Catalyst with Shayle Kann - Inside the Energy Department's loan deal to back hydrogen

Episode Date: January 10, 2022

First-of-a-kind projects are, by definition, unproven. Despite the abundance of capital in climate tech these days, the valley of death for new technologies still exists. But there are solutions. And this week on Catalyst, we have a case study of one of them.  The U.S. Department of Energy’s Loan Programs Office has $40 billion of capacity to help solve this exact kind of problem. It just announced its first conditional commitment for a $1 billion loan guarantee to help Monolith scale up its first megaplant in Nebraska.  Monolith uses methane pyrolysis – heating methane up to high temperatures – to split the gas into hydrogen and carbon black, which is an essential component of tires, plastics, rubber and other materials. It’s a key indication of where the department is putting its priorities.  We brought both sides of the negotiating table on the podcast: Rob Hanson, the CEO and co-founder of Monolith; and Jigar Shah, the Director of the Loan Programs Office.  Jigar shares what he’s heard from lenders about why loan guarantees are important, and why commercial banks are reluctant to place bets on these first-of-a-kind plants. He also addresses misconceptions about the office’s role in the climate tech ecosystem. Rob dives into Monolith's decade-long process to reach this milestone, and points out key differences between venture capital and infrastructure capital. He also talks about what Monolith’s second- or third-of-a-kind climate tech plant could look like. Catalyst is supported by Atmos Financial. Atmos offers FDIC-insured checking and savings accounts that only invest in climate-positive assets like renewables, green construction and regenerative agriculture. Modern banking for climate-conscious people. Get an account in minutes at joinatmos.com. Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you're a startup, investor, enterprise, or innovation ecosystem that's creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more.

from the studios of PostScript Media and Canary Media. I'm Shale Khan, and this is Catalyst. It's been an incredible string of nose. Probably on the order of 99 nose for every yes throughout the process. Rob, I don't know that I knew how hard it was to raise money for you. If I knew this beforehand, I'm not sure we would have tried to engage here. You never want to be the first one unless you're right. Today, how to solve the daunting challenge of building a first-of-a-kind billion-dollar plant for a climate tech startup,

told in this case via both sides of the negotiating table, after the Department of Energy offered its first conditional loan guarantee in years to an Nebraska-based producer of clean hydrogen and carbon black. When utilities need flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities coordinating over $2.5 million. devices to manage 3.4 gigawatts of flexibility built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts.

Learn more at energy hub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital,

shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. I'm Shale Khan. the venture capital firm Energy Impact Partners. Welcome. So when venture capitalists first fell out of love

with quote unquote clean tech a decade ago, one of the biggest reasons was capital intensity. They'd spent the previous years funding tech companies that were looking to make a new kind of solar panel or a new way to produce biofuels or something. But before any of those companies could disrupt the markets that they were trying to disrupt, they needed to first build the first-of-a-kind commercial scale plant.

And here's the challenge with those first-of-a-kind commercial scale plants, particularly if they're going to produce something for a large commodity market, like electricity or fuels or chemicals. They need to be big. These are global commodity markets, after all, and economies of scale matter. So they're inevitably going to require a big capital investment, hundreds of millions of dollars, often billions of dollars,

to build these things. They've never been built before. So by definition, they're unproven. The economics often, or at least sometimes, look great on paper, but the company trying to build the plant first needs to convince somebody to take that first-of-a-kind risk. And that's where a lot of companies have fallen down.

Either they couldn't raise the capital and thus couldn't build the plant in the first place or they could only use venture capital, which is definitely too expensive for that, at least historically. Or they did raise the money, but it turned out not to be enough. These things can be more expensive

than you think they're going to be. This is still an issue today, despite all the climate tech excitement and the abundance of capital that we see in the market, the broadest valley of death for hard tech, large volume manufacturing or project businesses, tends to be getting that first-of-a-kind, full commercial scale plant built.

There's lots of risk earlier in company formation process and in the early retiring, the early tech risk and so on, but this one, I think, is the one that remains most unsolved. But there are solutions. And we have a really interesting case study of one of them today. The U.S. Department of Energy's loan programs office has about $40 billion of capacity to solve this exact kind of problem, ranging from big projects to big manufacturing facilities. And it just announced its first conditional commitment of President Biden's tenure, which is an up to a little over a billion dollar loan guarantee to monolith materials to help the company scale up its first mega plant in Nebraska.

