Harald Mix has what he describes as a “big hairy goal”: to set up enough green companies to reduce global emissions by 1 per cent himself. And the Stockholm-based private equity executive has found the perfect place to do it: northern Sweden.
Blessed with copious green energy from its extensive network of hydropower, the far north of the Scandinavian country has experienced nothing short of a green rush. Thousands of people have flocked to this often snow-covered region that straddles the Arctic Circle to work for companies using the surplus power, such as battery maker Northvolt and H2 Green Steel, set up by Mix and business partner Carl-Erik Lagercrantz. “It is a Klondike situation, where the gold is green electricity,” says one executive working there.
For Mix, cutting emissions in sectors such as steel, cement, transport and residential heating requires “re-industrialisation” on a massive scale, bringing together some of the world’s biggest investors and companies with entrepreneurs, green technology, government subsidies and large amounts of renewable energy.
“The only way that we are going to save the planet is by actually proving this represents the single biggest investment opportunity of the century. It’s really about investment: hundreds of billions and trillions of capital that needs to be mobilised,” he adds.
The reality has been far from easy. Northvolt and H2GS have raised extraordinary amounts of capital — €15bn and almost €6.5bn respectively, from investors such as Volkswagen, Siemens, Goldman Sachs, Temasek, BlackRock and an Ikea foundation — making them some of the best-funded private companies in Europe. But both are facing serious challenges over their main projects and question marks about future expansion.
Northvolt has struggled to ramp up production in its first, northern Swedish gigafactory, losing a $2bn contract with carmaker BMW — its first customer and one of its shareholders — causing the lossmaking battery maker to launch a strategic review about its growth ambitions and financing needs.
H2GS’s first plant, which will use hydrogen gas as an alternative to coking coal to reduce iron ore, is under construction in the north. But its ability to scale up production is threatened by problems in accessing enough power amid a growing dispute with several Swedish state-backed companies with their own green steel project, Hybrit.
Critics argue that the green industry plans are too risky for this country of 10.5mn people, and the local and national governments backing them. “The very size of these projects relative to the Swedish economy means you jeopardise the national economic system,” says Magnus Henrekson, professor of economics at the Research Institute of Industrial Economics in Stockholm. “In the US or China, even if they fail, it’s manageable. In Sweden, if you put in so many resources, so many political investments and it still fails, it will harm the entire economy for decades.”
Christer Gardell, co-founder of Europe’s largest activist investor Cevian Capital and who helped fund Henrekson’s research, adds that such large-scale projects are extremely difficult to pull off. “There was so much hallelujah [about northern Sweden] in the early days. But there was no real analysis of these big investments that were heavily supported by taxpayer money, and the risk involved,” he says.
The stakes are high, for both Sweden and Europe. As businesses and governments across the continent pour money into clean energy to try to meet emission targets, Asian companies have stolen a march in industries such as batteries and electric vehicles, while US President Joe Biden’s Inflation Reduction Act has seen a surge of green investment. Northern Sweden has been much touted as Europe’s answer, with the entire European Commission visiting an iron ore mine — and large deposit of rare earths needed in the green transition — in Kiruna last year, which also included a briefing from Northvolt’s chief executive.
“The Nordics have the potential to be the Silicon Valley of sustainability,” says Magnus Tyreman, managing partner for consultant McKinsey in Europe.
With vast amounts of money invested in various factories across the region, one word is on the lips of those involved in northern Sweden. Now, says Mix, “it’s really about execution”.
Sweden’s natural advantage is its electricity surplus. The drive to lower global greenhouse gas emissions is forcing countries to decarbonise both power generation and their industry. In Sweden, the first part is already done. Northern Sweden last year generated 76 terawatt hours of electricity from its hydropower and wind farms, but only consumed 33TWh. That surplus of 43TWh is equivalent to or more than the annual electricity consumption of countries such as Hungary, Denmark or Ireland.
Due to poor transmission links to the south, Sweden’s surplus electricity is largely trapped in the north of the country, attracting interest from a range of companies keen to exploit it.
