In a surprising move, the German government has given the green light to subsidize Sweden’s Northvolt battery plant Drei in northwest Germany with over €560 million. This announcement comes just weeks after the German government froze spending in the sector after a court ruling.

The subsidies, totaling around €700 million, will be distributed over several years. The breakdown includes €564 million from the federal government and an additional €136 million from the regional government of Schleswig-Holstein. These funds are crucial for Northvolt’s planned battery factory near Heide, which entails a substantial investment of €4,5 billion and is expected to generate 3 000 jobs.

On Sunday, economy Minister Robert Habeck stated that the subsidies for Northvolt represent “an important step to secure large private investments that create jobs and added value in a sector of the future”.

Final approval pending

However, due to the state aid involved, the European Commission’s approval is still pending. The government’s urgency in approving the subsidies was driven by the need for a final decision on the factory’s location.

The ministry is engaged in a constructive exchange with the European Commission, which has loosened its restrictions on national subsidies to boost investments in the energy transition to ensure compliance with state aid legislation. If higher permission is granted, Northvolt can get a final go-ahead.

Northvolt will commence battery cell production for electric cars at the new factory from 2026. The company has invested approximately €100 million in the project, emphasizing its commitment to advancing sustainable technologies.

Debt-brake

The German factory was on hold for some time because of the Inflation Reduction Act incentive favoring constructing a site overseas, causing a change of heart at the Swedish start-up. Northvolt chose Montreal, Canada, for its first North American gigafactory only a few months ago, for which it reportedly received up to $3 billion in subsidies – though these numbers remain unconfirmed.

In Germany, the government decided to temporarily freeze funding after the Supreme Court found the transfer of corona billions to the Climate and Transformation Fund to violate the constitutional ‘Schuldenbremse’, or the so-called ‘debt brake’. This brake inhibits the state from accumulating new debts, with exceptions allowed only in extreme emergencies, which isn’t the case with Northvolt. “It is good that we were able to obtain the exemption from the budget freeze,” commented Minister Habeck.