Now, it's important to note that this is a conditional commitment. Basically, DOE expects to support the project as long as Monolith fulfills all of its requirements. But still, it's a key indication of where the DOE is putting its priorities. It's interesting both because Monolith itself is a fascinating company and because it represents the first among hopefully many such commitments soon to come from the DOE for innovative climate tech that is just reaching commercial scale. Both sides of this negotiating table happen to be friends of mine. so we decided to have them on together.

First is Rob Hanson. Rob is the CEO and co-founder of Monolith. And second, though he probably needs no introduction, is Jigger Shaw, who is these days the director of the loan programs office at DOE. With no further ado, Rob and Jigger. Jigger, Rob, welcome to Catalyst. Great to be here. Happy New Year.

Yeah, thanks, Joe. Hey, Jigger. Happy New Year to you. Excited to have you both. You're the first double guests that we've had on this podcast, but I know both of you and know that it's going to be great. So I'm excited to try it for the first time here. So the two of you recently got engaged in a manner of speaking. Jigger through the loan program office,

offered a conditional loan guarantee of up to a little over a billion dollars to rob your company monolith. We're going to talk through the anatomy of that deal and what it means and bring. more broadly what it takes to build big capital intensive climate tech. But I want to start with each of your sort of the backstories that led to the meat cute, so to speak, that took us to where we are today. So Rob, let's start with you.

Describe monolith. What is the technology you're pursuing? What's the purpose of it? And then tell us just a little bit of the background of the company. Yeah, sure. Well, thanks so much for having me and happy 2022. So monolith, we have a technology called methane pyrolysis. And it's one of those really big primary technologies.

What we do is we take natural gas or methane and we heat it up using electricity. And methane's got this really cool thermodynamic property. If you heat methane up to 16,700 degrees Celsius, it actually splits into solid carbon and hydrogen. It's just like a fundamental property of methane. And so what that does for you is two things. One, you've just made hydrogen without producing any CO2. And then second, if you do it just right, you can get this solid carbon product that's got a bunch of utility and thus a bunch of value.

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

transportation. All right. So let's spend a couple more minutes on methane paralysis. It's really interesting. We've talked about it a bit before on this show. It's on the hydrogen side, sometimes known as turquoise hydrogen. I'm curious your take on the color spectrum and whether it's even worth including here. But there's a core distinction that I think people need to understand you're producing clean hydrogen via natural gas. The other way that people talk about doing that is carbon capture, post-combustion carbon capture. The distinction being your separate operating out the carbon from the hydrogen pre-combustion, and you have this side product,

which actually maybe could be the primary product, depending on how you look at it, which is carbon black, which has its own market attached to it, as opposed to post-combustion carbon capture where you're basically just like sucking the CO2 out and you get a CO2 gas, which then you have to do something with.

So how do you think about what your prime... Do you think about a primary product? Is it hydrogen or carbon black, or are they co-equal to you? It's an awesome question. I think the answer is both. And what really got us interested when we were, you know, planning to start a company 10 years ago is this concept of like almost switching carbon capture on its head, right? Instead of ending up with something that's a waste product, CO2, that's super hard to deal with if you want to sequester it permanently or find some other use that doesn't just end up back in the atmosphere. So you replace that with something that has a ton of value. It's got economic value, but it's also got environmental value because the current wage, that this product carbon black is made is super dirty. Tons of CO2, lots of socks, lots of knocks. So that's what caught us super interested.

It's like you're making hydrogen, you're sequestering the carbon, but in a high value, also offsetting way, that was like actually the light bulb moment at the company 10 years ago. We kind of put those pieces together. We're like, man, this is something we want to work on because the impact could be huge. Just a little bit on the color,

because like the color rainbow has, gotten very, very broad. Crowded. I learned today that pink hydrogen is hydrogen produced from nuclear. That was a new one to me. Yeah, I think we need to move away from the colors and just stick with low carbon hydrogen. Yeah, and I agree, Jager. It's like, I mean, this stuff is sufficiently complex that we should be able to do good life cycle analyses, include all the upstream portions of it, and come up with, you know, kilograms of CO2 equivalent per kilogram of hydrogen or whatever. the end product is. We can do that.

We're sufficiently sophisticated to do it. And then just call it clean hydrogen and use numbers, it's not colors. I suspect that most listeners to this podcast are somewhat familiar with the hydrogen world, but probably not so familiar unless they have dedicated time to methane pyrolysis with carbon black. And Jigr, I know this is a soapbox you want to jump on as well. Tell a little bit more about what do we use carbon black for today and what is the incumbent production method that this is displacing.

