a hundred thousand hours, which is like 12 or 13 years. So there is no chance that a battery technology out of MIT's famous battery lab is going to reach billion dollar scale in less than 12 to 13 years. And so I just think that there's this false notion that innovation is going to lead to some sort of breakthrough technology that's going to save us all. It's actually a funny thing because it's like we're based in California, but California is the root of this falsehood, this techno optimism where we can all be saved by technology.
Jigar Shah: Remember the whole one laptop per child debacle, wherever? We were going to create a hundred dollar laptop and everybody around the world was going to become educated with it and it turned out to be a huge fiasco, but not because the people behind it weren't genuine in their desires to help poor people or poor children, but more so because there's this notion in California and by extension the rest of the world, that humans can basically solve any problem if we put our minds to it. And that we don't actually have to follow the laws of nature, that everything can just get solved. Like you can put 15 million people in LA because you can just ship the water from the Sierra Nevada's all the way down to LA and nothing will go wrong. It's fine. We're happy to build this world-class economy in the middle of a desert. And I think that it's one of those things that eventually I do think we're going to have to get better at understanding where we can really solve problems at scale and where we're just fooling ourselves.
Jason Jacobs: So I think what I'm hearing from you is that if it's not a problem that we can solve at scale, then it can't be impactful in the climate fight. Did I hear that right?
Jigar Shah: Yeah, I think that when you think about what infrastructure is intended to do is infrastructure is intended to help the broader population, whether it's air conditioning or whether it's taxi cab fleets or whatever else, it's opposed to... The definition of infrastructure is it's like something that everyone has access to and can use. And when you think about how those decisions get made, they get made through democratic processes. Whether you're in a democracy or not, that top-down pushing of a technology via China for instance, doesn't really work. Even in China, local government officials have to believe that solar and wind can work, or electric buses can work. Otherwise, no matter how many edicts they get from the Chinese Politburo, they're not actually going to enforce it because they're like, "Well, I don't want to drive an electric buzzer. I don't want to be powered by solar and therefore I'm not going to enforce those regulations." So I just think that there's this notion of this technology philosopher king that we subscribe to right now, which just isn't true. There's no lionized social media CEO that's going to come out of our sector.
Jason Jacobs: And why are you excited for new blood like me coming into the space?
Jigar Shah: Well, because we are significantly increasing the number of really smart, successful people that are working on the problem. That's how this works. It's not going to be a hundred or a thousand people that figure this out together, it's going to be 10,000, 100,000, a million, 10 million people that figure it out together. And all of us putting our best minds forward and more importantly, all of us having the humility to know that everyone brings something to the table and that we should be listening more than we're talking.
Jason Jacobs: But I guess isn't the counter argument that if you have a hammer, everything looks like a nail?
Jigar Shah: Well, for sure. For sure I'm a hammer, everything gets solved by project finance for me, but I have the recognition of understanding that I have to be a student of how change occurs. So every city that I work in, whether it's for energy efficiency or anaerobic digesters or electric bus fleets, has something to say to me. They have to say, I would rather the buses have these features and not those features. I'd rather the anaerobic digesters have lagoon covers or not, or every single person in every single town cares about my infrastructure that I own. And if I don't listen to what they think about the infrastructure that I'm putting in and I don't spend the time educating them around how it can be helpful to them and what they can do to be helpful to their own communities, then I lose my license to operate in that community. That's how this goes. You don't have the right to go to these communities and just say, "I will impose my will on you."
Jason Jacobs: So what is your approach when you do go into one of these communities then and also how much of it are you doing versus outside help and if there's outside help, what does that look like?
Jigar Shah: Well, it's always outside help. There's only so much of me to go around and I'm not even good at some of these things. And so it's about a local developer who wants to improve their community and says, I think building a digester here or building a hundred megawatt hours energy storage farm here, or building a electric bus fleet here, or there was a guy in Madison, Wisconsin who converted his entire limo fleet to Tesla Model 3s. And there's always somebody who basically is like, "I want to do something. I want to make a difference. I want to create a better world." And they need help. They need a bank or a finance provider or somebody to listen to them and not think that they're crazy, but actually review what their work product is and see whether it makes sense to do it. And they're the ones who work collaboratively in the community.
