Citing threats from “pandemics and other biological threats, cyber-attacks, climate shocks and extreme weather events, terrorist attacks, geopolitical and economic competition” as having the potential to materially disruption manufacturing in this country, President Biden, by Executive Order No. 14,017 (February 24, 2021), directed the U.S. Department of Energy (DOE) to submit a report specifically identifying risks in the supply chain for high-capacity batteries and to make recommendations to address those risks.  As directed, DOE prepared its report and, on June 8, 2021, announced the following four immediate actions to bolster the advanced battery supply chain in the United States:

• Increasing U.S. manufacturing requirements in federally-funded grants, cooperative agreements, and research and development contracts;

• Releasing the Federal Consortium on Advanced Batteries’ National Blueprint for Lithium Batteries; 

• Providing financing to the advanced battery supply chain for electric vehicles; and

• Procuring stationary battery storage for federal sites under the Federal Energy Management Program.

DOE also announced significant funding and financing opportunities for associated mining and manufacturing operations to further build American resources.

I. U.S. Manufacturing Plan Requirements

A key policy goal of Executive Order No. 14,710 is to rebuild domestic manufacturing capacity and to create jobs.  To accomplish this, DOE announced that it will make a Determination of Exceptional Circumstances under the Bayh-Dole Act, 35 U.S.C. §§ 200-212 (“Bayh-Dole”), for all innovations developed with DOE Science and Energy Program funding and require contractors to substantially manufacture products derived from that research in the United States.  
 
Bayh-Dole, or the Patent and Trademark Law Amendments Act (Pub. L. 96-517, December 12, 1980), is United States legislation dealing with inventions arising from federal government-funded research. Under the implementing regulations of Bayh-Dole, contractors may elect to retain title to any subject invention made under contract with the United States and generally receive a set of “standard patent rights” set forth in 37 C.F.R. § 401.14.  These rights are subject to rights reserved by the government, which include (1) the government’s retention of a nonexclusive, nontransferable royalty free license for itself; (2) the agency’s right to require the contractor, an assignee, or exclusive licensee of the subject invention to grant a nonexclusive, partially exclusive, or exclusive license to a responsible applicant or applicants with reasonable compensation; and (3), the agency’s “march-in” right to grant such a license itself if it determines that the contractor, assignee, or exclusive licensee has not made efforts to commercialize the invention within a reasonable time.

In exceptional circumstances, Bayh-Dole authorizes the funding agency (in this case DOE) to modify the terms of funding agreements by restricting or eliminating contractors’ rights to title, or to retain title itself to subject inventions in order to better promote the policy and objectives of the Act.  35 U.S.C. § 202(a).  Such policies and objectives include efforts to promote: (1) utilization of inventions arising from federally supported research or development; and (2) commercialization and public availability of inventions made in the United States by United States industry and labor.  

If DOE makes a Determination of Exceptional Circumstances (“DEC”), the agency will likely require applicants for funding to submit a U.S. manufacturing plan for use by the agency in evaluating applications.  The manufacturing plan is the applicant’s measurable commitment to support U.S. manufacturing of the technologies related to their funding agreement. The range of commitments may include, for example, manufacturing certain products in the U.S., investing in U.S. facilities, or a licensing strategy aimed at supporting U.S. manufacturing. The commitments are proposed by the applicants, not the agency. The DEC would then permit the DOE to modify the standard patent rights clause in its funding agreements to incorporate and enforce the proposed manufacturing plan. And, the standard patent rights clause may be modified to make compliance with a U.S. manufacturing plan a condition for maintaining rights to the inventions made by the recipient under the funding agreement.

According to DOE, the DEC will cover more than $8 billion in climate and energy innovation funding requested in its FY22 budget, including more than $200 million in support of research, development, and demonstration funding for battery technology.  While this does indeed represent a significant funding opportunity, it comes with administrative burdens and risk of forfeiture of patent rights.  Funding applicants will need to exercise care, not only in the submission of their U.S. manufacturing plans and negotiation of funding agreements, but also in the invention disclosure process, and other compliance obligations.