Yeah, I mean, you know, I don't know that I was the world's expert in carbon black either when I came into the job here at the loan programs office. But, you know, having gone deep down the rabbit hole, I mean, 60% of carbon black is used in tires, the other 40% is used in plastics and, you know, mechanical rubber, you know, sort of goods. But the way that you produce it now is you basically partially combust, you know, things like coal or tar, basically. And you know, you sort of capture that soot and that's carbon black, right? And there's 15 major plants in the United States. All of them are under EPA Department of Justice consent decrees. As of 2013, none of them had had socks and knox scrubbers on them. So the people

who lived in those communities nearby were breathing in some of the most polluted air in the country, mostly in Louisiana and Texas. And I think some of the carbon black producers are actually still weighing whether they want to comply with those requirements or whether they're just going to shut down their facilities because it's too expensive to put in scrubbers. But they're essential, right?

I mean, even an electric car, even on a Tesla, you got tires. And so, you know, like by driving a car, you're participating in one of these remarkably dirty industrial processes. All right. So one other question then for you, Rob, which we'll come back to when we talk about

this loan guarantee. You mentioned it's taken a decade to get to where you are today. Talk about what that scale up has been like. You said you raised a lot of equity, too. Just give me a snapshot of the history of monolith and what scale up stages you've had to hit

and what it's taken to finance those. What does it take to get to now building a billion dollar plant? Let me start with the financing side. It's been an incredible string of noes, probably on the order of 99 knows for every yes throughout the process. And like I said, we started in 2012 and we were in Silicon Valley and we went to everyone on Sandhill Road and precisely 100% of them said no. And so we had to get creative because we really thought we had something, right? Like I said, this is a big primary process that's going to be really important.

splitting methane into its two key components. So then we went more broadly. We did find initial investors in New York and up in Calgary, Canada, both private equity as opposed to venture. And that set us off on a very long journey with some awesome partners, our two founding shareholders, Warburg-Pancis and Asimuth Capital. And then we added another major shareholder at Cornell Capital. But that had the vision like we did of,

if you can build one of these primary climate tech companies with real hard technology, you're going to have outsized returns in the long run. And so we were able to kind of throughout that decade, continue to do rounds of financing, ad strategics, which I can talk about at the right times, and ultimately get to commercial scale. On the technology side, it's been just a huge amount of innovation and invention. So we started with some key partnerships. We partnered with a company in Norway called Ocker Solutions, a big engineering firm.

They've been working on methane power analysis for 20 years prior to this and really got the technology to a fairly advanced state. And then also with the French university called Means Paris Tech that was doing pilot work. So we started with a bit of a head start, which I think would allow us to access some of that private equity type capital. And then we really scaled it up and got the technology first through a demonstration plant in the San Francisco Bay Area

and then ultimately a full-scale commercial unit, in Nebraska, we got it all the way there. And it's been quite a journey with a tremendous amount of ups and downs, technically and financially. Rob, I don't know that I knew how hard it was to raise money for you. If I knew this beforehand, I'm not sure we would have tried to engage here. You never want to be the first one unless you're right. But so just to put a bow on that then, up to this point, up to where you're

building this big billion dollar facility. You know, you'd even built a commercial scale plant there in Nebraska. All of that using corporate equity dollars. Is that right? In this case, you have private equity backers, but it could just easily have been venture capital. Yeah, that's right. So all private capital, 100% to this point. And, and, Jaeger, you should take some comfort that probably about two years ago,

that ratio of 99 nose to one yes, really flipped. And I think it's like as we retired some of the real binary risks and as climate tech started to revive and hydrogen became a really important part of the energy transition, we started attracting a lot more interest from financials but also from strategics. And so there we added to our shareholder base SK group, South Korea, Mitsubishi Heavy Industries, I think one of the best technology developers in the world. And then Nextera, biggest wind and solar producer in the world, which is really important because while we use a lot of natural gas, our primary feedstock is actually electricity. This is an electrically driven process. And so having that partnership was really important. All right. So we'll talk more about monolith, but that's a quick backstory on a decade-long journey.

Let's turn to you, Jigger. Just give us an overview of the loan program's office mandate. And, you know, you've now been in the role, how long? 10 months. 10 months. Okay, so you're coming up on a year. So what has been, this is the first publicly announced commitment or conditional commitment that you've made in that time.

So what's been the focus in your kind of early days on the job? Yeah, I mean, I think that part of this is really trying to make sure that we have greater clarity on the risks that we really want to take at the loan programs office, right? Because I think part of the broad brushstrokes, which is, hey, we've been around since 2005. We were designed to help commercialize technology and take it across the bridge to bankability

so that once you get lab scale demonstration, the question becomes like, how do you get it to first-of-a-kind plant, plants two through five, the learning curve, full securitization, and then over the bridge to mainstream capital. And I think that part of the story is that, folks, folks got to be able to raise equity, right?

