Northvolt Founder’s Next Big Green Bet Has a Power Problem

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The construction of Stegra AB's green steel factory in Boden, which is part of a $100 billion effort to clean up some of the world’s most polluting sectors.

After a four-decade career teaching soldiers to fire grenades, machine guns and howitzers, Lars Hjerpe was looking forward to a quiet retirement in the untamed woods of Sweden’s far north. Instead, he got a front-row seat to one of the world’s biggest experiments in green industrialization.

It’s been loud. Trucks regularly swirl up large dust clouds in front of Hjerpe’s idyllic red cottage, where he’d dreamed of peacefully tending to the land and feeding his hens, as workers erect the world’s first large-scale green steel plant across the street. The megafactory is part of a $100 billion effort to clean up some of the world’s most polluting sectors. If it works, an area bigger than England near the Arctic Circle could become a key European supplier of everything from green steel to climate-friendly batteries, fuels and fertilizers.

The disruption has caused angst in Hjerpe’s small town of Boden, though many of his fellow locals also acknowledge its potential to revive the area. “There’s a lot of division over the project,” he says over coffee and homemade cakes in his kitchen. “It might be really bad for me, but overall it’s a good thing that will create jobs for the young.”

Lars Hjerpe outside his cottage in September 2024. Photographer: Erika Gerdemark/Bloomberg

Success is far from guaranteed. The steel factory built by Stegra AB is part of a cluster of projects backed by Vargas Holding AB, a Swedish impact investor whose mission is to cut global emissions by 1% — the equivalent of annual carbon pollution from Australia. But its other big industrial bet, an electric-vehicle battery maker called Northvolt AB, is now running out of cash and facing an uncertain future.

Both companies used contracts from future customers to borrow billions of dollars and build operations from scratch. In fact, the idea for pursuing green steel came out of a Northvolt board meeting. But Northvolt is now facing a liquidity crisis as its rapid expansion — including a large factory in a town south of Boden and plans for units in Germany and Canada — falters amid slowing EV demand and manufacturing challenges. The troubles have taken Sweden and Northvolt’s investors by surprise, given the company’s much vaunted status as a green flag-bearer.

Harald Mix, the billionaire founder of Vargas, defended the companies’ similar funding model in an e-mail and traced Northvolt’s problems back to operational and market factors instead. “When industries need to fundamentally transform to lead or adapt to the green transition, significant investments are required,” he said. The money Stegra and Northvolt raised was based on “rigorous analysis” that also included the consequences of not investing in clean technologies. 

The two businesses “quickly developed into unique individuals,” Stegra Chief Executive Officer Henrik Henriksson said in an interview this week.  Stegra is laser-focused on making the Boden plant a success before investing in other factories, he said. “We live and die with Boden.” 

One of the gates to the Stegra construction site in Boden. Photographer: Erika Gerdemark/Bloomberg

But the stakes are high and, from the corridors of power in Stockholm to the dinner tables of Boden, Sweden’s green revolution is being fiercely debated.

Northern Sweden could serve as a blueprint for other nations to reach net zero and revitalize neglected regions. But the projects, including the Stegra steel plant, will gobble up so much electricity that they risk turning a surplus of clean power — the region’s draw in the first place — into a deficit. It’s a classic climate Catch-22: Is it better to build the factories of tomorrow right now, in the hope that energy resources and customer demand catch up, or more prudent to slow down and risk missing the planet’s brief chance to stem global warming?

Claes Nordmark, mayor of Boden. Photographer: Erika Gerdemark/Bloomberg

For Boden’s Mayor Claes Nordmark, the Stegra plant is a once-in-a-lifetime opportunity. The town has a deep military history and its fortunes have tracked Sweden’s dedication to stemming threats from the east. His mandatory national service coincided with the military’s decision to scale down in Boden, which caused its population to plunge in the late 1990s. It’s never really recovered.

“The window is this small,” Nordmark says, holding his hands out inches apart. “We have to grab this chance, otherwise the train will leave.”

