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Brussels — The European Investment Bank has agreed in principle to lend Eur350 million ($392 million) to support Northvolt's lithium-ion battery cell gigafactory in Skelleftea, Sweden - the first such facility planned in Europe.

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The EU is keen to develop a domestic manufacturing base for lithium-ion and other batteries, as its battery market could be worth up to Eur250 billion in 2025, with global demand for electric vehicles forecast to reach up to 900 million by 2040.

The EIB loan is to help finance setting up the first 16 GWh a year of battery capacity production at the Northvolt Ett gigafactory, the EIB said Thursday.

The first quarter of the gigafactory is planned to be completed in 2020.

Once fully built, the gigafactory will be able to produce 32 GWh/year of battery capacity.

The batteries are targeted for use in automotive, grid storage, and industrial and portable applications.

Northvolt Ett will use 100% renewable energy to make the batteries, in line with the EU's desire to develop a "green" battery standard as a way to compete with Asian manufacturers.

Asia currently dominates lithium-ion battery cell production, with 85% of the global market compared with the EU's 3%.

Developing "a competitive and green battery value chain within Europe" will help cut greenhouse gas emissions by decarbonizing power generation and transport, and also protect European jobs as global competition increases, EIB Vice-President Andrew McDowell said.

The loan is the largest ever direct EIB financing approval for battery technology, and has still to be finalized over the next few months into a formal loan agreement.

Up to 30 battery cell gigafactories will have to be built in Europe over the next 10 years to meet growing demand from electric vehicles, the European Commission said in an update to its 2018 strategic action plan on batteries last month.

The EC set up the European Battery Alliance with industry in October 2017 to promote investment and growth in this sector.

The companies and organizations involved have since then announced up to Eur100 billion of total private investment in battery ventures -- including producing primary and secondary materials in the EU -- and building gigafactories.

--Siobhan Hall, siobhan.hall@spglobal.com

--Edited by Jonathan Dart, newsdesk@spglobal.com