And I think that for a long time, clean tech wasn't necessarily in the right place to raise equity, right? And so when you think about, you know, my entry into the loan programs office, it coincided with a renewed interest by equity into climate-related technology, some of which I think, you know, had to do with the election results of last of 2000.

some of which was really just, you know, I think where the technologies really are and the fact that Tesla had, you know, gotten to a very high valuation and other things. But I think that having that level of equity interest has made my job way easier. Because specifically, you don't, the mandate, or rather the risk to the loan program's office would be much higher. If you're offering a loan to build a manufacturing plan for a company, that then can't finance its operations because they can't raise equity. Is that why the ability to raise equity is so important from your perspective? Yeah, I think there's a lot of people who want the loan program's office to be, you know,

sort of your fairy godmother and Cinderella, right? Where you show up in rags and, you know, I create a carriage for you out of a pumpkin and, you know, turn all the mice into like horses and all that stuff. but it's just not the way it works, right? I mean, in general, we're a liquidity instrument. We're not a subsidy instrument, right? So maybe our interest rates are more competitive than commercial debt might be,

but that's not intended to be a subsidy. It's intended to be, you know, market rate debt. And so the question really becomes, you know, if we're a liquidity instrument, how do we lean in when commercial banks are not leaning in, right? Commercial banks don't want to lean into the monolith story, not because they're against the story. I think they see the broader macro trends around hydrogen.

They see the macro trends around carbon black and Goodyear and Michelin's desires to be a little bit more sustainable than they are today. Or they see the macro story around figuring out how to get equity returns in the marketplace, doing these kinds of things. But fundamentally, they're saying, I can kind of meet my numbers by just doing stuff that's easier.

Do I really want to write six white papers from my investment committee and educate them on how the carbon black market works and what the, you know, because people will say, well, we don't take merchant risk. But yes, right? They take merchant risk now. You see all of the battery storage deals

that are getting debt funded in Texas on Erkot merchant curves. They're taking merchant risk, right? So it's not like people aren't willing to take merchant risk. They're just not willing to, enter into this new category and become experts in it until the loan programs office works and goes first. And then they're like, ah, you just did most of our job for us. We can just take

your white papers and send those to the investment committee and we'll do projects two through 10, which I'm happy to be in that situation. But we're not we're not supposed to get involved in stuff that truly has binary risk associated with it. We're supposed to get involved where, you know, things are misunderstood. Virtual power plants are becoming a reliable way for utilities to manage capacity, but enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched, and being able to prove it, from the control room to the living room.

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data centers, but the future of energy isn't shaped by technology alone. It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, as I talk with people deploying capital, shaping policy and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital Capital on Spotify, Apple, or wherever you get your podcasts. All right. So, Rob, put us in your shoes because I think this is, I think this is going to come up for a lot of companies that are sort of like early stage climate tech companies today. Because there's this resurgence because there's so much renewed interest in the space and because there's a lot more money flowing into it, it's easier than ever for, and I think for a great reason to, you know, start a,

a hard-tech climate company that ultimately, to get to commercial scale, is going to need to build big stuff, billion-dollar plants of one kind or another. Maybe it's direct air capture, maybe it's synthetic aviation fuels, I don't know. But the point being,

there are a lot of companies that are going to be kind of at the stage that you were at a year or two ago in three to five years. So talk through kind of where you were at there. So you mentioned you had built a commercial scale, single reactor, is that right, but needed to build a full scale plant? Like, give us a sense of what those orders of magnitude look like and then talk

through what your options were as you were exploring how to finance the big thing. Yeah, so, you know, our kind of corporate equity pathway got us all the way to one operating commercial unit, which from a technology perspective is pretty much all the way there. from a asset perspective, it's still just a fraction of the way there. And so our path forward with this loan is going to support is an expansion to that plant where there's currently one unit. We're going to add 12 additional units. And we're also going to add the capacity to convert the hydrogen that we produce there into anhydrosamonia. That's north of a billion dollar project.

And while the technology risks are largely retired, there's a whole different set of risks that you, start to look at when you're in that $1 billion investment, which has to do with markets, you know, as Jigr was saying, merchant versus fully contracted, and there's lots of gradations in between there. And then also like long-term operational, can you hit capacity factors? Do you hit your own M budgets? And the gap between the way venture and private equity thinks about this and the way infrastructure investors or commercial banks think about this is very wide. So that's, I think, where the DOE's program fits in awesome, is it's willing to do the work, and it's a huge amount of work.