A few hours drive along deserted roads northwest of Boden, Svenska Kraftnat AB, Sweden’s high-voltage grid operator, is working furiously to expand the region’s electricity system.

In a fresh clearing stretching 380 kilometers (236 miles) in Sweden and Finland, its workers are assembling a new 4 billion-krona ($390 million) electric highway called Aurora Line. On a late morning on Sept. 13, two workers climbed 25 meters up in the air to attach a long beam across a steel tower that will hold up power lines.

A section of the 4 billion-krona ($390 million) electric highway called Aurora Line outside Vuollerim.Photographer: Erika Gerdemark/Bloomberg

The specialist team of Albanian workers, led by a Canadian foreman, were due to erect another tower before the day was over. About 250 meters or so further ahead, the next structure had already been prepared. Eventually, more than 650 of them will sit on the Swedish side alone. The original plan for the link was to mainly export power to Finland, but now it’s also become vital for Sweden’s own green transition.

Electricity distribution networks will also need to become more robust. Vattenfall AB, the nation’s biggest utility, says that in the next five years it will expand its grid as much as it has in the past five decades. The firm hopes to offer more grid capacity in the future, especially to users who can be flexible.

“Today, the demand for grid capacity is several times that of what is available,” says Vattenfall Eldistribution’s Customer and Markets Director Cecilia Zetterstrom. “Many of our customers want a connection in the next few years and almost all before 2030.”

The original plan for the Aurora Line was to mainly export power to Finland, but now it’s become vital for Sweden’s own green transition.Photographer: Erika Gerdemark/Bloomberg

The Boden steel plant by Stegra, previously called H2 Green Steel AB, hasn’t got a grid connection for its second phase that is set to double production of the metal. “We need to get clarity on when we will get power,” says Stegra CEO Henriksson. “We do not have a solution today.”

German utility Uniper SE also hasn’t gotten an answer from Vattenfall on a 2021 request to connect a factory it wants to build in Lulea, a town near Boden. The plant will make e-methanol, a green fuel for shipping. Uniper needs a firm yes by this year, says Patrik Hermansson, its head of business development for the Nordics, or its schedule will slip beyond its planned 2029 start.

If “things don’t improve soon,” the opportunity for Sweden’s green transition “could go missing,” Hermansson says. “That would be really bad for Sweden AB.”

There’s genuine concern there could be an electricity deficit in that part of the country, according to Daniel Gustafsson, Svenska Kraftnat’s head of power system. He says the nation will need an additional nuclear reactor’s worth of electricity per year based on existing industrial plans. “It’s very, very ambitious.”

Gustafsson expects wind energy will make up most of the new capacity, with more nuclear power coming online as well. But local municipalities have blocked plans for new onshore wind farms. In the first half of the year, 12 out of 16 projects were vetoed by town authorities, according to the industry’s lobby group. Three were then halted by the military. Vattenfall itself just paused a major offshore wind project, saying it no longer made financial sense. While the government has a bullish plan for nuclear, even the most optimistic forecasters don’t see any new reactors starting up until the middle of the next decade at the earliest.

The Lule River is a vital source of hydroelectric energy.Photographer: Erika Gerdemark/Bloomberg

All that is worrying company executives looking to Sweden as an important part of the green supply chain. That includes Jim Rowan, Volvo Car AB’s chief executive officer, who wants the government to speed up its deployment of nuclear power. “There’s not enough renewables that can be put in place in time,” he says.

Standing in Boden’s town center, there are few signs this is where the seeds of a new steel industry are being planted. The odd worker in a yellow high-visibility jacket peruses the aisles in the local supermarket. Stegra’s showroom-like office, with a white model of the plant on display, is only open one day a week, according to a sign on its door.

Still, the project has come to dominate small town life. Residents are worried the influx of workers stresses their municipal services and infrastructure. A housing crisis across Sweden means that construction is nowhere near what’s needed to accommodate a surge of new arrivals from around the world.

Boden town center. Photographer: Erika Gerdemark/Bloomberg

It was a problem that Northvolt had to overcome when it arrived in Skelleftea, down the road from Boden, where the company built its first battery plant. Over time, the factory’s presence helped to transform the area as new roads, homes, schools and other social services were added.

