Included in the Biden administration’s decision last week to waive tariffs on solar modules imported from certain Southeast Asian countries for two years was its announcement that it would authorize the use of the Defense Production Act (DPA) to spur U.S. manufacturing of select clean energy components, including electrolyzers, fuel cells, and related platinum group metals. The Biden administration’s inclusion of electrolyzers — which, when powered with renewable sourced energy, are used to produce green hydrogen — comes on the heels of the Department of Energy (DOE) request for information (RFI) on implementing the Infrastructure Investment and Jobs Act (IIJA) $1 billion Clean Hydrogen Electrolysis Program and is likely to further its Hydrogen Shot goal of reducing the cost of clean hydrogen to $1 per 1 kilogram in one decade. While the extent to which the administration will use the DPA for boosting the manufacturing of green hydrogen components remains to be seen, this is nevertheless another signal from DC that this low or no-carbon fuel will play a part in the energy transition.
About Defense Production Act. The DPA Presidential Determination for electrolyzers, fuel cells, and platinum group metals was issued pursuant to Title III, Section 303, of the DPA. Title III provides the president with a number of funding mechanisms for creating, maintaining, protecting, expanding, or restoring domestic industrial base capabilities essential for the national defense. Section 303 of the DPA features “catch-all” funding mechanisms not included in Sections 301 (loan guarantees) or Section 302 (direct loans) of the DPA. Section 303’s mechanisms include federal direct purchases or commitments to purchase an industrial resource or critical technology item, subsidy payments on domestically produced materials, and installation of or improvements to federally or privately owned plants, factories, and other industrial facilities.
Section 303 of the DPA is not without limits, the most significant of which is that it is limited to funds appropriated to the DPA Fund established pursuant to Section 304 of the DPA. The DPA Fund currently has $434 million available, but that will face competing demands from other DPA authorizations. DOE has previously received congressional authorization to transfer $45 million to the Fund to support the construction of commercial-scale biofuel production facilities and could do something similar for electrolyzers, but would first have to secure similar congressional authorization. Section 303 also restricts actions that would commit more than $50 million from the Fund but that limitation can, as discussed below, be waived.
Presidential Determination for Electrolyzers. The DPA Presidential Determination for electrolyzers, fuel cells, and platinum group metals finds that: (1) they are essential to the national defense; (2) U.S. industry cannot reasonably be expected to provide the necessary resources, material, or critical technology for their production without presidential action; and (3) purchases, purchase commitments, and other actions taken pursuant to Section 303 are the most cost-effective, expedient, and practical alternative for meeting their demand. These findings are required for the president to be able to enter into contracts pursuant to the DPA. The DPA Presidential Determination also finds that the authorization is necessary to expand the domestic production capability for electrolyzers, fuel cells, and platinum group metals to avert shortfalls in industrial resource or critical technology items. By making this finding, the Biden administration waives certain requirements of Section 303, including the $50 million spending cap.
What’s Next. Given the budgetary constraints of the DPA, not to mention the fact that the administration issued similar Presidential Determinations for heat pumps and insulation, it is not clear how meaningful the administration’s deployment of the DPA for fostering green hydrogen manufacturing ultimately will be. However, Biden’s inclusion of electrolyzers in his slate of clean energy DPA authorizations is one more signal of his administration’s commitment to the nascent domestic green hydrogen manufacturing industry.