OUTPUT-BASED PRODUCTION SUPPORT – THE MISSING PIECE IN THE PROPOSED CISAF
25 April 2025
Current State Aid rules of the European Union for cleantech manufacturing are characterized by being project-specific, relying on complex negotiations based on funding gaps, often lacking transparency, favoring incumbents over newcomers, and failing to directly address the higher production costs in Europe compared to global competitors.
Current State Aid rules of the European Union for cleantech manufacturing are characterized by being project-specific, relying on complex negotiations based on funding gaps, often lacking transparency, favoring incumbents over newcomers, and failing to directly address the higher production costs in Europe compared to global competitors.
An update of the State Aid rules is necessary to keep Europe competitive in cleantech manufacturing like battery cell production. To ensure a swift and secure increase in battery manufacturing capacity, battery components production and their associated critical raw materials, BEPA calls for the CISAF (Clean Industrial Deal State Aid Framework) to allow for output-based production support.
Output-based production support is the missing piece in the proposed CISAF and this must be fixed to allow support of the ramping-up and the scaling-up at battery producers as well as producers of battery components (cathode active materials and precursors, anode active materials, separators, electrolytes …) and the associated battery-grade critical raw materials.
A lack of output-based production support will stifle innovation in Europe directly, as projects will have fewer mechanisms to upscale innovative solutions, and also indirectly, as fewer innovators will be attracted to innovate in Europe, if upscaling their innovations is not supported.
Furthermore, the currently proposed rule to only facilitate State Aid if related works are not already started will lead to investment delays, investment rationalization, investment leakage… further hindering Europe’s ability to remain relevant on the global battery map. Lowering the maximum amount of state aid below TCTF level is also not the right way to go if we are serious about keeping Europe on the global battery map.
In addition to closing the innovation gap, output-based production support approach offers the following key benefits, fixing the shortcomings in the existing State Aid framework(s):
1.Output-based production support directly tackles higher production costs:
Output-based support, such as a per-unit credit (X €/kWh for battery cells for instance), directly reduces the marginal cost of battery cell / components / critical raw materials production. Current state aid, often provided as a lump sum based on funding gaps, does not guarantee a reduction in marginal cost. The credit could be modulated to decrease in value as cumulated production increases. The credit could also be modulated upon intensity of local content, possibility of tech transfer, ESG criteria … where / when relevant.
2. Output-based production support limits risks to taxpayers:
State aid is only disbursed for successful production output. This moves the risk of project failure to the company and its investors, rather than relying on projections and funding gap calculations. The current system, based on anticipated costs and revenues, can lead to subsidies being granted even if the project underperforms.
3.Output-based production support reduces ambiguity and facilitates negotiation:
Clear pre-defined criteria for output-based production support minimize the potential for favoring some industry players over others. It may also greatly reduce potential corruption associated with lengthy and complex negotiations over funding gaps and business cases. The current case-by-case approach, sometimes dependent on political negotiation, can also lead to unpredictable outcomes
4.Output-based production support means increased bankability for industry:
A predictable revenue stream associated with actual production makes projects more attractive to investors since it allows companies to integrate the expected production support into their business plans. The current system, based on proving funding gaps with the risk of claw backs, hurts bankability
5. Output-based production support allows for enhanced transparency:
Payments are directly linked to a well-defined measurable output. This makes it easy for companies and administrations to track the effectiveness and recipients of the aid. The current lack of transparency in approval and disbursement processes comes at the expense of public scrutiny
6.Output-based production support creates a level playing field for newcomers:
Removing the need to prove complex business cases and incentive effects, encourages participation from new and smaller companies such as startups and scaleups. Smaller companies often lack the resources to navigate the complex application processes.
7.Output-based production support rewards efficiency:
Companies will be encouraged to improve their production processes and become more efficient by innovating since they will directly benefit from increased output and reduced costs. Traditional cost-based subsidies can unintentionally reward less cost-efficient projects by covering larger funding gaps
8. Output-based production support avoids artificial processes
The need to prove incentive effects to calculate funding gaps in this rapidly evolving market may be eliminated. This ends up streamlining the process and cutting down on administrative paperwork for players with a sound business case.
In essence, BEPA calls for a shift from supporting projects based on predicted financial viability to supporting the actual production of desired battery technologies, their enabling battery components and associated critical raw materials. Doing so, via CISAF, should lead to a more transparent, predictable, and effective system. This is the approach we do need now in Europe to directly enhance the global competitiveness of cleantech manufacturing by tackling the fundamental issue of high production costs associated with ramping up and scaling up.
AUTHOR: BEPA – The Batteries European Partnership Association is the voice of European innovation across the battery value chain. BEPA promotes the creation of the best funding & financing support for innovation & industrialization along the battery value chain. BEPA represents the private-side of the European public-private partnership for battery innovation (BATT4EU) in EU’s Horizon Europe.