This was close to two years of deep diligence, mostly on market and technical, to really understand the risk. And for the first one, someone's got to be willing to do it, and the DOE kind of fits really nicely and being willing to do it. And so we, of course, had some backup plans, but, like, for the last year, two years, it's been a little bit duelPO or bust. And that's probably not the best market you could possibly have for needing 10, 100 great climate companies to emerge over the next few decades if we really want to deeply decarbonize. But I think it's just the honest answer right now

is that there's not a lot of people that either have the skill set or the desire to understand the real depth of complexity of businesses that you need to when you're, you know, making investments at the billion dollar scale. Well, not to put words in your mouth, Rob, but I think the alternative would have just been to raise two billion dollars of equity. I think so. Which some companies are doing, right?

That exists, there are proof points of that out there in the world these days. I mean, you could look at like, I don't know, Northfold, it's probably an example of this in Europe, right? They just raised corporate equity to build a gigafactory to make batteries. Yeah. Well, I think, I mean, we should separate these a little bit

and tease it out. I think, so yes, you could raise $2 billion of equity. there's a couple things you get from that, right? One is you just get speed, right? And there's a lot of people who are willing to give you money. You obviously dilute yourself fairly substantially at a lower valuation by doing that. But, you know, it might be the right pathway for people.

But the thing you don't get is, you know, the validation of 10,000 engineer scientists and experts at DOE saying that this is actually going to work. And the rigorous due diligence process. I would say to you that a few things, and I'm projecting here, Rob, so you should feel free to correct me when I get too far here. Is that the vast majority of companies like Monolith that come into the loan programs office

are experts at equity and not really well-staffed on debt. And they don't really think debt, they think equity. And as a result, they think the grass is always greener and the next quarter is going to be better than last quarter. and they're not necessarily leading with their lessons learned, leading with their sort of failures, which is what debt requires you to do.

I mean, debt requires you to be pretty introspective and saying, well, here are all the things that didn't work. Here's why they didn't work. Here's where we fell down on the partners that we chose to get us to where we are. And here's why we need to upgrade those partners. And I would say some of that learning came from fairly obnoxious questioning from our office to monolith, saying who the hell in their right mind would do this this way? Like, why wouldn't you do it this way or that way or the other way, which is what a commercial debt mindset looks like. And it's the reason why when I go to New York and talk to the big money center banks of Wall Street, they often will say that the process of going through the loan programs office, is as hard or harder than going through their process,

and therefore, if someone successfully gets through our process, it's a ticket to easy entry into their process. Yeah, that's exactly it. So that was probably the biggest draw for going through the LPO's process, is that, yes, we could have done it on equity. Maybe. It's a lot of equity. But then you get one plant, right?

And the vision here is, you know, the world's building three of these plants every year just in carbon black, just to me demand growth. And then there's a fleet of, you know, a couple hundred that need to be replaced if we want to, you know, knock the CO2 intensity out of that industry. Ammonia is, you know, 10 times bigger, hydrogen bigger yet. And so the vision that we've always had is we got to find a way that we can do this repeatedly, right? And I don't think the idea that you're going to build, you know, multiple plants every year repeatedly, all on equity is, is very real in the long term. It's something we've learned a lot from Nextera too, right? So like Nextera, I think built their first renewable project in 98,

and now they've got on order a couple hundred, and they're building 10, 20 a year. And so like, that's what we want to figure out, is how do you do that? And you're going to have to have a debt component. And I think, you know, Jigger made the exact right point, which is like if you go through the LPO process, it's more rigorous than any other

and also one that's willing to look at these more complex new things, it just sets you up well for the future. I want to dig a little bit more into this divide that exists between the way that like a venture and private equity, corporate equity world looks at things and the way that infrastructure world looks at things. Digger alluded to part of this, right, the leading with your failures as opposed to your successes.

But to what degree is it really just lack of operational data that makes it difficult to get the first of a kind plant built. Like if you go, if you went to just go finance this first of a kind full commercial scale plant from traditional banks, is the thing that would hold you up that all you could say is, well, we have operational data at 1.13th the scale of this plant, but we can't, we can't prove to you that it's going to hit the things that you mentioned, uptime capacity factor O&M budgets at full scale, or what is it precisely? Yeah, it's a good question.

