Biden Deploys Defense Production Act for Clean Energy Manufacturing

By Christian Roselund

On 6 June, U.S. President Joe Biden issued five separate executive orders authorizing the use of a 1950 law to expand domestic production of a wide range of materials and products needed in the energy transition. These include solar modules and their components, heat pumps, fuel cells and electrolyzers, platinum group metals, transformers and electric grid components, and insulation.

The Defense Production Act (DPA) was initially passed as a means for the president to ensure the production of materials necessarily to the national defense. It has long been utilized on behalf of military contractors and has been used in recent years to spur production of a variety of non-military goods, from ventilators and face masks during the COVID pandemic to infant formula.

DPA gives the president a variety of means to exercise control over economic activity. This includes ordering companies to manufacture specific goods, preventing exports of certain goods, enabling additional dedicated government procurement from specific industries, and restrictions on the hoarding of key materials and goods. Recently, President Biden invoked the Defense Production Act to provide grants and loans to companies in the energy storage space.

CEA is not convinced that the administration’s use of DPA on its own will spur additional large-scale solar manufacturing. This is due to the higher cost of both building and operating U.S. solar factories compared to other locations including China, Southeast Asia, India, and Turkey. While there may be some additional factories that take advantage of DPA grants and loans, these are likely to be restricted to assembly of modules for the residential market, which is less price sensitive, and/or
niche applications.

To spur a large-scale establishment of manufacturing for utility-scale solar market, which represents the bulk of U.S. solar deployment, CEA believes it will be necessary to offset the effects of the higher operating costs of U.S. manufacturing. A policy to do this could take the form of incentives such as were found in the Solar Energy Manufacturing for America (SEMA) act. This act is potentially being considered as part of the larger reconciliation package being negotiated between Senate Democratic leadership and Senator Joe Manchin. However, negotiations between various parties around this bill have been dragging on since the winter and there is no guarantee that any reconciliation bill will pass before the mid-term elections this fall.