DOE to bolster US electric heat pump manufacturing with $169 million in awards

The US Department of Energy plans to invest $169 million to support electric heat pump manufacturing across the country, marking the Biden administration's latest effort to expand use of the heating and cooling equipment and reduce US reliance on fossil fuels.

The awards will support factory expansions to increase production of heat pumps and key components, such as compressors and refrigerants. The DOE selected nine projects across 15 facilities in 13 states that would support 1,700 jobs in disadvantaged communities, according to the agency.

"These awards will grow domestic manufacturing, create good-paying jobs, and boost American competitiveness in industries of the future," said John Podesta, senior adviser to the president for clean energy innovation and implementation, in a Nov. 17 statement.

Heat pumps condition heat from the air, ground or water to provide indoor heating and cooling. They do not combust fossil fuels at the point of use and can be up to four times as efficient as the most efficient natural gas furnaces, according to the Environmental Protection Agency.

Defense Production Act

The announcement is the first funding award that leverages DOE authority to use the Defense Production Act to support clean energy manufacturing. In June 2022, President Joe Biden invoked the DPA to reduce US reliance on imports of five energy technologies, including heat pumps. He said dependence on foreign manufacturing exposed the country to supply chain risk and forfeited economic development opportunities in fast-growing industries.

The Inflation Reduction Act appropriated $500 million to the DOE to fund DPA projects. The Biden administration determined in November 2022 that $250 million of the appropriation would go toward heat pump manufacturing and announced a funding opportunity in April. The DOE expects to announce another round of DPA funding in early 2024.

The agency called heat pumps a critical tool for reducing US reliance on fossil fuels, bolstering national security and energy independence, lowering consumer costs, improving energy efficiency and fighting climate change. Heat pumps can reduce greenhouse gas emissions by 50% compared to gas boilers, the DOE said.

Opposition from gas industry

Critics of the Biden administration's heat pump policy have said the equipment shifts emissions upstream in places where the electric grid is reliant on fossil fuel generation. They also note that the efficiency of air-source heat pumps deteriorates as temperatures drop, saying gas combustion is better capable of keeping indoor spaces comfortable.

"We are deeply disappointed to see the Defense Production Act, which is intended as a vital tool for advancing national security against serious outside threats, being used as an instrument to advance a policy agenda contradictory to our nation's strong energy position," American Gas Association President and CEO Karen Harbert said in a Nov. 17 statement.

The AGA, which represents investor-owned gas utilities, has clashed with the Biden administration as the DOE has tightened energy efficiency standards for gas appliances while new federal tax credits and programs to support building electrification advance.

The DOE has also funded research and development into cold-climate heat pumps. The EPA has proposed reserving its widely recognized Energy Star efficiency labels for heat pumps and dropping the labels from gas heating equipment and standalone air conditioners.

Projects selected for the DPA-related awards must negotiate terms with the DOE. The agency's Office of Manufacturing and Energy Supply Chains is coordinating its DPA investments.

S&P Global Commodity Insights reporter Tom DiChristopher produces content for distribution on S&P Capital IQ Pro. S&P Global Commodity Insights is a division of S&P Global Inc.