Jigar Shah: And part of my diligence that we do for these projects is to figure out whether we do have a right to work in that community and whether they are anti electric vehicles or anti food waste trucks coming by. Some of our food waste comes from 400 miles away. And so some of the communities are probably against having food waste trucks coming into their community to dump food waste there. And so the developer does most of the work, but we absolutely as part of our diligence, have to understand whether we have a license to operate in those communities. Once you genuinely listen, people are genuinely willing to tell you what they think and suggest solutions because they all want economic development in their communities, but they want economic development that they had a say in creating.
Jason Jacobs: I've heard you say in the past that you guys come in and you provide funding where others maybe don't have the time or the expertise or the comfort level to do the work, but that ultimately if a company gets mature enough that they might find cheaper access to capital and graduate from the Generate model. So where is that sweet spot? Where does it sit between say plant one and plant N?
Jigar Shah: So it's generally about total dollars and less about plant one and plant N. And so if someone needs 50, 75, maybe even 100 million dollars, there's not a lot of places to go. So you can think about the smartest infrastructure investors in the world generally are raising $5, $10, $15 billion at a clip, and those people can only handle 20 investments. So you divide how much money they've raised by 20 and that's the most that they can invest. And so if they've got $10 billion, each investment has to average $500 million. If the companies that we're working with can use $500 million productively, they can attract money from these other competitors to us.
Jigar Shah: But to being in a place where you can invest $500 million productively is really, really hard. Particularly when in this infrastructure revolution that we've experienced, things are much smaller. It used to be that $1 billion coal plant produced power that was cheaper than $100 million coal plant. And today, that's not true. Today infrastructure has gotten smaller and smaller. And so now an anaerobic digester or a wastewater treatment plant that's 10 million can actually be more cost effective to operate and build than one that costs a billion. And so you're now in a situation where for those people who want to put 500 million to work, you have to have a hundred of those plants ready to go and be constructed before they're interested in you.
Jason Jacobs: And what about on the smaller side? So I've heard from other people, and I think we chatted about this briefly as well, but that there's a gap in terms of getting that plant one built. Is plant one typically too early for you guys?
Jigar Shah: It is, yeah. Because generally speaking, plant one has a lot of risk associated with it, some of which is technology, but there's three or four other risks that we look at too. We look at feedstock risk and they really get the feedstock at an affordable price, whether it's natural gas or whether it's garbage or whatever it is. We look at output risks. Some of them are selling merchant products. They say, "Well, we're selling bio-diesel, or we're selling ethanol, or we're selling whatever," and it's tied to a commodity market and they can't really hedge the commodity markets. They're always selling at a discount to gasoline or whatever, so that's really hard to hedge. And then there's also operating risk where people say, "Oh, I got this. I can do this really well and they can make sure that it operates at a 98% uptime." It's like, "Really? Can you? Have you done that before?"
Jigar Shah: "No, I've never done it before, but I stayed at a Holiday Inn Express last night." And I'm like, "Well, that's not going to work for me. We actually need to know that you can operate this facility well." And then the last risk is scale up risk. So there's a lot of people who say, "Well, I've done this in the lab at 1/10th scale, but that's pretty easy. We can make it 10X larger and it'll work great." And I can show people hundreds of examples where that didn't turn out to be true.
Jason Jacobs: We talked a bit about how Greenpeace board became aware of and motivated by climate and both from a business standpoint and from a purpose standpoint, wanted to do the things that have the significant scale attached to them, but from an existential standpoint, one thing we haven't talked about so far is the problems. So how do you think about the problem, the level of urgency, how bad things are going to get? I'm just trying to do a pulse check on the state of the state as you think about climate change.
Jigar Shah: Yeah, I don't know that I have to have an opinion there that is different than the norm. At this point, you've got thousands of scientists through the IPCC or through other official channels who are saying that things are going to get bad. They're going to get really bad. That all the feedback loops and all the models and all the things that they've been studying for 30 years, the actual observed differences in the world have been worse and have happened faster. We just lost 2 billion tons of ice in Greenland in that area in the last week, and so at some point, you start to recognize that things are going to get pretty bad. That my son who's four years old right now is going to have a far different world than I grew up in.