On a September afternoon, Johan Johansson stood in a Boden parking lot next to a pile of rubble — the last remnants of houses that were torn down in the 1990s. Johansson runs a local housing foundation that owns a third of the town’s rental homes. His organization is building two seven-story blocks that will contain 96 apartments on the plot, a rare housing project underway in Boden. But the one- and two-room flats are aimed at military personnel — one of the town’s main real-estate clientele for decades — not the families that will arrive with Stegra’s employees.

Johansson estimates that Boden will need more than 2,500 new homes by 2030. About 330 will be ready from 2024 to 2026, he says. After that, his spreadsheet is empty. Stegra “won’t have a problem getting the plant up and running,” says Johansson, a former lawmaker who helped guide energy and minerals policy. “The big challenge for them will be accommodation, and actually getting all the people needed here and getting them settled.”

The Bodenbo foundation is building two seven-story blocks that will contain 96 apartments on the plot, one of the few housing projects underway in Boden.Photographer: Erika Gerdemark/Bloomberg

Officials are counting on these new residents to pay taxes and help ease Boden’s ballooning debt. They had projected that the population would hit 30,000 this year after adding 1,800 people. But in the town’s latest strategic plan published in June, the estimate was revised down to just 12 newcomers in 2024. The municipality aims to have nearly 33,000 residents by 2030.

Anders Pettersson, group leader for a local party. Photographer: Erika Gerdemark/Bloomberg

Even if that comes to pass, Boden will still be deep in the red. Debt is now more than 1 billion kronor and is expected to soar above 4 billion kronor by 2031. That money is desperately needed to build new roads, schools and all the other infrastructure required to support the town and the plant.

Anders Pettersson, a group leader with a local opposition political party, says the national government needs to step in and help Boden out of its financial hole if it’s serious about the green transition. “This is all getting a bit lost on the national level,” Pettersson says. “My children and grandchildren will feel this for a long, long time.”

Magnus Henrekson, an economics professor at the Research Institute of Industrial Economics in Stockholm, has emerged as one of the foremost critics of Sweden’s green plans in the north. He argues that the projects pose a major risk to taxpayers, whose municipalities will be saddled with debt if they invest in infrastructure but the factories don’t work out. “If it fails, it will have very large macroeconomic effects on Sweden,’’ he says.

Stegra has only received €100 million from the Swedish government — about 2% of the company’s total funding — according to its CEO Henriksson, who characterized Henrekson’s criticisms as “speculation.”

Still, Henrekson has garnered support from some of the Swedish business elite, including billionaire Christer Gardell, co-founder of activist investor Cevian Capital AB. “The taxpayers are taking on significant exposure,” he said by email, referring to the generous state subsidies for the projects. “I am in general quite skeptical of the government’s participation in business.”

On the other side are many other prominent figures who stress the need for Sweden to secure a place in the new green economy and help avoid the worst impacts of climate change. That includes the Wallenberg dynasty. The family has been Sweden’s most influential finance player since the mid 19th century, collecting major stakes in many of its largest companies. It was one of Stegra’s early investors.

A cottage in the woods outside Boden. Photographer: Erika Gerdemark/Bloomberg

Marcus Wallenberg, chair of Wallenberg Investments AB, told Dagens Industri, a local news outlet, that developing sustainable steel is “absolutely necessary.” (The industry is responsible for about 7% of global carbon emissions.) Wallenberg has argued that business and government need to work together to finance big infrastructure projects to make the green transition work — an approach that countries from the US to China have taken as well.

Back outside the Stegra plant in Boden, Hjerpe is staying put in his cottage. While annoying, the construction ruckus is nothing compared with the gunfire he faced in the military. “I’ve just got to stay away from the diggers and the dumpers,” he says. “But I managed to retire without being shot at once, so this is pretty easy.”

©2024 Bloomberg L.P.

By Lars Paulsson , Rafaela Lindeberg

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