Social media group Meta was the first big business to react, opening its first data centre outside the US in Luleå, a port and steel city in northern Sweden, in 2013. “This was an important thing to happen because it gave a new picture of northern Sweden. It showed the clean air, the clean water,” says Lorents Burman, mayor of Skellefteå, a town south of Luleå.
Skellefteå Kraft, the municipality-owned power company, saw the chance to exploit its own power surplus, beating offers from about 40 Nordic cities in 2017 to attract Northvolt to build its first gigafactory. Joachim Nordin, chief executive of Skellefteå Kraft, says it was important to attract a company that would create a lot of jobs, unlike data centres. Northvolt expects to employ 3,000 workers when its factory is completed; Meta says its Luleå data centre supports about 300.
Northern Sweden’s energy boom is leading to a dramatic reversal in the region’s fortunes. The population in most northern towns has declined steadily in the past decades as young people in particular moved to the warmer, lighter and more prosperous south.
“The picture of our region from the rest of Sweden is: a place you want to leave. But this has always been an area where we have a lot of natural resources,” says Carina Sammeli, the mayor of Luleå. “Now we are at the start of a green industrial revolution. We need to be fast, because it’s about being the first on the market.”
Hybrit’s test facility for green steel is based in Luleå while Spanish fertiliser Grupo Fertiberia, as part of the Power2Earth consortium, is planning to build a plant there and H2GS’s first factory will be close by in Boden.
Lotta Finstorp, governor of Norrbotten, Sweden’s northernmost and largest county, says the region has given a lot of raw materials and people to the south over the decades. But now she is inundated by requests from ambassadors wanting to learn more about the north.
The sudden boom is bringing headaches, however. Housing is a big problem. Such is the surge in foreign workers moving to Skellefteå that house prices have shot up, while some people had to live temporarily in shipping containers. Upgrading infrastructure such as roads and rail is time-consuming in bureaucratic Sweden, as is securing permission for new factories. “It’s permits, permits, permits. We have to go faster,” says Ebba Busch, Sweden’s minister for energy, business and industry.
There is also the issue of what climate activists such as Greta Thunberg call “green colonialism” — using the cloak of green projects such as wind farms to usurp the rights of the Sami, the indigenous people in the north. Thunberg and others have protested against a number of mining projects and wind farms, both in Sweden and Norway. Busch concedes that “it’s a difficult balancing act” between combating climate change and protecting nature.
And there are even questions about northern Sweden’s trump card: its electricity surplus. The amount of electricity needed by some projects would eventually eat up the entire surplus. LKAB, the state-owned iron ore mining company, estimates it will need 70TWh of power by 2050 to reach zero carbon emissions. That is equivalent to 43 per cent of total Swedish electricity production last year. Hybrit and H2GS estimate they would each require about 15TWh for full production.
“The surplus will be gone and gone again with these efforts. So the big question is: where is the power going to come from?” asks Cevian’s Gardell.
Energy executives say it will have to come from wind farms, onshore and offshore, noting that there is still time to build them, as long as Sweden and its bureaucracy acts fast. “I’m not especially worried,” says Nordin of Skellefteå Kraft. But he concedes that there is heavy local opposition to windmills. As Sammeli says: “Everybody wants renewable energy, just not right here.”
However, it is the performance of the supposed crown jewels of the green transition in northern Sweden — Northvolt and H2GS — that is drawing the most attention. Mix argues he is doing nothing less than setting up an entirely new asset class, and that “we are early on in that process”.
Peter Carlsson, Northvolt co-founder and chief executive, adds: “It is a very critical time for Europe, the next couple of years. The way we and others are executing, and to some extent being supported by the EU, is going to determine the long-term outcome of what the [battery] industry looks like globally.”
Mix says “industrial scale-ups” fall between the cracks of existing asset classes such as start-ups, infrastructure projects and private equity. The companies are young, but need massive amounts of capital. Their financing — involving offtake agreements where customers such as carmakers and steelmakers agree to buy their future products — is like infrastructure, but is backing a relatively risky start-up, not a well-regulated single project.