Jigar Shah: When I was born in 1974, there was a lot of optimism ahead of us. We were putting people in space and we were developing all sorts of new building technologies and cars and all sorts of other things. Today, I would say that part of the solution to the problem is going to be to eliminate consumerism. Could you imagine how that's going to work? Today, we like to greenwash because that's a lot better than giving people the truth. We're telling people, "If you make the clothes that you buy out of sustainable cotton, then that's better than making it out of traditional cotton." That's not true. Buying 60% more clothes today than we did 20 years ago is not a good thing. We all have to buy 60% less clothes than we did 20 years ago. We have to consume less stuff than we did 20 years ago. And when my son is old enough to make his own decisions, he's going to have to consume less stuff.
Jigar Shah: That's the future we're going into. All the techno optimism stuff that I work on is going to make things a little bit easier and a little bit better, but fundamentally, human beings are locusts and we consume resources in extraordinary amounts. And we're going to have to consume less stuff I think through bad times. During World War II, people consumed less stuff. They started growing war gardens to support local vegetable markets and that kind of stuff. That's what's going to happen again.
Jigar Shah: Like I said to you at the beginning of the podcast, all the stuff that I'm working on is to provide solutions so that when the government has the guts to actually do what's necessary, that will have a bunch of solution sets that are mature enough for them to really deploy at scale, but no, without a huge amount of sacrifice, this is not going to go well. People can't continue to fly millions of miles every few years and figure out how to get platinum, ultra platinum status and save the planet. All the things that we do, everyone's buying an SUV and a pickup truck today. Everyone has a 6,000 square foot house that has three people in it. All of that stuff that people do, that's not going to be possible in the future.
Jason Jacobs: So the whole eco modernism framework that says that you need to untether growth from dependence on natural resource, but that growth is an essential component of a viable and productive future, it sounds like you fundamentally disagree with that assertion.
Jigar Shah: Oh, yeah, it's complete horseshit. The notion that we're going to be able to continue to grow everyone in the world to our standard of living in the United States and maintain some semblance of balance with the planet, this is the thing that I find fascinating is that the planet's going to be fine. The planet goes through these kinds of cycles all the time. The earth has a fever that we created, but the earth will figure out how to get rid of the virus. It's not like the earth is going to go anywhere, the earth will just take 50 million years and solve itself. It's human civilization that has to recognize whether we want to be around for the longterm or whether we think that we should be forced by nature to control ourselves. And the whole concept of growth has an artifact of economists, and economists I think I've been proven wrong over and over again in the last four decades. So yeah, I'm not too bullish about economists and this ever growing paradigm.
Jason Jacobs: Any crowning examples come to mind of when economists have been proven wrong?
Jigar Shah: Well, I think the notion that economists believe that all growth is good growth and that trickle down economics are going to work and that we should absolutely just tax rates for the wealthy have gone from around 50% 40 years ago down to around 30%, the ultra wealthy today pay the same tax rates as middle class Americans today, and as someone who has been in the top 1% for a while, I certainly acknowledge that I use every tax break that is legally allowed for me to use and I pay a pretty low percentage of my net worth in taxes. And that is what it is. And so I think you now have income inequality at extraordinary levels, you have even in the lowest job unemployment rate situation that we've had in modern times and workers have no pricing power, and so salaries are not going up as it's supposed to.
Jigar Shah: I think economists in general get lulled into their own theory and a lot of times that theory is divorced from reality. Think about real estate for instance. There's no reason for real estate prices to go up. I have no idea why economists thought it was a good idea for real estate prices to go up. America has more land than any OECD country in the world. We could build more real estate as soon as we wanted to. It's a supply demand issue. We could create more housing supply and depress housing prices if we wanted to, but even in California, liberal California, that's really bad. People don't want their housing prices to go down, even though they acknowledge affordable housing to be a big issue. That's a economists. Asset bubbles, we allow the Federal Reserve to basically reduce interest rates. That's how they actually spur economic growth. All that does is create asset bubbles for people like me and you who have assets. For people who don't have assets, there's no bubbles.
Jason Jacobs: I get that we need to change, but do you have any confidence that we actually will change?