II. National Blueprint for Lithium Batteries

On the same day that DOE made its advanced battery policy announcement, the Federal Consortium for Advanced Batteries (FCAB) issued its report entitled, National Blueprint for Lithium Batteries.  The FCAB is a consortium of federal agencies that are interested in ensuring a domestic supply of lithium-ion batteries and includes representatives from the Departments of Energy, Defense, Commerce, and State, as well as other federal government organizations. The report lays out a ten-year government-wide plan to develop a domestic lithium-ion battery supply chain and makes projections of future market growth for lithium-ion under various end-use applications.  The report also proposes near-term (2025) and long-term (2030) objectives to support five goals that are needed to secure the domestic supply chain.

A. Market Growth Assessments

According to the report, global lithium-ion cell manufacturing capacity for commercial and passenger electric vehicle (EV) applications was 747 GWh in 2020, while U.S. manufacturing capacity was 59 GWh.  By 2025, the report projects global manufacturing capacity will be 2,492 GWh, while U.S. capacity will be 224 GWh.  However, demand from U.S. sales of EVs is projected to require 320 GWh.  As such, there is a desire to close the gap between US supply and demand.

In order to operate reliably, the electricity grid will require large amounts of “balancing resources” to accommodate a high penetration of intermittent renewable energy generation and increasing electrification of the transportation and building sectors.  The report observes that “non-lithium storage technologies may emerge as the most cost-effective long-term solutions for stationary storage”, but projects annual deployments of lithium-battery-based stationary energy storage will grow from 1.5 GW in 2020 to 7.8 GW in 2025, and potentially to 8.5 GW in 2030.

Further, the report identifies a nascent third market that is seeking to electrify vertical takeoff and landing (eVTOL) aircrafts for use in package delivery and limited passenger transport (up to four passengers).  The report posits that current and developmental lithium-ion batteries could enable commercialization of eVTOL in the not too distant future, but notes that electrification otherwise of larger aircrafts will require “significant advances in lithium-ion battery technology.”

Finally, the report discusses potential military applications and certain challenges the Department of Defense faces with its advanced battery supply chain due to the unique nature of needs for battery use in weapons systems and higher military specifications.  The Department of Defense believes that its battery demand will grow from not only its traditional uses of batteries in “combat platforms, weapons, sensors and individual warfighter equipment”, but also in connection with the hybridization of the combat platforms and the introduction of tactical microgrids.

The bottom line from the FCAB report is that without a material improvement in the domestic advanced battery supply chain, this country will increasingly need to rely on imports to support this Country’s transition to a greener future.  To address this need, FCAB identifies opportunities for growth,

B. National Blueprint Goals and Objectives

The FCAB report breaks down the lithium-based battery supply chain into three segments:  The upstream segment consists of mining and extraction of materials including lithium, cobalt, nickel, and graphite.  The midstream segment consists of materials processing and manufacturing of battery cell components, such as electrolytes, electrodes, and cells.  And, the downstream segment consists of the manufacturing of battery packs, which are then put to their end uses in electric vehicle, stationary storage, national defense, and aviation applications, and ultimately converted in end-of-life recycling and reuse.

FCAB’s blueprint for securing a robust domestic supply chain identifies five goals across the various segments.  Goal 1 is to “[s]ecure access to raw and refined materials and discover alternatives for critical minerals for commercial and defense applications.”  In the near term, the objectives involve establishing reliable sources of necessary raw materials and increasing domestic production capacity.  In the long term, the FCAB would like to move away from using cobalt and nickel in lithium-ion batteries and transition to use of recycled materials.  This provides challenges and opportunities for both the mining industry and companies operating in the circular economy vortex.

Goal 2 is to “[s]upport the growth of a U.S. materials-processing base able to meet domestic battery manufacturing demand.”  In the near term, the objectives involve creating incentives to expand materials-processing operations, decrease production costs and improve overall performance of the fuel cells (estimated at a $60kWh).  In the long term, the objectives will involve supporting the development and scale up of materials-processing innovation to produce cobalt and nickel free materials.

Goal 3 is to “[s]timulate the U.S. electrode, cell, and pack manufacturing sectors.”  In the near term, the objectives involve development, scale up, and commercialization of novel technologies and manufacturing techniques, and a national policy framework that supports domestic manufacturers.  In the long term, the objectives involve a commoditization of the manufacturing process to meet critical defense demand with multiple-source domestic suppliers and a reduction in the cost of EV pack manufacturing by 50 percent.

