Report lifts lid on cost of Canada’s EV battery deals

Report lifts lid on cost of Canada’s EV battery deals

Report lifts lid on cost of Canada’s EV battery deals 1024 683 Energy Storage Journal

November 29, 2023: More transparency is needed surrounding subsidies for EV battery production in Canada — the cost of which could be up to C$6 billion ($4.4 billion) more than government forecasts, according to an independent report released on November 17.

“It’s not just the underestimate that bothers me,” said one independent commentator, “nor is it the total C$43.5 billion, that’ll be given in subsidies — and that’s huge — but it’s the worldwide picture. Hundreds of billions of dollars are being invested in a lithium technology that we all agree is a half-way house between lead and the next generation of energy storage.

“With a payback time on these subsidies that can be up to 20 years, how much money will be lost when, a new battery chemistry such as sodium ion becomes mainstream? And that may be in as little as five years’ time.”

 Canada’s parliamentary budget officer, Yves Giroux, said he estimated the total cost of government support for EV battery manufacturing by Northvolt, Volkswagen and Stellantis-LG Energy Solution to be C$43.6 billion over 2022-23 to 2032-33 — C$5.8 billion more than the C$37.7 billion in announced costs.

Giroux said the C$5.8 billion in non-announced costs — as the country tries to compete with lucrative incentives enticing battery makers to the neighbouring US — represents lost corporate income tax revenues for the federal, Ontario and Quebec governments combined.

He said the report aimed to increase transparency by providing an estimate of the total cost of government support for EV battery manufacturing, including announced and non-announced costs, because announcements to date have “largely been made in isolation and an estimate of the total cost of government support has not been publicly provided”.

Giroux’s report also provides estimates of the break-even timelines for announced production subsidies.

Of the C$43.6 billion in total costs, the report estimates that $26.9 billion (62%) will be incurred by the federal government and C$16.7 billion (38%) will fall on the provincial governments of Ontario and Quebec.

The estimate of the total cost is conditional on the US Advanced Manufacturing Production Credit (AMPC) remaining in place until the end of 2032 and on the EV battery production schedules provided by Northvolt, Volkswagen and Stellantis-LGES being realized. The AMPC is among US federal incentives included in the Inflation Reduction Act.

In its break-even analysis, Giroux’s report notes that the federal government used his office’s methodology to estimate a break-even timeline of nine years for Northvolt’s production subsidy, based on full production in every year.

“Based on Northvolt’s projected annual production schedule, we estimate a break-even timeline of 11 years for the C$4.6 billion production subsidy,” Giroux says.

“We estimate a break-even timeline of 15 years for the C$13.2 billion production subsidy announced for Volkswagen, and 23 years for the C$15 billion in production subsidies announced for Stellantis-LGES — consistent with our previous estimate of 20 years based on their combined production schedules.”

Canada’s federal government did not respond to a request from Energy Storage Journal to comment on Giroux’s report.

In July, Ontario premier Doug Ford said the Stellantis-LGES incentives were a direct response to those offered by the US government — but warned they could be reduced or cancelled if the US should drop its support for battery makers.

Ford said the deal also extended to the project by Volkswagen and its PowerCo SE subsidiary to establish the auto giant’s first overseas EV battery cell manufacturing plant in Ontario.