EU approves major German subsidy for Northvolt battery factory

The EU Commission has approved the German government's funding for Northvolt's battery cell factory in the North of the country under state aid law. Northvolt received the funding decision for the factory at the beginning of December 2023 - it was subject to approval, which the EU has now granted.

According to the Commission, the subsidy now approved under state aid law totals 902 million euros, which will paid in the form of a 700 million euro direct grant and a 202 million euro guarantee. “Without the aid, Northvolt would establish the plant in the United States, where support was offered in particular under the Inflation Reduction Act,” the EU Commission writes.

According to Margrethe Vestager, Executive Vice-President in charge of competition policy, the 902 million euro grant is “the first individual aid being approved to prevent an investment from being diverted away from Europe, under the new possibility offered by the Temporary Crisis and Transition Framework since March 2023.” It allows Germany to support the construction of Northvolt’s production plant, which “is an important step for the electrification of transport in Europe, while preserving the level playing field in the Single Market,” says Vestager.

Of the 700 million euros, around 564 million euros will be provided by the German federal government and approximately 136 million euros by the state of Schleswig-Holstein. Both amounts are spread over several annual instalments. In November, Northvolt received direct funding from the federal government for its battery cell factory in Heide, Schleswig-Holstein. The funds were released at the time via an exemption from the budget freeze in force.

Before the ruling by the German Federal Constitutional Court in October, which led to the budget freeze in Germany, the Bundestag’s Budget Committee assumed liability for a convertible bond for establishing Northvolt’s battery cell factory in Schleswig-Holstein. The convertible bond secured by the federal government would be used to support the project over and above the already approved IPCEI funding of a good 155 million euros. The funding was to be provided on the basis of the aforementioned EU “Temporary Crisis and Transition Framework”. With the green light given by the EU Commission, the TCTF will now be applied in Germany for the first time.

The planned Northvolt Drei (Three) battery factory in Heide was announced in March 2022. Construction was scheduled to begin in 2025. The production capacity is 60 GWh, which will be enough for one million electric cars. In addition to battery production, Northvolt is also aiming to build a battery recycling plant on site. Less than two months later, in May 2022, the company received the IPCEI funding decision for the aforementioned 155 million euros.

There is now talk of commissioning in 2026. Northvolt cited high energy prices and is also pushing ahead with a factory project in Canada in order to benefit from the subsidies there and the demand due to the Inflation Reduction Act in the USA. However, both the company and politicians emphasised that the goal remains to build the factory in northern Germany. The EU Commission now states that the plant will go into operation in 2026 and reach its full production capacity in 2029.

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