Gov’t plans policy financing support for secondary batteries

Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho [Courtesy of the Ministry of Economy and Finance]

The South Korean government will provide a total of 38 trillion won ($29.39 billion) in policy financing by 2028 to maintain the country’s leading position in the secondary battery industry, which is forecast to top the memory semiconductor market by 2030.

Under the plan announced during a government meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho on Wednesday, the government will provide policy financing support to all areas of the secondary battery industry, including minerals, materials, and finished products, via institutions such as Korea Development Bank (KDB), Export–Import Bank of Korea (Korea Eximbank), and Korea Trade Insurance Corp. (K-Sure) for five years from 2024.

“We will provide comprehensive policy financing support, such as loans, guarantees, and insurance, for companies in the secondary battery industry,” according to a senior official in charge of new growth policy at the Ministry of Economy and Finance. “We will also provide financial incentives, such as expanding loan limits as well as reducing interest rates and insurance premiums when companies invest in North American facilities, in order to respond to the U.S. Inflation Reduction Act (IRA).”

Accordingly, the Korea Eximbank will increase loan limits by up to 10 percentage points and reduce interest rates by up to 1.2 percentage points when domestic battery cell and material companies build factories in the United States, and K-Sure will also offer a maximum 20 percent discount on guaranteed insurance premiums.

The government will also create a large-scale public-private joint fund to invest in promising secondary battery companies, with a total of 1 trillion won to be allocated for the creation of an advanced strategic industry fund by the end of 2023. A ‘supply chain response fund,’ investing more than 50 percent in areas to reduce overseas dependency for key minerals and intermediate materials will be launched afterwards in 2024 with a budget of 500 billion won.

The government will also provide all-round support to secure core minerals, with a tax credit of 3 percent of investment and equity to be granted from 2024 onwards for overseas resource development investments to acquire mining and concession rights. The grants will incentivize the private sector to invest in overseas resource development.

The system was introduced by the Lee Myung-bak administration to promote overseas resource development but was abolished in 2013.

The government’s overseas resource development loans, which have shrunk to one-tenth of the level seen during Lee’s administration, will also increase. It currently lends up to 30 percent of the investment amount but will increase this to 50 percent from 2024. As a result, the budget for overseas resource development loans, which is 36.3 billion won in 2023, will increase by about 10 percent to 39.8 billion won in 2024, a significant increase compared to the government’s overall expenditure budget increase rate of 2.8 percent.

The government will also make efforts to increase the stockpile of essential minerals for secondary batteries to ensure a sufficient response time in the event of a supply chain crisis. Accordingly, a budget of 217.4 billion won will be allocated in 2024 to stockpile 24 days’ worth of lithium and plans are also underway to increase the public stockpile of essential minerals for secondary batteries, such as lithium and cobalt, to one hundred days’ worth by 2031.

The Ministry of Economy and Finance is considering designating essential technologies for refining and smelting lithium and nickel as strategic growth and source technologies under the Act on Restriction on Special Cases Concerning Taxation. If designated in January 2024, the tax credit for research and development (R&D) expenses for refining and smelting technologies will significantly increase.

The patent examination period for secondary batteries will also shrink from about 21 months to 10 months from 2024 by adopting a priority examination system similar to that in the semiconductor industry, the government said.

The government will also support industry-academia research on next-generation secondary battery technologies such as all-solid-state batteries and sodium-ion batteries and expand joint research with technologically advanced countries, as well as allocating a budget of 117.2 billion won to develop next-generation batteries until 2028.

The battery industry generally welcomes these measures. “Korean companies are currently planning to enter the North American market due to the U.S.’ IRA, and these measures will provide practical support,” a battery industry official said.

There are also calls for even more support. “It is not enough compared to the tax incentives the United States is giving to its own companies,” another industry insider said.