Welcome back to Ecomotion Conversations. Ecomotion's mission is the cost-effective greening of cities, corporations, and campuses. This podcast series digs for key insights from leading green thinkers, their works, their passions, lessons learned, and turning to my guest, just what keeps your engines charged. I'm delighted to be here with Jigar Shah. He is going to inspire us, to challenge us, to excite us, and we'll just jump right in. Good morning. How are you?
Very well. Thanks for coming here. This is fantastic.
Well, we're very pleased to be here. Now, you are heralded as the founder or the godfather of the power purchase agreement. That's a huge distinction. Congratulations to you, and you've created a massive movement in our industry. So, how did you come up with the PPA model? Where did that inspiration — when was the epiphany? What hit you? How did this come about?
I think the honest truth is that I didn't come up with anything as much as I repurposed something that was already being done. I think people had already looked at energy savings agreements in the energy efficiency space for years. And so it was really trying to reo the energy savings agreement for the solar industry. And you know, there were hundreds of people that worked on helping to make this thing happen, but we finally got it there.
But they were usually using a performance contracting model, right? They would take a share of the savings.
And it seems like, in sort of very simplistic terms, that you left that shared savings arrangement and you went more to a solar as a service. I'm going to pay you for your solar kilowatt hours, right?
Yeah, I think that's exactly right. And it certainly greatly simplified baselining and all of the things that we find to be problematic with energy savings contracts. You know, just selling kilowatt hours is something that people are used to seeing from their electric utility company for years, right? And so it was a fairly simple concept. It certainly wasn't easy to implement, but it was fairly simple.
And let's see — let me see if I get the chronology. Born in India, right?
Age four, five, moved to the States. I was one.
When you were one? I'm sorry, okay, even earlier, even earlier. So, and then college at University of Illinois?
Now, is that when you started getting into this model, or is it more a graduate program in Maryland, or...?
I really started getting into solar when I was 16, and then, you know, really studied it a lot when I was in college. And then, yeah, the model I think came to me after, you know, years of talking to clients and customers and realizing that they just weren't prioritizing solar with their capital, right? Like, I mean, everything was more important than solar — whether it was their kids' summer camp, or, you know, a new car they had to buy, or a remodeled kitchen — there was always something they wanted to do that was more important.
So make it as simple as them paying their utility bill.
Instead of paying the utility, they're paying their solar provider.
That's right. As long as it's about the same, or if it's less, even better.
That's right. So the insight was, if we brought the capital, you know, would they also, you know, take so long to make a decision? The answer was no. And then, you know, well, if we brought the capital, how could we ensure that the providers of the capital are going to get paid back? And that was, you know, sort of the secret sauce.
Right, right. Well, and it's just been — I thank you because we work with all these school districts. They don't have the cash. We work with cities. They don't want to — they prioritize other things. And so this has been a terrific mechanism. Has the PPA mechanism lived up to your expectations?
Yeah, look, I think that any financial instrument is sort of just that — a financial instrument, right? So the question then becomes, is it capable of really, you know, surviving the test of scale? And I think the PPA has survived the test of scale, and today it's being used, you know, at a multi-billion dollar level in the United States, and has attracted almost a trillion dollars globally.
Yeah, so what do you think that — what is the volume now in the United States, annual volume of...?
It's about 20 billion or so of PPA power purchase agreements.
And you get a share of every one of those dollars.
Do you hear all the coins like, you know, falling out of your pocket? [laughter] No, that's fantastic. You must be very proud, or at least your wife must be very proud of you.
No, well, I'm very proud, and frankly, I think all the hundreds of people that, you know, helped me to put it together, I think, are very proud, and they're all sprinkled across the solar industry today. I mean, the SunEdison alumni are — I mean, all over the place around the world, and they're doing great things, and so it brings me great joy.
Yeah. And we're seeing in our, you know, in these past few decades, we're seeing this transformation from Mike Peevey, who's the president of the PUC, 'Ted, just be patient, just be patient.' I'm not a patient person. And he said, 'Be patient.' And now, you know, we can look after 10 or 20 years and just see, you know, dramatic, dramatic results. Now, you founded and headed up SunEdison, which I think became the biggest solar company in the United States. Is that...?
At one point, was the largest solar company in the world. Yeah.
Now, what — then you went to the Carbon War Room, which — I just met you this morning, but I'm imagining you went from being deep in the solar business to wanting to get more into a policy framework. Is that — was that the transition? Was that the allure of going to the Carbon War Room, or...?
The Carbon War Room was founded by Sir Richard Branson, which, you can imagine — I mean, if he's anything, he's sort of the patron saint of entrepreneurship. And so, you know, to me, it was less policy and more entrepreneurship, right? I mean, I think what I had recognized was that there were tens of thousands of entrepreneurs around the world who all had the same, you know, desire, which was to take their climate solution and scale it to relevance. Yeah. And there were a lot of things that were holding them back, right? Policy could be one of them, but it could also be industry standards. It could also be availability of finance. It could be lots of things. And what we found was that Richard Branson and his friends could play a huge role in unlocking those barriers that were standing in the way of those entrepreneurs.
