Northvolt, a four-year-old start-up headquartered in Stockholm, is building a giant production plant for lithium-ion battery cells in Skellefteå, northern Sweden. The ‘gigafactory’ is set to start producing in 2021 and is widely expected to usher in a new era for Europe’s automotive industry.
Policymakers and car manufacturers across Europe are racing to improve their environmental credentials and cut carbon emissions, and they are looking to battery availability and producers like Northvolt to help them. Why? Because it is batteries that will play a key role in accelerating the adoption of electric vehicles (EVs).
Pole position in a growth market
Investors are firmly on board. In July, Northvolt raised $1.6 billion of debt from a consortium including ING, the European Investment Bank, Euler Hermes, BPI France and NEXI, and it raised a further $600 million in equity in September from investors including Goldman Sachs, Volkswagen and Spotify boss Daniel Ek (1). This is the kind of capital needed to cater for a growth market: ING, for instance, predicts that in a global ‘fast-forward scenario’, nearly three in every four cars could be electric by 2040 (2).
CEO and founder Peter Carlsson expects the demand for lithium-ion batteries to “explode”. “Our estimate is that Europe will need 800GW of battery power within 10 years. That requires 25 gigafactories like the one we are building now in Skellefteå.” However, that growth will only be meaningful if sustainability is placed at the heart of development. For Emma Nehrenheim, Chief Environmental Officer at Northvolt, a focus on ‘green batteries’ is a necessary prerequisite for an all-electric future. “We figured out pretty early on that if we want to succeed in reducing the carbon footprint and the overall environmental impact of a battery cell placed on the market, we would have to take a far bigger responsibility for the production of materials and components in a battery,” she says. What that means for Northvolt is ensuring that production is driven by renewable energy, which Nehrenheim says requires strategic planning and a reliable source of energy. The company has committed to using 100% renewable energy via a hydroelectric power plant for Northvolt Ett in Skellefteå, and it will take a similar approach to a 16 GWh facility planned in Germany, which Northvolt is developing in a joint venture with Volkswagen (3).
New sustainability standards
For Northvolt, another important way in which Europe can achieve a cleaner future is by encouraging the so-called circular economy. In practice, that means repurposing expensive materials in end-of-life technology.
The availability of metals such as lithium, cobalt and nickel, which are central to the performance of batteries, is limited, with their mining often mired in environmental and ethical issues in countries such as the Democratic Republic of Congo. A historical lack of recycling processes has also made it difficult to extract these metals from used battery cells. Scientists and carmakers are experimenting with new chemistries that could reduce the use of such metals, but in the meantime, with the industry currently leaning heavily towards lithium-ion batteries, Northvolt has put recycling high on its agenda.
Nehrenheim runs a business unit that focuses on recycling end-of-life batteries and returning raw materials for battery production; in 2022, there are plans to get a dedicated recycling facility up and running to recycle 25,000 tons of battery cells annually, and source 50% of recycled material for new battery cells by 2030 (4). “When Northvolt was established, the founders concluded that in order for EVs to become attractive to the general buyer in the European market,” says Nehrenheim, “You would have to take every part into account when it came to sustainability.”
In Europe, there has long been a recognition that dependence on rivals in Asia to supply technology and resources would be no long-term solution – in particular the transfer of heavy batteries on long journeys in freight ships fraught with risk and expense.
An integrated model
Northvolt’s push to a vertical integration model, in which as many steps as possible of the supply chain are housed in one place, is proving vital to transition towards a production model that is more sustainable and assuages the concerns of politicians across the bloc. Northvolt promises to be the standard-bearer on this front as it competes with Asian producers. “We are proud to have played a pivotal role in this transaction which is important for the energy transition,” says Tim van Pelt, Director, Renewables & Power, Energy at ING, which provided senior debt financing to Northvolt Ett as Mandated Lead Arranger and Senior Lender, as well as providing second lien financing through ING’s Sustainable Investment Fund. “Financing companies such as Northvolt, which apply a sustainable approach to clean energy technology, is exemplary of ING’s Terra methodology.
The projected boom in EV sales means that sustainability cannot be an afterthought. In 2021, Northvolt expects to start large-scale manufacturing with plans to increase capacity to 40 GWh by 2024 in Northvolt Ett, which would power about 600,000 vehicles annually. In terms of capacity, Northvolt is on a par with its rivals globally. In future, however, its emphasis on good environmental practice will position it as one of Europe’s most important players in the race to a clean-energy future. Diederik van den Berg, Managing Director and Global Lead Renewables & Power, Energy at ING says ING decided early on to support the expansion of battery manufacturing capabilities in the EU. “Northvolt’s milestones are deemed critical elements in the transition to a cleaner society. With the strong backing of the EU, European OEMs, and reputable financial investors, the future of Northvolt looks bright indeed.”
- Northvolt Ett (Sweden) capacity of 40 GWh by 2024
- Northvolt Zwei JV with Volkswagen in Germany initial capacity of 16 GWh in 2024
- Capacity to recycle 25,000 tons of battery cells annually starting in 2022