“Northvolt is the first real example of how you can create a new business model, how you can create long-term partnerships between suppliers and customers, defining what a green premium should be,” Mix adds.
The battery industry is dominated by Asian companies such as China’s CATL, Japan’s Panasonic, and Korea’s LG and Samsung. But Northvolt was the first homegrown European battery manufacturer to produce a cell from its own gigafactory, in late 2021. The problem has been in scaling up.
Northvolt’s Skellefteå plant now has 16GWh of capacity but is currently producing well under 1GWh of batteries. The company declines to give the exact figures, but Carlsson says it should reach 1GWh if it manages to increase its production four- to fivefold over what it produced in the second quarter. In 2025, it should manage “a handful” of GWh. When announced in 2017, it said the full factory would be completed in 2023 and produce 32GWh.
Truckmaker Scania expressed frustration last year at the slow pace of deliveries. Meanwhile, Northvolt blames the Covid-19 pandemic for much of its own delays, as well as a production shutdown following the death of a worker last year. Its net loss deepened to $1.2bn last year compared with $285mn in 2022, but it still has more than $50bn of orders.
“It has obviously been more challenging than everybody would have liked. But building and scaling an operation like this is not always going to be a straight line. It takes a couple of years,” says Mix.
Northvolt will report on its strategic review to the board in September, which is likely to include reassessing plans to open new gigafactories in Sweden, Germany and Canada. The aim is to ensure “the core engine of Skellefteå is getting up and running before we take the next steps”, says Carlsson.
All this is taking place against the backdrop of lower-than-expected demand for electric vehicles, which many in the sector believe will cause a clear-out among battery start-ups and even established players. “It is an open question if Northvolt succeed. And if they don’t, then the whole business model fails with them,” says one well-connected technology investor in Stockholm.
H2GS has also faced delays, and is now forecasting it will produce its first steel in two years’ time at Boden, versus its initial forecast from 2021 of this year. It is planning other plants in Canada, Portugal and Brazil for its green steel, which it claims cuts emissions by up to 95 per cent compared with traditional production. But a second phase of production at Boden is uncertain after Vattenfall, a state-owned utility, moved it behind another state-owned company, steelmaker SSAB, in the queue for electricity.
H2GS executives have reacted furiously, as they have to their difficulties in getting iron ore from the local miner, LKAB. LKAB insists there is not enough capacity on the local railway to ship iron ore to H2GS, and Vattenfall says SSAB’s plans are more mature. But for H2GS it is no coincidence that LKAB, SSAB and Vattenfall are the three companies involved in its rival — Swedish green steel venture Hybrit.
Mix is undaunted by the problems of two of the main assets for Vargas, his holding company together with Lagercrantz. Vargas has just launched Syre, a joint venture with retailer H&M to produce fossil-free polyester. Last year, it helped start up Aira, a heat pumpmaker and seller.
In the future, “we would see the logic” on aluminium while “cement is interesting”, Mix says. “It’s a question about bandwidth and the importance of focus. We need to make sure we don’t drop the ball.”
His goal to reduce global emissions by 1 per cent may seem unachievable now. But Mix says taking 5 per cent market share in sectors that could disrupt the transport, steel, textile and heating industries could get him there in the decades ahead. In any case, he argues his biggest impact would be “to demonstrate it’s possible to make great returns — to attract others to invest in this”.
One of the common refrains throughout Sweden is: what would happen if the country’s push does not succeed and Europe loses its leadership on green industrialisation? In Stockholm, Busch, the deputy prime minister, warns that, were this to happen, the dependence the EU had on Russian gas would be “a summer breeze” in comparison to how dependent the bloc could become on China.
“The EU’s route to the green transition very much goes through China. We are saying that it could go through the EU itself,” she says.
In northern Sweden, they are aware of the urgency. Sammeli, Luleå’s mayor, is confident her country can lead the green revolution: “Right now, we are the first mover on this. It will be done somewhere. Maybe it is in Sweden.”
