In a rural village close to the Arctic Circle, Norwegian firm Freyr will initially construct batteries to power electric vehicles and store sustainable energy. What next, an area of Atlanta.
That’s because, according to CEO Tom Einar Jensen, a new U.S. renewable energy law provides hefty tax credits that can cover up to 40% of expenditures, creating a “massive, massive incentive” for manufacturing here.
Companies looking to invest in the green energy boom in Europe are doing the same calculations, weighing the $375 billion in benefits that the U.S. Inflation Reduction Act will bring to the renewable energy sector against the patchy response that European leaders have been trying to put together for months.
With tax incentives and rebates that favor clean technology produced in North America, the law intends to jump-start the U.S. transition away from fossil fuels that contribute to global warming.
It caught Europe off guard when it was passed into law in August, putting the United States on track to surpass the continent in the worldwide effort to reduce carbon emissions and leaving European politicians enraged over regulations that favor American companies and pose a threat to drain Europe’s green investment and trigger competition for subsidies.
In response, the executive branch of the European Union devised plans to ensure that at least 40% of clean technology is generated in Europe by 2030 and to cap at 65% the import of vital raw materials from any third nations, usually China. Additionally, it started talks with President Joe Biden to make European minerals used in the production of electric vehicle batteries eligible for tax credits in the United States.
Executives applaud the simplicity of the U.S. approach because they are only interested in making the most money possible to grow their companies. Some claim that the EU plan is unimpressive, unclear, and overly bureaucratic, placing Europe at risk of slipping behind in the transition to green energy, particularly as the auto sector switches to EVs.
Thomas Schmall, the board member in charge of technology at Volkswagen, wrote on LinkedIn that “Europe is more and more falling behind while the United States is catching up thanks to the Inflation Reduction Act.” “The IRA’s terms are so alluring that Europe runs the risk of falling behind in the competition for the billions of investments that will be made in the upcoming months and years.”
The first gigafactory for EV battery cells outside of Europe will be built in St. Thomas, Ontario by Volkswagen’s new PowerCo battery division, following two others that are currently being built in Germany and Spain. The IRA is anticipated to benefit the Canadian plant, which is scheduled to launch in 2027, due to provisions for American neighbors and free-trade partners Canada and Mexico.
As it waits for further details on the EU’s proposal, the German car giant is said to have postponed a decision to build a battery plant in Eastern Europe. A request for comment from Volkswagen was ignored.
Northvolt, a Swedish battery firm, was planning to construct its first gigafactory outside of its native country in northern Germany, joining other Scandinavian battery startups in the process. The U.S. law forced it to wait, and it is now reviewing the new EU plans before determining where to place that facility next month.
State aid to enterprises is closely regulated by the EU to prevent it from distorting the competition in the 27-nation bloc’s single market, where some nations, like Germany and France, are significantly larger and wealthier than others. However, in order to compete with the United States, the EU loosened those limits for clean industries, signaling a significant shift for Brussels from its long-held belief that government should abstain from interfering with free markets.
Business leaders in Europe claim that the U.S. incentives might completely alter how technology is produced around the world.
“We make automobiles here in the United States, but occasionally the engine or other components come from Europe. The IRA questions this model because it necessitates American production, according to Luisa Santos, deputy director general of BusinessEurope, a Brussels-based lobbying organization.
If global supply lines collapse, she said, “You might have more proximity, but the cost will be much higher.” The question is “Will the consumer be willing to pay?”
When announcing plans to erect a sizable solar panel factory in the United States in November, the Italian energy firm Enel gave the IRA credit.
The capacity of Enel’s factory to produce solar cells and panels is initially 3 gigawatts, and it will eventually increase to 6 gigawatts. By the end of 2024, the plant is anticipated to be operational.
Not just in Europe. Asian businesses are also interested in the IRA.
The $5.5 billion battery manufacturing complex that South Korean electronics company LG proposes to erect in Arizona is the largest single investment in a standalone battery production plant in North America, according to LG, which disclosed its intentions last month.
According to the corporation, LG “aims to respond to the rapidly expanding demand for locally manufactured batteries on the back of the IRA” by establishing manufacturing in the U.S.
By 2025, the facility is expected to begin producing batteries for electric vehicles, followed a year later by batteries for energy storage systems.
In contrast, Freyr is growing its footprint by constructing two $1.7 billion battery gigafactories, one in Coweta County, Georgia, and the other in Mo i Rana, in northern Norway.
At the inauguration of a pilot plant in Mo I Rana, CEO Jensen stated, “It’s important for us to produce batteries on both sides of the Atlantic because our customers and our supply chain partners want us to be present in both places.”
In an interview, he claimed that the IRA offers tax credits of up to $45 toward the average cost of producing a battery, which is between $110 and $115 per kilowatt hour.
The demand for Freyr’s large banks of batteries, which utility companies use to store renewable energy, has increased as a result of the IRA, pushing the company’s completion deadline for the United States up to 2025, according to Jensen.
Because “our customers are really screaming” for locally produced batteries, which, according to Jensen, enable them to receive their own incentives, Freyr is currently looking into “how we can fast-track it even further.”
That naturally raises demand for our product, he explained.
