Euros in their eyes

Daniel Atzori, Research Partner, Cornwall Insight,

UK, details the role of hydrogen in Italy’s green recovery, as the country’s economy recovers from economic stagnation.

On 30 April 2021, Prime Minister Mario Draghi submitted Italy’s Recovery Plan to the EU Commission. As the country embarks on its green revolution, this article will explore whether Italy will succeed in becoming a leading hydrogen player.

The appointment of Mario Draghi, former Head of the European Central Bank, as Prime Minister on 13 February 2021 has provided the country with a unique opportunity to embark on a virtuous path of a sustainable recovery after having been heavily hit by the COVID-19 pandemic following decades of economic stagnation. According to projections by the Organisation for Economic Co-operation and Development (OECD), Italy, whose GDP suffered a -8.9% loss in 2020, is expected to rebound 4.5% in 2021 and 4.4% in 2022.

The recovery plan

The recovery plan for Europe is centred on the EU’s €750 billion Next Generation EU, which is the largest ever stimulus package financed through the EU budget. The largest chunk of the Next Generation EU fund will be composed of the Recovery & Resilience Facility (RRF), which in turn includes €312.5 billion of grants and €360 billion of loans. At least 37% of the resources need to contribute to climate action and environmental sustainability and 20% to the digital transition. EU countries

needed to submit their draft national recovery and resilience from 15 October 2020, with final drafts sent by 30 April 2021.

Italy is the largest recipient of the initiative, having been assigned €191.5 billion from the Next Generation EU Fund, plus €30.6 billion of the complementary fund, for a total of €222.1 billion. The so-called Piano Nazionale di Ripresa e Resilienza (PNRR), which the Italian government presented to the country’s Parliament in April, includes several far-reaching reforms in sectors such as public administration, justice, regulatory simplification, and competition. In accordance with the EU’s environmental priorities, the green revolution and ecological transition represent the largest share of the resources allocated by Italy, as shown in Figure 1.

The total resources allocated to the green revolution and ecological transition amount to €69.96 billion when including Italy’s PNRR, React EU, as well as the complementary fund. These resources will be shared among the protection of land of water resources; energy efficiency and requalification of buildings; energy transition and sustainable mobility; sustainable agriculture and circular economy; as detailed in Figure 2.

Italy as a hydrogen hub?

The Draghi government has created a new Ministry for Ecological Transition, as France and Spain have already done. The newly formed institution is led by physicist Roberto Cingolani, former Chief Technology Innovation Officer at aerospace and defence multinational Leonardo.

The minister has clearly pointed out that Italy aims to invest in low-carbon hydrogen. In 2020, the previous government led by Giuseppe Conte published preliminary guidelines for a hydrogen national strategy. A consultation, launched on 24 November, closed on 21 December 2020. It is now hoped that the hydrogen national strategy, which is expected to be published shortly, will provide Italy’s energy sector with a clear direction of travel.

Following Europe’s hydrogen strategy launch in July 2020, Italy has ramped up its efforts to develop a hydrogen economy. According to the PNRR, Italy will develop flagship projects in hardto-abate industrial sectors. In particular, the decarbonisation through hydrogen of Italy’s steel industry, which in Europe is second only to Germany, is seen by the government as a priority. The PNRR also aims to create hydrogen valleys, particularly in brownfield sites. The creation of hydrogen valleys will prioritise former industrial areas already connected to the electric grid, developing 1 MW - 5 MW electrolysers powered by renewable energy sources. In the first phase, hydrogen will be then transported to local industries either by truck or through existing gas pipes blended with methane. The government’s plan also recognises the importance of enabling the adoption of hydrogen in heavy-duty transport by developing approximately 40 refuelling stations, starting from the routes most frequently travelled by trucks, such as the Brenner Pass and the Turin-Trieste Corridor.

