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17 April
2023
By KELVIN CHAN
US tax breaks lure European clean
tech companies as EU lags
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LONDON (AP) — Norwegian startup Freyr will first
build batteries to power electric vehicles and store clean energy in a
remote town near the Arctic Circle. Up next? An Atlanta suburb.
That’s because a new U.S. clean energy law offers generous tax credits
— up to 40% of costs — in what is a “massive, massive incentive” for
producing in America, CEO Tom Einar Jensen said.
Across Europe, companies seeking to invest in the green energy boom —
churning out everything from solar panels to windmills and EV
batteries — are making similar calculations, weighing up the U.S.
Inflation Reduction Act’s $375 billion in benefits for renewable
industries against a fragmented response that European leaders have
been scrambling to patch together for months.
The law aims to kick-start the U.S. transition away from
climate-changing fossil fuels with tax credits and rebates that favor
clean technology made in North America.
It blindsided Europe when it became law in August, putting the U.S. on
course to eclipse the continent in the global push to reduce carbon
emissions and leaving European leaders fuming over rules that favor
American products, threatening to suck green investment from Europe
and spark a subsidy race.
The European Union’s executive branch responded with plans aimed at
ensuring least 40% of clean technology is produced in Europe by 2030
and limiting the amount of strategic raw materials from any single
third country — typically China — to 65%. It also opened negotiations
with President Joe Biden on making Europe-sourced minerals for EV
battery manufacturing eligible for U.S. tax credits.
Executives, simply looking for the most money
they can get to boost their businesses, are hailing the U.S. program’s
simplicity. Some complain that the EU plan is underwhelming, confusing
and bureaucratic, putting Europe at risk of falling behind in the
green energy transition, notably as the auto industry moves to EVs.
“While the United States are catching up thanks to the Inflation
Reduction Act, Europe is more and more lagging behind,” Volkswagen’s
board member overseeing technology, Thomas Schmall, posted on LinkedIn.
“The conditions of the IRA are so attractive that Europe risks to lose
the race for billions of investments that will be decided in the
coming months and years.”
Volkswagen said last month that its new PowerCo battery business would
build its first gigafactory for EV battery cells outside Europe in St.
Thomas, Ontario — following two others under construction in Germany
and Spain. The Canadian plant, set to open in 2027, is expected to
benefit from the IRA because of provisions for U.S. neighbors and
free-trade partners Canada and Mexico.
Meanwhile, the German auto giant has reportedly put on hold a decision
for a battery plant in Eastern Europe while it waits for more
information on the EU’s plan. Volkswagen didn’t respond to a request
for comment.
Another Scandinavian battery startup, Sweden’s Northvolt, was poised
to build a third gigafactory, and the first outside its home country,
in northern Germany. The U.S. law led it to hit pause, and it’s
looking over the new EU proposals before deciding next month where to
put that facility.
The EU keeps a tight rein on state aid for businesses to avoid
distorting competition in the 27-nation bloc’s single market, where
some countries — like Germany and France — are much larger and richer
than others. But to compete with the U.S., the EU relaxed those
restrictions for clean industries, marking a fundamental change for
Brussels from its long-held view that government should take a
hands-off approach to free markets.
European business leaders say the U.S. incentives could upend the
global ways of producing technology.
“We’re building cars in the U.S. but sometimes the engine or other
parts come from Europe. The IRA puts this model in question because it
requires manufacturing to take place in the U.S.,” said Luisa Santos,
deputy director general of BusinessEurope, a Brussels-based lobbying
group.
“You might have more proximity, but the cost will be much higher” if
global supply lines disappear, she warned. “Will the consumer be
willing to pay?”
Italian energy giant Enel credited the IRA when it announced plans in
November to build a massive solar panel factory in the U.S.
Enel’s factory initially will be able to churn out 3 gigawatts of
solar panels and cells, ultimately expanding to 6 gigawatts. The plant
is expected to be operating by the end of 2024.
It’s not just Europe. Companies in Asia also want a piece of the IRA.
South Korean tech giant LG last month unveiled plans to build a $5.5
billion battery manufacturing complex in Arizona, which it called the
biggest single investment ever for a standalone battery manufacturing
facility in North America.
By setting up manufacturing in the U.S., LG “aims to respond to the
fast-growing needs for locally manufactured batteries on the back of
the IRA,” the company said.
The factory is scheduled to start making electric car batteries by
2025 and batteries for energy storage systems a year later.
For its part, Freyr is expanding its footprint from its first battery
gigafactory being built in Mo i Rana in northern Norway to a second in
Coweta County, Georgia, each costing $1.7 billion.
“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,” CEO Jensen said at an opening ceremony
for a pilot plant in Mo i Rana.
He said in an interview that the IRA provides up to $45 in tax credits
toward the typical cost of making a battery, which is $110 to $115 per
kilowatt hour.
The IRA has stoked so much demand for standalone energy storage
systems like the ones that Freyr makes — big banks of batteries that
utility companies use to store renewably generated electricity — that
the company moved the U.S. completion date up by a year to 2025,
Jensen said.
Freyr is now trying to figure out “how we can fast-track it even
further” because “our customers are really screaming for locally
produced” batteries, which, Jensen said, allow them to get their own
incentives.
“That, of course, increases demand for our product,” he said.
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