By Simon Johnson

LULEA, Sweden (Reuters) – Sweden’s local authorities, rattled by battery-maker Northvolt’s fight for survival and the potential fallout for taxpayers, are seeking increased financial support from the central government for the country’s transition to green industry.

Europe’s electric vehicle battery champion filed for U.S. Chapter 11 bankruptcy protection last month with debts of $5.8 billion as the EU’s energy transition falters, sending shockwaves through Skelleftea in northern Sweden, home to its Northvolt Ett factory.

Sweden has led Europe’s efforts to shift from fossil-fuel based industries to non-polluting energy, driven by cheap, carbon-free electricity and abundant raw materials mainly in the far north of the country.

Local governments, already among Europe’s most indebted due to high social and healthcare costs, however say they are bearing much of the financial burden for new infrastructure needed to attract and support these investments.

The country’s Agency for Economic and Regional Growth projects that around 1.1 trillion crowns ($104 billion) of investment is in the pipeline in northern Sweden. The region is rich in high grade iron ore, gold as well as zinc, copper, nickel and rare-earth metals key to battery, smartphone and catalytic converter technology.

Sweden’s association of local authorities, SKR, says local governments will need to invest about 100 billion crowns in infrastructure like roads, railways and ports in the next decade for the planned projects, further straining their finances.

“The risks that local authorities are taking on are huge,” said SKR chief economist Annika Wallenskog, adding if projects stall or fail, taxpayers could end up with the bill.

On Dec. 4, SKR presented a five-point programme to Finance Minister Elisabeth Svantesson demanding more financial help for communities straining to accommodate new industries.

“We didn’t get any response,” Wallenskog said.

Svantesson, however, pointed to increased infrastructure spending, financial support for new homes in northern Sweden and government subsidies for new, climate-friendly technologies.

“I understand it is difficult, especially for Skelleftea where they have very big challenges,” she told Reuters after presenting new economic forecasts including a downgrade to growth next year. “But the government is doing a lot to create the right conditions in Sweden and around the regions. So I’d say the risks and the costs are shared already.”

Officials in Lulea, where steel firm SSAB is building a 52-billion crown ‘green’ steel mill and Australia’s Talga plans to invest 3 billion crowns in a battery anode plant, are not convinced.

Lulea will need to invest over 30 billion crowns in public infrastructure in the next decade to support the industries.

“Our challenge is that many of these costs are coming now and … the returns for us won’t come for another 20 years,” councillor Carina Sammeli, said.

Lulea debt has doubled in the last couple of years to around 4 billion crowns and will increase further to finance a 10-15 billion crown expansion of Lulea port, Sammeli said, adding that the town of 80,000 people cannot handle the financial risk.

GREEN GOLD OR GREEN BUBBLE?

The challenges facing Northvolt, including growth in EV demand that is moving at a slower pace than hoped, are not isolated.

Swedish miner LKAB has postponed plans to produce CO2-free sponge iron at its Kiruna mine by at least a decade and warned that its future growth could be affected by problems with the rail link between mines and ports in Sweden’s Lulea and Narvik in Norway.

Denmark’s Orsted has dropped plans to produce bio-fuel in Ornskoldsvik on Sweden’s east coast, citing slow demand.

The developments highlight some of the hurdles to the country’s ambition to remain a leader in the green industry transition.

While Sweden’s electricity is 98% fossil-free and around half the price of the rest of Europe, according to Eurostat, heavy industry association SKGS estimates businesses will need 99 terawatt hours from renewable sources by 2030 – more than twice current needs – to enable a switch from fossil fuels.

New nuclear power stations are too slow to build and costly, while wind power – the quickest and cheapest option – faces opposition from local voters.

Some, like Henrik Henriksson, CEO of steel maker Stegra, which is building Sweden’s largest steel factory powered by green hydrogen in Boden near Lulea, remain optimistic, seeing no easing in demand from customers.

“We sold 50% of our production already on a seven-year contract,” Henriksson told Reuters in one of hundreds of portacabins overlooking the vast construction site.

Production is expected to start in 2026 and reach annual output of 5 million metric tons by 2030.

The nearby municipality of Boden – which SKR estimates needs to invest about 5 billion crowns in infrastructure over the coming years – is striving to keep up with Stegra’s timetable. It expects a budget deficit of around 500 million crowns over the next three years.

“We are taking a risk, absolutely we are,” mayor Claes Nordmark said. “But if we don’t take it, people will just go somewhere else.”

($1 = 10.9015 Swedish crowns)

(Reporting by Simon Johnson, additional reporting by Marie Mannes; Editing by Niklas Pollard and Emelia Sithole-Matarise)