Hydrogen mobility applications also have significant potential across the railway system. In Italy, approximately one-tenth of the railways are still operated by diesel trains. The government envisages the conversion to hydrogen of railway lines that are challenging to electrify and have high traffic, particularly in regions such as Lombardy, Apulia, Sicily, Abruzzo, Calabria, and Basilicata. According to the PNRR, the most advanced feasibility projects are situated in Valcamonica (Lombardy) and Salento (Apulia). For what concerns hydrogen railway infrastructure, the government intends to develop synergies with refuelling stations for heavy-duty vehicles in order to boost hydrogen’s use and demand as well as lower production costs. The project also envisages hydrogen production near existing refuelling stations, hence developing approximately nine refuelling stations along six railway lines.

Figure 1. The recovery and resilience plan: Next Generation Italia (€191.5 billion). Source: Italian Government.

Figure 2. Italy’s green revolution and ecological transition. Source: Italian Government.

The private sector

Italy’s private sector is certainly showing keen interest in the hydrogen transition. In particular, Italian energy infrastructure company Snam is part of the Clean Hydrogen Alliance established at the European level to back the EU Commission’s Green Deal aims. The 2019 report ‘The hydrogen challenge: the potential of hydrogen in Italy’, edited by Snam with McKinsey’s analytical support, stated that hydrogen could provide almost one-quarter of Italy’s energy by 2050, with the highest potential in transport, buildings, and industrial applications. Long-haul trucking, in particular, was seen as one of the earlier sectors where hydrogen could be cost-competitive with fossil fuels. Moreover, blending hydrogen in the grid up to a 10% - 20% mix for building heating was acknowledged as another promising area. As Italy already boasts gas pipelines that connect North Africa with Europe, the existing network could be employed to import hydrogen from the southern shore of the Mediterranean, where levels of solar irradiation are significant. Also, Italy’s

domestic gas network is well-placed to link the country’s south, where renewables resources abound, with the north’s industrial heartlands.

In 2020, Snam – this time in partnership with The European House Ambrosetti – published another report entitled ‘H2 Italy 2050. A national hydrogen value chain for the growth and decarbonization of Italy’, which restated Italy’s potential of becoming the European hydrogen hub, an ‘infrastructure bridge’ between Europe and Africa. The study estimated a hydrogen penetration level of 23% by 2050 in Italy, with the transport sector expected to absorb 39% of energy demand by 2050, with the residential sector following suit with 32%. In terms of hydrogen supply chain technologies, production value was estimated between €4.5 billion and €7.5 billion by 2030, and between €21 billion and €35 billion by 2050.

In October 2020, Snam announced an agreement with ITM Power, a leading global producer of hydrogen listed on the London Stock Exchange on the Alternative Investment Market. The agreement included a €33 million investment by Snam in ITM Power.

In May, Snam announced the launch of the Hydrogen Innovation Centre, Italy’s first centre of excellence of hydrogen technologies, to be situated in the city of Modena. Other hydrogen hubs are set to follow.

But Snam is not the only Italian company looking at hydrogen. Energy giant Eni, the largest producer and consumer of hydrogen in Italy, is also a European Clean Hydrogen Alliance member. Eni is actively looking at producing blue hydrogen by steam reforming with carbon capture and storage as well as waste-to-hydrogen. Eni is also working together with Enel on developing green hydrogen projects through electrolysers powered by renewable energy.

What is more, in April 2021, energy company Axpo Italia and multinational group Rina signed a Memorandum of Understanding (MoU) on developing hydrogen’s industrial supply chain through new projects. Furthermore, another hydrogen-related MoU was signed in June by Axpo Italia and ABB Italia.

An opportunity not to be missed

Today Italy enjoys a once in a lifetime opportunity to revive its ailing economy and reform its public administration, putting the country on a path of green recovery consistent with EU ambitions. However, overcoming problems that for decades have marred its investment attractiveness, as well as slowing down its decarbonisation, will not be easy.

In recent years, a number of key Italian energy players have been ramping up their efforts to transform the country into a key hydrogen player. However, while the private sector seems eager to embrace the opportunities provided by the energy transition and, in particular, by hydrogen, it is hoped that policy commitments will be consistent and strong enough to make the green economic recovery a success. So far, the policy signals coming from Prime Minister Draghi have been encouraging but it is yet to be seen whether ambitious reform efforts will be successful.

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