Goal 4 is to “[e]nable U.S. end-of-life reuse and critical materials recycling at scale and a full competitive value chain in the U.S.”  In the near term, the objectives involve redesigning battery packs to facilitate reuse and recycling, establishing successful methods of collection and processing of recycled materials, increasing recovery rates of key materials, developing processing technologies and methodologies, and establishing a federal policy to more effectively promote recycling.  In the long term, the objectives involve incentives to achieve a 90 percent battery recycling rate and developing a federal policy requiring the use of recycled materials in cell manufacturing.

Goal 5 is to “[m]aintain and advance U.S. battery technology leadership by strongly supporting scientific R&D, STEM education, and workforce development.”  In the near term, the objectives involve supporting research to develop cobalt-free cathode materials and electrode compositions, protecting intellectual property, and supporting educational programming.  In the long term, the objectives involve developing cobalt- and nickel-free materials that improve energy density, electrochemical stability, safety and cost, and accelerating R&D on revolutionary battery technologies to achieve production costs below $60 kWh while achieving a specific energy of 500 Wh/kg.

To assist with the short and long term goals identified in the National Blueprint for Lithium Batteries, the DOE’s third action item focused on funding.

III. Financing for the Growth of Advanced Battery Supply Chain for Electric Vehicles 

DOE clarified that its Loan Programs Office (LPO) can make financing available for projects throughout the supply chain for advanced batteries for EVs.  Through the Title 17 Innovative Energy Loan Guarantee Program, established by Title XVII of the Energy Policy Act of 2005, as amended, 42 U.S.C. § 16511, et seq., the LPO has over $3 billion in loan guarantees available for projects involving mining, extraction, processing, recovery, or recycling of critical minerals used in the EV battery supply chain, such as lithium, cobalt, and graphite.

Separately, the Advanced Technology Vehicles Manufacturing (ATVM) loan program, established by Section 136 of the Energy Independence and Security Act of 2007, as amended, 42 U.S.C. § 17013, provides the LPO with more than $17 billion for use in covering costs of reequipping, expanding, or establishing a manufacturing facility in the United States to produce “qualifying components” such as “battery cell components, battery cells, battery modules, and battery packs for EVs, or manufacturing of EV charging infrastructure components.”

Most recently, on June 14, DOE announced $200 million in funding available for national labs over the next five years for use in furthering the development of advanced batteries, electric vehicles and related projects. The additional funding is directly tied to the Administration’s efforts to strengthen the battery supply chain. 

Acting DOE Assistant Secretary Kelly Speakes-Backman said, “We’re focusing on the entire battery supply chain from soup to nuts – from sustainable mining and processing to manufacturing and recycling.”

While the availability of loans and loan guarantees through DOE have had a mixed track record for the past several years, the renewed focus of the Biden Administration on clean energy initiatives and infrastructure is expected to increase the utilization of federal money for projects that may not otherwise achieve financing through conventional means.

IV. Battery Storage Procurement

Last, but certainly not least, DOE announced that its Federal Energy Management Program (FEMP) will call for projects from federal sites interested in deploying energy storage projects, and will provide any technical assistance required to get those projects built.  In April 2021, FEMP issued a $13 million solicitation for new energy projects addressing climate change adaptation and resilience, including battery storage projects, under a Federal Agency Call (FAC), entitled “Assisting Federal Facilities with Energy Conservation Technologies (AFFECT).”  Under this solicitation, federal agencies were required to use a combination of AFFECT grants and privately financed performance contracts, such as energy savings performance contracts (ESPCs) in partnership with an energy service company (ESCO) to develop an estimated $260 million in project investments.  To the extent that federal agencies take advantage of FEMP funds, this necessarily will lead to increased opportunities for work for any prime contractor and lenders that are asked to provide additional financing for such projects.  

V. Conclusion

Executive Order No. 14,017 and DOE’s subsequent response creates significant opportunities for manufacturers, distributors, investors, suppliers and other stakeholders to benefit (while also working toward meeting an important national security goal). The drive to strengthen the nation’s lithium battery supply chain should be a win-with both for the industry as well as the general public.

However, all good supply chains begin with good contracts. Any company wishing to bid or participate in this work should work with legal counsel to carefully consider contractual language before any contract is signed. A supply chain contract should include specific, clear information on the duties and responsibilities of all parties, as well as spelling out how any disputes should be managed. 

Government contracts are particularly complex, as contractors must meet all federal regulatory requirements. Again, companies should work with counsel well-versed in government contracting before putting pen to paper.