To make the shrimp broth, place shrimp shells in saucepan. Pour water over, add salt and peppercorns. Bring to a bowl, reduce heat and let simmer about 20 minutes.
Using a colander, strain the broth over a bowl. Discard shells.
To make the grits, bring chicken broth and water to a boil over medium heat in a medium sauce pan. Add butter, let melt.
Slowly whisk in the grits, stir for about 1-2 minutes to ensure that they don't stick to the bottom of the pan. Reduce the temperature to low, cover and cook 5 minutes, stirring occasionally. Stir in cheddar. Cover and cook another 10 minutes, stirring occasionally, until the cheese melts and the grits are creamy. Leave covered on low heat until ready to serve.
Next make the shrimp by combining the shrimp, Cajun seasoning, cayenne and granulated garlic in a bowl and toss to coat. Refrigerate until ready to use.
In a skillet over medium heat, cook bacon until browned. Place on a paper towel lined plate, set aside. Reserve 2 tablespoons of pan drippings.
To the same skillet add onions and garlic. Cook 3-5 minutes or until softened. Add shrimp. Cook for 2 - 3 minutes
Once shrimp start to turn opaque, add flour and cook one minute. (Note: It is important to cook the flour for a minute so that you don't have a pasty flavor to your sauce). Add the shrimp broth and cook until it thickens and shrimp are cooked through, about 3 minutes. Remove shrimp and set aside.
Add half and half and cook until the sauce reduces by 1/3, about 5 minutes, it should be creamy and will coat the back of a spoon. At the last minute add in reserved bacon bits and shrimp. Pour shrimp and sauce over grits and serve immediately.