Swedish lithium-ion battery manufacturer Northvolt received EU approval for a substantial €902m ($986.43m) German state aid package on Monday to build an electric vehicle (EV) battery production plant in Heide, Germany.

This financial backing, without which the company would have turned to the US instead, will contribute significantly to Europe’s green transition and reducing fuel dependencies.

Northvolt had considered establishing the plant in the US, which offered more generous subsidies through the Inflation Reduction Act. However, the company agreed to build the plant in Germany after Berlin pledged to match the offer with new EU state aid in May 2023, eventually gaining approval this week.

The approval ensures the plant will be built in Heide, stimulating the local economy and supporting Germany and the wider EU in achieving net-zero targets. The European Commission highlighted the strategic importance of this aid, emphasising its alignment with the Green Deal Industrial Plan.

Margrethe Vestager, executive vice-president in charge of competition policy, underlined the significance of the approval, stating: “This €902m German measure 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.”

The aid comprises a €700m direct grant and €200m guarantee. The Commission emphasised the proportionality of the aid, stating that it is “the minimum necessary to trigger the investment in Europe” and “does not make the investment in Germany more profitable than the investment in the US”.

The plant will have an annual capacity of 60 gigawatt-hours, equivalent to powering 800,000 to one million EVs annually, depending on battery size. Production is set to commence in 2026 and reach full capacity by 2029.

In November last year, Northvolt announced a breakthrough in its sodium-ion battery technology, claiming that while its batteries are currently designed for use in energy storage, the company plans to eventually develop versions with higher energy density to be used in EVs.