Jigar Shah: No, absolutely no. This is a Winston Churchill type thing. It's like Americans can be counted on doing the right thing after they've exhausted all other options. And we're in the same place. We're going to basically sit here and try to make this work forever and ever and ever and then at some point, it's going to stare us right in the face. And when that occurs, because California's burning all over the place and Miami Beach falls into the the ocean, which it's tending to do now. For two and a half, three months of the year now, the Florida Keys has standing water in their streets and sidewalks. People have to literally walk in six inch water to get to work. At some point, people are going to go, "Wow, this is not a temporary phenomenon, this is like a permanent phenomenon." And we have to change the way we do things.
Jigar Shah: We can't just pave over all of the ground area here. Like Houston permanently floods now. Every time it rains it floods from Houston. Some point they're going to say, "Oh, maybe we need to actually use new building materials and we have to figure out and how not to just pave everything over with parking lots with cement or concrete." We are going to have to figure out how to get to better balance with nature. And the same thing is true by the way, with population. At some point, we're going to decide that we're going to empower all the women in the world and empowered women don't actually have a ton of kids and we will have a stable population. And so in every country in the world where we've empowered women, birth rates have basically come down below replacement rate.
Jason Jacobs: So you talked before about the government finally getting the will to do what's needed. What's needed from the government standpoint?
Jigar Shah: Well, in World War II, we basically took over the means of production. Everyone thinks the automakers and others helped the World War II, they didn't. FDR actually seized all of their industrial capacity and forced them to make planes and tanks and all sorts of other stuff to be able to fight World War II. We're going to do the same thing here. Everyone thinks that like, "Oh, we're just going to use modern economic theory and we're going to have renewable portfolio standards and we're going to get the utility companies to decarbonize and all that stuff," but one day, there will be a time when people say, "You know what? Screw this." We're going to take them over and we're basically going to force them to just build decarbonized electricity grid and we're going to ban internal combustion engine cars and we're going to force all new cars to be something else.
Jigar Shah: Or we're going to even ban personal car ownership at some point and say everyone's got to use transit because traffic is unsustainable. At some point, you will get to the point where giving people the ability to choose things that make things worse won't be allowed anymore. And that's where we're headed. And I don't know if it's going to happen in 10 years or whether it's going to happen in 40 years, but it will happen at some point. We will not allow people to continue to march us to four, five, six degrees of warming and we are headed towards, what is it, 3.6 degrees or four degrees of warming right now.
Jason Jacobs: And how does that actually manifest? So let's say the government wanted to do that tactically, is there some type of policy that should be enacted? Is there a whole group of them that would need to be employee say, does it not matter because as long as it gets the job done and there's a hundred different ways to solve it? What advice would you have for elected officials assuming they're with you and think it's time? Not saying they are or they do, but if they were or when they are.
Jigar Shah: It's a very complicated problem. So right now we're headed towards tyranny with the Trump administration has taught you anything and the other folks around the world who are exhibiting the same. You have two forces. They're counterbalancing each other. One is the force of the working class versus the rich. And that is something you solve by being more egalitarian about how you do this stuff. So that's the green new deal, and then the other approach is something that is more totalitarian. And you say, "Look, the other is the one who's making all of this worse for you." It's immigrants, it's colored people, it's whatever. It's people other than yourselves who are making things bad for you though. And if we figure out a way to hate those people more than ourselves and we stick together, then we're going to get through this.
Jigar Shah: And those are the two options. And both of them have many, many historical examples to show that it works. And sometimes the mix of both. FDR only got the new deal done because he excluded colored people. He deliberately excluded African-Americans from the GI Bill, from housing, from all sorts of stuff that came out of the new deal. So that's how he got Southern Democrats to vote for him. So it could be a little bit of both that you basically do a little bit of tribal and a little bit of class warfare, but there's only two or three ways this goes from historical example. Yeah, I hope that we stay as a democracy and we actually lean into the rule of law. That is my own personal preference, but there are many other times in history where people use these types of calamities to actually go the other way.
Jason Jacobs: I feel like we've been talking a lot with a US centric view, but how does the US in general fit into the rest of the world in the context of this problem?
Jigar Shah: Well, for now, the US continues to be the example of choice. People don't want to emulate China or emulate Russia or emulate other countries, they want to emulate the United States. So right now, even with the weakened position that the US is in now globally, people still want to emulate the United States.
Jason Jacobs: Including China and India though?