And so you and he, I guess, and others came up with this whole notion of creating carbon wealth.
Kind of flipping a problem, right? Taking a problem, a big threat to our society, and turning it into profit centers. Really?
Well, I mean, you know, I think that before we started the Carbon War Room, that the common frame was shared sacrifice, right? Everyone needed to give up an extra cup of coffee a month to be able to solve the problem. Jimmy Carter put on the sweater, right? And you know, you can imagine that that's not really an inspirational message. And so what we realized was, well, this was really the largest wealth creation opportunity in our lifetimes when you think about, you know, taking all of the embedded infrastructure that had been built since the '40s, you know, post-World War II, and converting it all into a climate-friendly infrastructure package, using technologies that have largely been around since the '70s. That's a huge amount of money, right? I mean, it's something about $5 trillion a year that gets diverted from bad stuff to good stuff. Right.
Right. And you know, folks who are working on making that conversion are going to get fabulously wealthy.
And so then the question becomes, you know, how do we inspire the best and the brightest to choose this as their, you know, vocational pursuit, as opposed to, you know, create an app for their phone.
Right, right. I was just at a conference at the Getty Center on Friday, and we had the governors of Washington and Oregon, mayor of Los Angeles, but talking about that whole Pacific region, including British Columbia, has become really a leader in creating carbon wealth, I guess, and jobs have been fantastic in the clean tech space, and the GDPs are up and, you know, outstripping the rest of the nation dramatically, right? You know, so we've really gone from that sense of sacrifice to this is an opportunity, a terrific opportunity.
And policy plays a critical role there, right? I mean, the renewable portfolio standards have forced the utility companies to sign contracts that they may not have otherwise signed. You know, the next phase, which the Pacific Coast is trying to do, is this extended producer responsibility and getting manufacturers to be responsible for making sure that full recycling occurs. You know, so policy matters, and then once the policy gets passed, then entrepreneurs can come in and sell their solutions.
Yeah. Just really an aside, but what was it like to work with Richard Branson? He's...
You know, the guy is really, really smart, and you know, he comes off as aloof and, you know, not quite serious —
A balloonist, recording or signing up people.
But that really is his external persona. I mean, you know, internally the guy is a shark, and what he really is looking for is figuring out how to actually take, you know, basically the brand and the sort of free publicity that he gets to dramatically reduce the cost of marketing for his companies. Yeah.
Right. And he provides people a better experience, and in exchange, you know, they keep up his antics and whatnot. And he's able to get, you know, for a lot of these businesses, you're spending 10% of revenue on marketing.
Yeah. Right. If he can reduce that to 5% of revenue, that's a lot of additional profit.
Now, where did he see this — where did he see that combination with Rocky Mountain Institute being so valuable, or did you introduce that idea, or...?
Well, I think that the big challenge with energy efficiency and all these other sort of areas is that there's a consumer element to this, right, which is where Richard is, you know, king, right? And we've never really solved that knot, right? I mean, like, we've never, even since the '70s, been able to say that this conversion is actually sexy and something that should be prioritized, right? For a long time, it was sort of Jimmy Carter wearing a sweater.
It was a fringe activity.
And it still is sort of, you know, like sort of billed as doing more with less, which is not the most inspirational story, right? And so the tech story of saying, actually, the fact that I can control my thermostat from my phone is pretty damn cool, right? The fact that I can actually see whether my doors are locked and my windows are shut from my phone is really cool, right? And that tech is now providing the level of energy efficiency that folks here before weren't really inspired to do, right? And I think Richard has seen that that is the next generation of Rocky Mountain Institute.
Yeah, yeah, fantastic. So then what led to your — is it a pivot to Generate Capital, or is — I mean, you're still on the board of Rocky Mountain Institute?
Well, I just dropped off the board after being term-limited, but basically I think that, yeah, I mean, Generate Capital is a natural evolution of my beginning, right? I mean, my beginning was really around figuring out solar as a service, and now Generate Capital is actually inspiring infrastructure as a service. So what we're doing is finding the entrepreneurs who are starting the SunEdisons in their field and providing them the necessary capital to do the first institutional investments, right? Because what we're finding is whether it's anaerobic digesters or compost facilities or recycling or, you know, I mean, electric vehicles, every one of them is misunderstood. They go to their local bank, they go to their local solar or wind investor, and they're saying, 'We don't understand you. We understand solar and wind, but we don't understand anaerobic digesters. We certainly don't understand carbon black, you know, using biomass as a service,' right? That all of these newfangled technologies, which have been around since the '70s, right, are something that they're misunderstanding. And so Generate steps in and says, 'We understand project finance, and it doesn't really matter what you're doing as long as it fits this formula, because if it fits this formula, we feel like we have a realistic, you know, vision of getting paid back.'