I mean, I don't think that, you know, the commercial kind of debt side has trouble understanding that you prove it technically on one and then you replicate that such that you don't have additional technology risk. I think everyone gets that. I think it's just some of the, can we point to a deal that we've done that, you know, 90% is identical to this deal, you know, from a full risk analysis underwriting perspective. And if the answer is no, then it just gets really hard to kind of get through all of various, you know, approvals that you would need at this scale of investment.

And so it's maybe more of that, that it's like n equals one that makes it really tough. Yeah, I mean, the other way, the other place I take that question is just that, I mean, today and maybe it's always been this way, but certainly today, the equity investors kind of want to believe you. They have this sort of like feeling that, you know, markets are going up in value and I'm going to invest at, you know, 1x valuation and it's probably going to be worth 2x in two or three years, even if the company's not profitable and it's not really trading in a P multiple.

It's just, you know, going to trade it a higher valuation than where I'm investing. And, yeah, they have to hit some positive milestones. And I believe in this team. And I think it's going to hit some positive milestones in the future. that can keep on the trail. They're just not inclined to be like, here are the 12 ways you're going to fail, and here's why we're a glass-f-empty on you and all that stuff.

And I think in general, when you talk to infrastructure investors, which are really the main bulk of the investment around climate change, right? Like when you think about how you solve climate change, you're talking about... In terms of dollars, you mean? Yeah, you're talking about trillions of dollars per. year that need to be invested to get us down to 1.5 degrees or even a prayer of 2.4 degrees, right? And so those people are not paid to make, you know, 30% annualized returns, right?

If you promise them 30% annualized returns, they would scream with fear and run away from the projects, right? They want, at best, you know, high single-digit returns on their performance. And in most cases, the solar wind industry are, you know, getting two, three, four percent returns. And that's after you assume 40-year life and all the other things that people are doing these days to get that, right? Good merchant revenue, yeah. Right. And so when you think about their mindset and what it takes to succeed in convincing them to give this sector a second look,

you know, successfully raising a C or D rounder or a SPAC, doesn't do it. And you see that with Tesla. Today, Tesla has no real commercial debt strategy, even today, right? Maybe on the solar side of their business, which is, you know, small. But on the auto side of their business, they have no real strategy for their debt side of their business. And it's worked out for them because people are like, yeah, equity is cheap if you're Tesla. Yeah, yeah, that's fine. But are you going to bet that that's true for every other startup, spacked electric vehicle company in the United States today, is every single one of them basically going to be able to make it around

that sort of curve where they are at scale with an affordable car just on equity? I want to take a step back for a second and go back to the sort of backstory of monolith and lessons for other founders who are kind of in this situation. I mean, Rob, in retrospect, or if you were starting today, I guess, in the environment that we have today. You think there's anything you could have done to accelerate the timeline?

Did it have to take a decade to get to where you are today? Or was that a function of the market and the broader macro environment? I don't think there was a lot of shortcuts. I mean, we were always well-financed, even though it was hard to achieve. We always were. And in the case of our story, there was some fundamental physics, some fundamental chemistry, some fundamental material science that we had to solve. And so it's like, it doesn't matter how hard you work or how smart you are,

you're probably not going to get a PhD in a year, right? It's one of those scenarios. But that's the moat, right? Like if you can build a company just by pouring, you know, capital on it in one or two years, I mean, you don't have a real moat. Maybe there's, you know, network effects and different things in software, but in climate tech, I mean, your moat comes from fundamental technical capacity. and knowing secrets about nature that others don't.

And that just takes time. It takes a lot of smart people. And yes, it takes capital. But I think the time and smart people are probably the biggest two components to that. I think what it means, like, the only advice, and I don't know how much of a position I'm in to give advice to people,

but what I can give is make sure the prize is big at the end because you're probably not going to find a bunch of shortcuts. And, I mean, we're onto a massive sloth. right, as a company where the last step in getting to that full kind of world scale facility that then you can go and tap into these, you know, massive markets of infrastructure dollars is to go the step that we're taking right now in partnership with Jigrin, the DOE. And that's, again, really hard work that just takes years. You know, these big projects takes years to build and getting the technology to that full operational

stage takes years. And so make sure there's a huge prize at the end. And for us, I think we've been successful in that because it turns out that if you can split methane into its two components, hydrogen and carbon, you can create a ton of value economically, environmentally. The other thing I'd say, Rob, and I'd love your take on it, is that I don't think there's a single success story in hard tech, not one in the energy space that didn't involve massive government involvement, right? Not one. I mean, Tesla was like a project of the government, to be clear, right? Whether it was tax. credits for Solar City, whether it was figuring out all the EV charging standards, whether it was all of the investment from the loan programs office. And I think the same thing is true with fracking. That was all government finance stuff, right? Like when you think about small modular nuclear

