What the Defense Production Act Means for Solar Stocks

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President Biden is using the Defense Production Act to boost the solar industry. What is the Defense Production Act? And how will this affect the solar stocks in your portfolio?

On the one hand, soaring energy costs make the transition to clean energy even more of a priority. Natural gas is up 132%, gasoline 93%, and heating oil 91% in 2022. With that in mind, Biden is using the Defense Production Act (DPA) to support solar companies.

2021 has been a banner year for clean energy, with wind and other renewable energy projects taking off. Indeed, globally, 295GW of renewable energy is now available, thanks to last year’s progress.

Still, projects are slowing this quarter due to rising interest rates and supply issues. Meanwhile, the United States expects solar power to account for more than half of new energy created this year and next. Keep reading to learn more about the Defense Production Act and what it means for solar stocks.

What is the Defense Production Act?

The Defense Production Act allows the US President to control certain aspects of the economy. For example, the DPA gives the power to:

  • Title 1: Prioritize and allocate
  • Title 2: Developing supply and capacity
  • And title 3: Trade agreements

In short, the DPA extends the powers of the president at critical times. These are just a few ways the president can use the DPA to improve the economy or protect national interests.

Still, this isn’t the first time a president has used the Defense Production Act. In fact, President Biden just used the DPA to secure essential formula supplies.

The Defense Production Act is, for the most part, used for military technology. For example, it can be used to advance military equipment or to enhance national security.

Why the United States has the DPA

What we call the Defense Production Act came about after World War II under President Harry Truman. The law came as labor strikes resumed and prices of consumer goods soared.

But the idea started even before World War II. In reality, Yale Research traces the increase in wartime presidential authority back to World War I. In 1917, an official declaration of war mentioned that the president could use “the resources of the government to prosecute the war against the Imperial German government”.

Then in 1941, before the DPA, the First War Powers Act (WPA) was signed. The WPA allowed President Franklin D. Roosevelt to control business functions during the war.

The famous FDR address to congress, where he said the United States could make “50,000 planes a year”. Remember, this came at a time when only about 2,000 planes a year were being created. Yet the Produced in USA 297,000 aircraft, 193,000 artillery pieces and 86,000 tanks with the law.

As a result, US industrial production doubled in size in four years. Nevertheless, President Truman signed the Defense Production Act in 1950 because the United States suddenly needed war supplies for the Korean War.

How the Defense Production Act Affects Solar Stocks

From the outset, clean energy investors hailed President Biden and his climate goals. Consequently, the Invesco Solar ETF (TAN) has gained 496% from its pandemic low of $21.14 per share.

Still, solar stocks were a disappointment after peaking at nearly $126 per share shortly after Biden became president. The solar ETF is down almost 40% against its ATHs. With that in mind, the solar industry is about to get a big boost as the president focuses on the clean energy transition.

The President is using the full power of the Defense Production Act to accelerate clean energy initiatives. In particular, the DPA will address clean energy manufacturing in the United States in five critical areas.

  1. Solar panels
  2. Insulations
  3. Heat pumps
  4. Transformers
  5. Clean energy fuel equipment

In addition, the president suspends a tariff on solar imports from Southeast Asia. Policy changes will help reduce costs while improving supply.

Businesses can funnel more money into new projects to expand if supplies cost less. At least, that’s the idea. With this in mind, these actions will help reduce costs for solar companies while passing the savings on to consumers.

“For too long, the nation’s clean energy supply chain has been overly dependent on foreign sources,” said US Energy Secretary Jennifer Granholm.

Other times presidents have used the DPA

The Defense Production Act can be a valuable tool to increase authority when needed. For the most part, the DPA is useful in crises such as war.

In fact, during the pandemic, President Trump and Biden have both used the DPA. For example, Trump has worked with companies like Ford (NYSE:F) to produce life-saving masks and ventilators. Since the pandemic overwhelmed many hospitals, medical supplies were in short supply.

As a result, the DPA has helped boost production to meet growing demand. Then, when meat plants experienced shutdowns, Trump ordered them to stay open, guaranteeing supplies.

Biden then used it to increase vaccine availability by prioritizing medical supplies. Finally, to slow the spread of the virus, the DPA helped to speed up Covid testing.

US presidents have regularly used the DPA since it was signed into law by Harry Truman. The primary use of the Act has changed over the years, but the idea is the same. When the nation faces a crisis, the government must do something, and the DPA is one way to do it.

Will the Defense Production Act affect your stock portfolio?

Outside of your solar investments, don’t expect too many changes. Solar companies can access materials at a lower cost, which increases margins.

At the same time, Biden’s goal using the Defense Production Act is to reduce costs to the consumer. As energy prices approach record highs, consumers are feeling the pinch.

Even though inflation is peaking, it is still too high. And the energy leads the index higher, higher 30% I. A recent study shows that solar power can account for up to 40% of the United States’ energy supply by 2035. Getting there will require a massive ramp-up in capacity.

The demand for solar energy is exploding. With lower costs and political support, it is a possibility. To boost your portfolio, here is a list of my top solar energy stocks to watch for growth this year.

Pete Johnson is an experienced financial writer and content creator specializing in equity and derivatives research. He has over ten years of personal investment experience. Digging through Forms 10-K and finding hidden treasures is his favorite pastime. When Pete isn’t doing stock research or writing, you can find him enjoying the outdoors or exercising.

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