In the name of a new economic pragmatism, the EU on Monday approved state aid to secure the establishment in Germany of an automobile battery factory and respond to American green subsidies which risked attracting it to the United States .
The European Commission has given the green light to aid from the German government for the project of the Swedish group Northvolt, in the form of a subsidy of 700 million euros (CA$1,025 billion) accompanied by a guarantee of 202 million euros (CA$295 billion).
This is “the first aid” authorized by Brussels under an EU mechanism created in March 2023 to avoid the “diversion” of European investment projects to the United States, explained the Competition Commissioner, Margrethe Vestager.
Northvolt announced in May 2023 the establishment of this giant factory in Heide (north), around a hundred kilometers from Hamburg, thanks to the promise of financial support from Berlin and after several months of uncertainty, the company threatening to move its investment in the United States.
Carbon-free electricity
This factory, close to the coast of the North Sea, will benefit from a supply of carbon-free electricity from giant wind farms. The Swedish group also announced in November that it had developed a new sodium-ion battery technology, which consumes less strategic metals, which could reduce dependence on China.
“It is important to be pragmatic,” stressed Mr.me Vestager, during a joint press briefing in Brussels with German Economy Minister Robert Habeck. “We could have done nothing, but we know, thanks to internal Northvolt documents, that the investment would then have taken place in the United States” thanks to an American subsidy, she said.
Brussels preferred to allow Germany “to pay equivalent aid so that the investment takes place here,” she explained. According to her, this aid encourages the company “to develop its production facilities and technology” in Europe. “I think it’s a good thing,” she insisted.
“We need to establish part of the production of the essential industries of the future on European soil,” declared Robert Habeck, for his part, defending a policy of “strategic security” in terms of the economy.
The European Union (EU) thus provides a concrete response to the American Inflation Reduction Act, the $370 billion support plan decided by the American administration to promote green industry and American factories.
3,000 jobs at stake
Northvolt’s German factory, the group’s first outside Sweden, is expected to employ 3,000 people. It will have an annual capacity of 60 GWh, enough to equip 800,000 to 1 million electric vehicles per year, depending on the size of the battery.
Production will start in 2026 and reach full capacity in 2029.
Northvolt is one of the greatest European hopes in terms of batteries at a time when the Old Continent is seeking to catch up in this production which is essential to the transition of the automobile industry.
The factory project in Heide, in the Schleswig-Holstein region, was first announced in March 2022. But the project then became uncertain, with the boss of the Swedish group, Peter Carlsson, saying that the investment “could be pushed back” due to rising energy prices in Europe and competition from American subsidies.
In March 2023, the European Commission adopted a text facilitating state aid for projects helping to reduce CO emissions.2 of the EU, in response to American and Chinese subsidies which raise fears of a flight of green investments outside Europe.
The text simplifies and extends the possibilities for public subsidies until the end of 2025. It notably includes a mechanism allowing Member States, in certain “exceptional cases”, to align themselves with the amount of aid offered by a third country to avoid that it does not “divert” a planned investment in Europe.