Jigar Shah: Of course they do. Of course they do. One day, that may change and China may declare that its model is actually worth replicating. One of the reasons why China has been allowed to continue to be this sort of communist bastion is because remember Bill Clinton in the '90s said, "Well, we're going to continue to open up China. And as we open up China and give them more opportunity and more capitalism, they're going to want what we have and they will naturally become more democratic." I don't know if you remember those talking points. I don't think that's worked out. The Chinese have figured out how to control the internet, which we never thought they could do, and they've figured out how to crush rebellions in Tiananmen Square and now in Hong Kong, and we'll see how that goes, but there are like two models.
Jigar Shah: Probably like today, the US model really is the only model that people are promulgating, but there is another model in China that is coming forward and there are people like Erdogan in Turkey and other people around the world who are saying, "Hey, if I control the media and I control social media and I control the internet and I control some of these other things, I can actually stay in power longer and do this through one party rule."
Jason Jacobs: Where do things like carbon removal fit into the picture in your mind?
Jigar Shah: Oh, they're essential. At this point we're past the point that mitigation can work. We still have to mitigate just because why keep making the problem worse, but there's no way for us to get to zero carbon in a fast enough timeframe by which to save us from four degrees of warming, and so the only way to really get there is to marry that with carbon removal. I would prefer more natural sources of carbon removal like planting a bunch of trees or planting hemp or figuring out how to sequester carbon in the soil, which we've so depleted that there's actually a lot of room to sequester 30 gigatons or so a year worth of carbon in soils. So I would prefer more natural approaches to the engineering techno optimistic sort of ways of doing things, but we're going to have to bury carbon.
Jason Jacobs: Why would you prefer the more natural approaches?
Jigar Shah: I think in general, we all have to figure out how to get more in touch with nature and we're going to have to figure out how to fight our battles more carefully. The human species for a long time has been a fight against nature, and it's the more humanist approach is to prefer humans over animals in nature. There are a lot of people that we're friends with who believe in the humanist approach. And I don't blame them for believing that approach, but I think that approach is not working anymore. It requires way too much energy. The fundamental piece of this is that this whole modern era that we're a part of is maybe 250 years old, 200 years old, the birth of fossil fuels, and that is ending. When you think about the energy return on energy invested on oil and coal, it used to be that you'd get a hundred times more energy out of a mining process than you put into that process.
Jigar Shah: Today if you're lucky if you get 10 times more energy on that process than you put into that process. And that number is heading towards five in the next few years. And so as you have less excess energy, then there's not enough energy to go around for the arts and for all the things that we want to do. Then energy becomes more expensive and you start rationing it and you start saying, "What do we use it for? Only the most essential things." So you have less investment in all of the things that we think are amazing to be human, whether it's art or fashion or higher education or that kind of stuff. You start rationing energy towards just the basic things like housing, food, clothes, et cetera.
Jigar Shah: And so I just think that we need to go back to a higher energy return energy invested in which renewable energy and nuclear and other things allow you to do, but all of those things are going to be married with needing less energy. And the way you need less energy is by not eating strawberries in the middle of the winter, eating more seasonally around where you live. Today, everyone thinks that they should be able to live in a 6,000 square foot house, have two SUVs in the driveway and eat non seasonally and import your food from South America. That's not going to be possible in the modern in the next stage that we're going into.
Jason Jacobs: When you look at technologies like direct air capture, for example, do you think that that can ever be viable at the scales that we need?
Jigar Shah: Yes, of course, but it steals energy from the other things I talked about. So you either put energy into modern art, modern libraries, modern whatever, or you put it into direct air capture. We've lived in this energy abundant world for 250 years, but that's not the way it used to be. It used to be that you got energy from lots of things, including deplorable things like slavery. That's not where it's going to go in the future. We're not going to have all this abundant energy that we can do anything with. We might, there may be some breakthrough that I don't know about where we use nuclear fusion or whatever it is that unlocks the world's energy, but on the pathway we're going, you're using energy in a discretionary fashion. You either put it into direct air capture or you use it to grow food. You don't do both.
Jason Jacobs: And what about fission? Where does that fit into the picture? Should we be investing in nuclear?