reactors or the latest tour de jour, which is like fusion, like all of this stuff requires massive amounts of government support. And I would say that the partnership chops from both both the CEOs in this space, but also their venture investors, is pretty weak, right? Like, the vast majority of them are not judged on their ability to have a great partnership

and leverage a great partnership with the government. And that, I think, has to change if we're going to meet the timelines for decarbonization. Yeah, I agree completely. I'll just make one quick comment on this because it's a fun one. I mean, so the key to our process is you've got to get this really high temperature

heat generated electrically. And so we use a plasma torch. And we've now built the largest plasma torch in the history of the world. It's over 16 megawatts. It's high 90s percent efficiency. We can heat all these different gases to super high temperatures. We can do a whole podcast on that at some point, Shale. I love plasma.

I've actually been spent a lot of time on plasma stuff lately. Yeah. So the number of times as we were going through that development, that technical development, that we'd come across fundamental work done by various aspects of the U.S. government. It was like every week, right? And so like key research, key data, key other programs that kind of help lead us to be able to develop this technology. I mean, it's just all over the place, both with the U.S. and around the world. So agree completely, Jager, on the R&D side.

Obviously now on this kind of first big capital side, I think the kind of private-public partnership is a great model. And when you're trying to do these really big things, like it just takes a lot more than, you know, a series A, series B. What do you think plant number two looks like? Like, do you think that, you know, I know we've talked about sort of the point of this, the point of building plant number one and to go through the loan programs office to do it

and so on is to be able to then go out to the commercial financing markets? What do you hope the sort of process of building and financing plant number two is going to entail? Yeah. So the easy parts, when you're trying to sell clean hydrogen at, you know, a good price point, there is no shortage of demand for it. So we've got something like 45 projects in the pipeline,

almost all of them anchored by a customer who's currently producing hydrogen in a CO2 intensive way, saying, why don't you come build a plant next to ours and we'll buy your hydrogen and clean up our process, ammonia, refining, RD, etc., etc. Technically, I think it's also not that hard. You know, we partner with QIt. They're doing the wrap on the EPC for this project in Nebraska, and it'll be highly replicable.

So it's building the next plan. I don't think it's going to be a huge issue from an EPC perspective. And so then I think it largely comes down to the financing side. And that's kind of circle back on our comments earlier. That's why we love doing this with the DOE and the LPO is like it's in many ways the hardest test. And if you can get through that, get the project, kind of all the conditions met, finance, built and operating successfully, then I think there's, you know, a wall of money that's enormous that wants. And we saw it win in solar, right?

that wants to invest in projects that are executable and preserve capital, give reasonable returns, and are clean. Yeah. And the other thing I'd say there is that there is a chance that, you know, he needs to use us for plant number two or three, right? I mean, that you can imagine he's starting to construct the project. The ramp up ends up taking 12 months longer than expected. So he doesn't have all the data points necessary to build the second plant

from commercial sources, but the market's ready. and it's there, and DOE thinks he's met the milestones necessary for us to build plant number two. And we might be able to accelerate the construction of plant number two as well. And our statute allows us to do the first two to six facilities. So, you know, I don't think he has to use our money if commercial debt's freely available. But if for whatever reason it's needed, we're happy to do it. Jigger, one of the, I think, challenges with the loan program historically has been not everything is a billion dollar project, right? And I know you've been vocal about wanting to get a bunch of like aggregated distributed energy resource type projects into the application pool.

What's the smallest scale that makes sense given the transaction costs and the time that it takes? And, you know, if you're going to put everybody through the ringer that you put Rob through, does it make sense if I'm looking to raise 50. million dollars instead of a billion. Yeah, I mean, so in general, there is no lower bound in terms of the amount of money that you can borrow from us. So we've done a, I think our smallest deal is like 43 million. That was the sort of Aminix deal. So we can do small deals. You do have to pay for all of our costs, which can easily be one and a half to $2 million to sort of do due diligence on the project, right? So that tends to weigh down the net interest rate. You're paying. And really after fees.

