EU approves €902mn in German state aid for battery maker Northvolt

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Brussels has approved €902mn in state aid for battery maker Northvolt’s factory in Germany, the first use of a new mechanism that allows governments to provide more funding to companies that have been offered higher subsidies elsewhere.

The Swedish company had threatened to pull plans for its plant in Heide in the northern state of Schleswig-Holstein, citing more generous subsidies available in the US through President Joe Biden’s $783bn Inflation Reduction Act.

But it committed to the project in May after Berlin pledged funding under a new EU state aid regime that allows national governments to match subsidies on offer outside the EU if there is a risk that a project of “strategic importance” is likely to be taken elsewhere.

The European Commission granted permission for the subsidies on Monday, making it the first approval under the new regime. The rules were drawn up in response to concerns that excessive bureaucracy and strict climate laws were hampering investment in clean technologies.

“This €902mn German measure is the first individual aid being approved to prevent an investment from being diverted away from Europe,” said Margrethe Vestager, the EU’s competition commissioner.

The funding consists of a €700mn grant and €202mn guarantee.

German economy minister Robert Habeck, who was in Brussels for the announcement, said the agreement was vital to European competitiveness. “We need a more robust industry for the new sectors — semiconductors, batteries, electrolysers, hydrogen. But this means that climate action and industrial production fit very, very well together.”

Northvolt was the first homegrown European company to produce a battery cell from a gigafactory, a term used to describe large-scale manufacturing facilities dedicated to electrification.

The new factory could supply up to 1mn electric vehicles a year with its lithium-free, sodium ion battery cells, depending on the size of the battery, the commission said. It will reach full production capacity in 2029.

Belgium, which assumed the six-month rotating presidency of the EU this month, has made it a priority for the bloc to “prioritise its long-term competitiveness and industrial policies”.

The Northvolt funding was granted on the basis that the production was critical for the green transition and would benefit a disadvantaged area of Germany, the commission said, adding that it allowed the matching aid clause to be invoked because the subsidies were enough to trigger the investment in Europe without artificially boosting Northvolt’s profits should it invest in Germany and not the US.

Vestager said the German offer was below that from Washington.

Habeck dismissed concerns from poorer member states that giving large economies such as Germany and France permission to pump millions of euros into their industries will fragment the single market.

He said the EU’s level playing field was important but in the race to develop clean technologies “the real competition is not so much between Germany and Italy or Denmark and the Netherlands, or Hungary and the Czech Republic. It’s between Europe and China and the US, and the system we have developed in the past decades only looks at the internal market.”

Habeck warned that the European economy as a whole would be at risk if Germany failed to invest in critical technologies. “We need to think of Europe as an economic system as a whole,” he added.

The money was approved in Berlin’s budgetary agreement last month, despite a ruling in November from the German constitutional court that deemed billions of euros of federal spending on clean energy and industrial subsidies unconstitutional.

Final approval depends on the agreement of two German local authorities. Habeck said it would be a “terrible joke” if they blocked it.