Jigar Shah: Yeah, of course we should be investing in nuclear, but we have to make a decision as to what we're optimizing for. Today we're optimizing for energy costs and so energy cost today is solar and wind. It's at 2 cents a kilowatt hour, and nuclear fission today comes in at 15 cents a kilowatt hour and nobody wants to pay 15 cents a kilowatt hour. Even though the energy return on energy invested is really high, a nuclear economic rationalism, which we've again, we talked about, economists are telling us not to invest more into nuclear and so we're going to have to decide whether we want to try to maintain our ability to fight back nature and have green lines.
Jigar Shah: One of the most energy intensive things that we do in this country in the United States is have lawns. And you're like, "Why the hell do we have lawns? Why do people like take non native species planted in their garden?" They don't use it. Most people don't even have kids that play in the lawn. They're in inside playing video games, but you'd like get Scotts Turf Builder and then you put it on and you pay some guy to mow it and you figure all this stuff out. That's a luxury. Can you imagine we spend $3,000 a year per person maintaining our lawn and all the energy that goes with it?
Jason Jacobs: If you could change one thing to accelerate this transition the most, what would it be and why?
Jigar Shah: Well, I don't know that I need to change anything. What I'm doing with my life is on the one hand, I got to wake up every morning being optimistic.
Jason Jacobs: I meant more systemically though.
Jigar Shah: No, I know, but even systemically, I would say that what I do every morning is try to make sure that I'm making the world a better place in whatever way I know how to do that. And then the other thing I do is to try to bring more people like yourself and others who are like-minded in whatever way they're like-minded. We're not going to agree on everything, into the movement because we've got to get more people educated on what works, what doesn't work, what are the limits of nature, how does the oil industry work, how do all these things work?
Jigar Shah: We need to get everyone up the learning curve so that when governments have the willpower to do something, there's actually an educated group of people who can take that willpower and effectuate change. It's not like your state or your County or your city are going to get changed unless there's somebody locally who has enough knowledge and education by which to do that change. I am working every day to make sure that there is a broader base of people who are educated in these ways so that when we get the willpower to do something about it, those people are ready to be dropped into place.
Jason Jacobs: If you had $100 billion and you could allocate it towards anything to maximize its impact on the problem, where would you put it and how would you allocate it?
Jigar Shah: I already have $100 billion and that's what I'm doing. I'm deploying it into entrepreneurs who have extraordinary amounts of willpower and technology and desire to make a difference in their own local community and no one believes in them. No commercial bank believes in them, no venture capital firm believes in them, et cetera, and we're helping them by educating them on how project finance work and says, "We'll give you money if you follow our rules." And we're doing that systematically around the world. The financial model I created at SunEdison basically has attracted $1 trillion of capital.
Jigar Shah: The financial models that we've popularized at Generate Capital has probably attracted something over $5 billion to $10 billion of capital now and we're going to probably reach that $100 billion threshold in the next five years. So my sense is that that's what I'm good at and that's what I'm doing, but there's no free lunch. There's no way for $100 billion to get spent right now to solve the problem. There's only ways of inspiring a hundred thousand, a million change makers around the world to be able to do better and more effective action in their own community.
Jason Jacobs: So we have a minute left. So last question is just for any listener out there that says, "Okay, Jigar, I'm convinced. I want to help. I'm concerned, what do I do?" What advice do you have for them or for me?
Jigar Shah: Just sign up. Sign up. There are people in your neighborhood, in your city, in your state, that want to do something bolder and bigger in where you live and where you have a ton of influence. And so sign up. I have a lot of resources on my own LinkedIn page, but feel free to find other sources of resource. But I think that there are a lot of people coming together in my own community, for instance, in Montgomery County, Maryland, we've declared a climate emergency. It literally means nothing. We have a socialist County Commissioner. He is not doing anything because he just doesn't understand what to do and what he can do and how to do it. And so I'm spending a lot of time with him and the folks in my county to help them understand what has worked in the past and we just need literally millions and millions of more conversations like that in people's local communities.
Jason Jacobs: Awesome. Well, I'll let you go, but fascinating discussion, Jigar. Thank you so much for coming on the show.
Jigar Shah: This is great. Let's do it again.
Jason Jacobs: Hey everyone, Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note that is .co not .com. Someday we'll get the .com, but right now .co. You can also find me on Twitter @jjacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers may be say that. Thank you.