And then, you know, I think that there also is the question of around scale, right? Like, in general, we're looking to try to achieve gigatone scale reduction across all these sectors, right? And so if you can't aggregate up $100 million with a debt from us, and it feels like a pretty low bar, in my opinion, to be able to aggregate up enough projects into one integrated business plan to, you know, borrow $100 million from us. All right, Jigger, final question. you. I know you can't tell us what's actually coming next in terms of announcements out of the loan program office, but you published a report around the end of the year. You have 66, this is as of maybe December or so could be different now, but you have 66 active applications for $54 billion in loan requests. It's everything from like nuclear to biofuels to transmission,

all sorts of different things. Like what should we be expecting to come out of the loan program's office post monolith? Yeah. I mean, you know, I think we've got projects that are across Title 17, which is our sort of project finance type vehicle, and that's where Monolith got its money out of the fossil title. I think you've got ATVM, right, was the Advanced Technology Vehicle Manufacturing Program. That's electric vehicles, battery gigafactories, critical minerals.

And we've got the Tribal Energy Loan Guarantee Program. I think that you're going to see an even split between the Advanced Technology Vehicle Manufacturing Program and the Title 17 program in terms of loans that come out of the office. And so I think you're going to see a lot of EV manufacturing facilities, battery gigafactories, critical minerals, as well as renewable energy, nuclear, and fossil title project finance deals, which also include like fleet deployments, for instance.

Like fleet deployments of EVs or clean vehicles would be in Title 17. And I think you'll see our tribal energy loan guarantees. But I think the bigger thing is trying to get CEOs who are on track to gigatons scale technologies to actually have us in mind a year before they need us, which I think for a long time, people didn't even think we were still in business or operational. And so the fact that people actually think that we're in business, business are operational is a huge step up from, you know, a year ago. And all right, Rob, when can I expect to buy new tires for my, for my car that are you made

using carbon black produced by this facility in Nebraska that you were building? Yeah. So maybe I'll start, not with tires, but, you know, with some other products that carbon black go into, which you could actually buy today. So, you know, we have started selling product from our first unit in Nebraska. It's not the sexiest end markets, but they're real. So if you go to Home Depot and you buy mulch that happens to be colored black, it's likely got monoliths carbon black in it that's making it black. That's pretty sexy.

I've bought black mulch before. I'm into that. So that's a cool one, right? Where it's a pigment. We're also getting into lots of the plastic applications where, you know, black is either put in for UV stabilization or for just color. So keys on your keyboard and anywhere that you see plastic in electronics. Tires, we announced just recently a partnership with Goodyear, and we'll be going through their

full approval process this year. And so we're hoping that we're, you know, measured in kind of single-digit years one or two until hopefully we've got a tire on the road, our material. So soon enough, you'll be able to tell me who's more of a hard-ass, good year or jigger? Well, it's clearly good year because you don't have a long-term contract yet in place with Goodyear where you do with us. I mean, I have to say that one thing with Goodyear and Michelin that I've found fascinating is it, and they're all good people. But, like, they have a venture capital arm, right? And they have, like, contract for differences, renewable energy, electricity contracts that they've signed for their plants. But, you know, like, signing a long-term contract to be the off-take on the monolith plant, like, requires an act of God.

It's easy to deploy capital. It's hard to put things in your plan. product, I guess, if you're in the business of making tires that people drive a million miles on. But it's going to be pretty critical for all of these Fortune 1000 companies making big promises, a cop and other places, to actually start rethinking this if they want to accelerate decarbonization. Totally. I think buy clean. The concept of buy clean needs layers of additional thinking and value and commitment amongst many of the company. I mean, you see this in the big heavy emitting categories like steel and cement and chemicals and all. It's places where, like, it's easy to say we intend to buy clean steel by 2050. It's a whole other thing to actually commit to it and try to use it to catalyze a market.

But that is a topic for another episode. So I will, I'll cut it off here. But thank you both, Robin Jigger, for joining today, really fun. It's, uh, this is like, this is like a great start to 2022. So thanks for having us. Yeah, thank you so much for having us. And Jigger, thanks for the partnership. It's going to be fun.

Jicker Shah is the director of the loan program's office at the U.S. Department of Energy. Rob Hansen is the CEO and co-founder of Monolith. Catalyst is hosted by me, Shale Khan. The show is a co-production of PostScript Media and Canary Media. Find me, Canary, and PostScript, all on Twitter. Tag us if you want to provide feedback on this episode or suggest future topics. Also, don't forget to listen to our companion podcast, The Carbon Copy. It's a narrative news show that explains the forces shaping the energy transition and the changing planet.

Get It at Canary Media or anywhere you listen to podcasts. You can find links for this episode's topic and guests in the show notes, or you can go to canarymedia.com. Our producers are Daniel Waldorf and Stephen Lacey. Sean Marquan composed our theme song, mixing and scoring by Iber Pinheiro. I'm Shail Khan, and this is Catalyst.