Northvolt, Europe’s main battery maker, will proceed with plans to build its next factory in northern Germany after the federal government committed to pump hundreds of millions of euro in state funding into the project.
Northvolt had earlier indicated it might suspend its plans for the factory, which was to be built in Heide in Schleswig-Holstein, and concentrate solely on the US unless the EU matched the generous subsidies that the Biden administration has provided to develop green technologies.
Economy minister Robert Habeck said Germany could now “look forward to one of the most significant flagship projects of the energy and transport revolution, which will create thousands of green tech jobs”.
“Backed by this commitment of the federal government, Northvolt has decided to take the next steps towards our expansion in Heide,” said chief executive Peter Carlsson.
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Mr Habeck’s ministry said the government would fund the Swedish company’s “gigafactory” under the temporary crisis and transition framework (TCTF), a new EU state-aid regime that was approved in March.
The TCTF allows EU countries to provide subsidies until 2025 to help with investment costs for battery, wind and solar energy, and carbon capture and storage projects. It was set up in part as a response to the severe disruption in the energy market caused by Russia’s full-scale invasion of Ukraine.
[ Sweden’s Northvolt battery plant sparks into life in first for EuropeOpens in new window ]
The economy ministry said the planned state aid must first be approved by Brussels, and the German government and European Commission “are in first constructive discussions”.
The new factory will have an annual production volume of batteries with 60 gigawatt-hours of capacity and supply about 1 million electric vehicles with high-quality battery cells, the ministry said. It will employ 3,000 people directly and thousands more in the surrounding industry and service sector.
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The fight for the location of Northvolt’s next factory has become the most visible sign of the transatlantic struggle over green subsidies in the wake of the US Inflation Reduction Act. The company announced plans a year ago to build a factory in Heide after a long search for a location in Germany with sufficient green energy.
But in the ensuing months Northvolt, which already has one gigafactory in operation in Sweden and another under construction, indicated it was leaning towards the US market. Northvolt has said the Act, which offers huge subsidies to clean energy companies, is worth up to €8 billion per battery factory.
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Mr Carlsson told the Financial Times late last year that the Act was “moving momentum a lot from Europe to the US”, adding that Asian players, too, were reallocating their strategic investments to North America.
Northvolt is looking at opening a North American factory in parallel with its German plant. But without the German support, it was likely that the Swedish group would have prioritised a factory in the US or Canada over Schleswig-Holstein, Northvolt told EU officials.
After the disruptions to global trade during the Covid-19 pandemic and the war in Ukraine, Europe has moved to increase domestic production of crucial components and shorten supply chains to make them less vulnerable to external shocks.
The bloc has, in particular, sought to boost its self-reliance in critical sectors such as batteries and semiconductors, the data cloud and pharmaceuticals. As part of those efforts, it has invested significant money and time in trying to develop a domestic battery industry to compete with Asian companies that dominate the sector.
Germany has emerged as a major beneficiary of the EU’s drive for greater sovereignty. The country has seen huge foreign investment in its battery sector, as companies rush to service its expanding electric vehicle industry.
Microvast and CATL of China are building battery factories – one in Ludwigsfelde, south of Berlin, and one in Erfurt – while BASF is building a plant in Schwarzheide, eastern Germany, to make cathode active materials used in lithium-ion batteries.
But the Biden administration’s green tech legislation has also triggered a surge of investment from European and Asian battery companies in North America. Volkswagen opted to build its next battery factory in Canada rather than eastern Europe, attracted by subsidies the carmaker estimated could be worth €10 billion over the plant’s lifetime.
Germany is also offering billions in public funding to attract foreign investment. US chipmaker Intel is receiving €6.8 billion in state aid for the €17 billion factory it is planning to build in the eastern city of Magdeburg, though it says it needs more due to higher energy and construction costs. – Copyright The Financial Times Limited 2023
