LOCATION LOCATION LOCATION Italy is well-placed geographically to become Europe’s central hub for the green hydrogen industry with excellent renewables resources in the country or nearby and easy links to northern Europe
COMPETITION CONCERNS European steel using green hydrogen needs to be able to compete with foreign imports, therefore electricity and carbon prices are key
KEY QUOTE If Italy does not resolve its permitting issues it will not reach its renewable energy targets in electricity, let alone build up a strong renewable hydrogen industry
Italy’s steel sector is the second-largest in Europe, behind only Germany, and the tenth-largest globally. It is worth €60 billion to the country’s economy and employs over 33,000 workers, making it an important political constituency. However, it is also a significant contributor to Italy’s greenhouse gas emissions, which need to be cut by at least 40% at a European level by 2030, according to the country’s carbon reduction targets.
The idea that hydrogen could play a role in decarbonising some of Italy’s energy-intensive industries, including steel production, is gaining traction. So-called “hydrogen valleys” are popping up across Italy where hydrogen production facilities are set up near industries and businesses that use it. Some are backed by major firms such as Italy’s Enel, a major energy producer.
And it is not just Italy’s lawmakers that have been excited by the hydrogen hype. The European Commission’s vice-president for the Green Deal, Frans Timmermans, even cited the case of a controversial steel plant in Taranto, southern Italy, as an example of where switching to green hydrogen-powered steel production could help address the environmental concerns of the plant and boost the local economy. Meanwhile, the country’s new prime minister, Mario Draghi, created a ministry for ecological transition, placing the shift to green at the centre of its pandemic recovery.
“Hydrogen represents one of the most promising options for decarbonising the various energy sectors,” says Petronilla Fragiacomo, professor at Italy’s University of Calabria and a member of a hydrogen research team. The Italian energy and gas infrastructure company Snam believes hydrogen could provide almost a quarter of all energy in Italy by 2050 and will be used wherever full electrification is not feasible because of the prohibitive costs of converting existing infrastructure.
However, enthusiasm alone for hydrogen technology will not be enough. In order for the gas to make an impact on Italy’s emissions and be future-proof, it must be green: produced using renewables-powered electrolysis.
Other industry players are more realistic. “Electrification is the most efficient way to use renewable electricity and to decarbonise the EU economy,” says Christoph Zipf from trade association WindEurope. “But in hard-to-abate sectors such as heavy transport, aviation, maritime and heavy industry (including steel), direct electrification might not be an option. This is when renewable hydrogen should come into play.”
Green hydrogen is seen by some in Italy as a good fit for the Mediterranean country’s energy transition aims. “Naturally, Italy will be looking at hydrogen to decarbonise. It’s not a hydrogen hype, but a decarbonisation hype and in Italy hydrogen makes a lot of sense,” says Felicia Mester, senior policy advisor at Hydrogen Europe, a trade association.
Italy’s geographical location could make the production of green hydrogen more economically feasible than in other regions of Europe. Cheaper green hydrogen may be produced where solar and wind generation is abundant, such as the windy Mediterranean region or sunny North Africa. Over the long term, hydrogen prices in Southern Europe and North Africa could range between $1.6 and $2.4 per kilo, compared to $3-$4 in Northern Europe, according to the International Energy Agency (IEA).
Therefore, not only can Italy itself become a competitive producer of green hydrogen, its proximity to other markets with a high potential for renewables generation provides a huge import and export potential. Repurposed gas pipelines could connect sunny southern Europe and North Africa to the rest of Europe making Italy “an international hydrogen hub,” says Mester. “If an integrated hydrogen pipeline infrastructure were to develop, Italy would be a key player in such a debate, thus increasing its geopolitical leverage.”
Despite its keen interest in hydrogen, Italy may still miss the key element of what it needs to domestically produce green hydrogen: renewables. In 2020, Italy had a renewable energy capacity of 59.8 gigawatts (GW), covering around 34% of Italy’s demand. It is forecast to reach 74.3 GW by 2025. “One thing is clear: Italy will need to increase the speed of its renewable energy build-out. They have pledged to do so, but new wind installations are stalling. In 2020, Italy only installed 137 megawatts [of wind capacity]—the lowest in recent years,” says Zipf.
A very simplified calculation suggests that the 5 GW electrolyser capacity Italy is targeting would require around 10 GW of installed offshore wind capacity—it currently has no offshore wind capacity—or even more onshore wind capacity on top of its current electricity generation targets. That additional generation capacity will also require significant transmission upgrades. But slow permitting processes for both new renewables and grid upgrades are a significant hurdle. “If Italy does not resolve its permitting issues it will not reach its renewable energy targets in electricity let alone build up a strong renewable hydrogen industry,” Zipf adds.
The European steel industry is caught between the need to be greener, mandated by EU rules, while remaining competitive particularly against cheaper imports. Research by Sweden’s Lund University found that using green hydrogen in direct-reduction steelmaking in Europe is already on par with conventional forms of production. The university predicts prices of €361–640 per tonne of green hydrogen steel, compared to the €418-526 per tonne seen in Europe in early 2020. Current steel prices are slightly inflated due to the effects caused by the covid-19 pandemic.
But the researchers found that the price of hydrogen-produced steel is heavily dependent on a low electricity price or, conversely, a higher price of carbon. “To make a business case out of green hydrogen, electricity prices are important but it’s not just about them,” says Hydrogen Europe’s Mester. Proposed EU legislation on the Emissions Trading System (ETS) and a carbon border adjustment mechanism—which would add a levy to products imported to the EU from markets with weaker climate regulations—may help address this issue.
“It is quite clear that the EU Commission identifies hydrogen as a key pillar in decarbonising steel. It is imperative to have a look at the upcoming changes in the EU ETS, CO2 pricing and carbon border adjustment mechanism. We are still waiting for the proposals from the Commission on these legislative files, but we know that they are cooking something interesting,” says Mester.
Lund University’s research suggests the hydrogen direct reduction process becomes cost-competitive with an integrated steel plant at a carbon price of €34–68 per tonne CO2 and electricity costs of €40/MWh.
By 2024, the EU hydrogen strategy supports the installation of at least 6 GW of renewable hydrogen electrolyser capacity in the EU, and the production of up to one million tonnes of renewable hydrogen. Italy alone is aiming for 5 GW by 2030.
“If you think about a sudden transition, it might seem like a utopian scenario. In reality, hydrogen and its related infrastructures need to be inserted in an existing context,” Fragiacomo says. She underlines the importance of Italy’s National Strategic Plan to smooth the process. “The creation of the supply chain is a delicate step, which requires resources, but it is fundamental to sustainably support this transition and prevent it from remaining a short-lived hype.”
SolarPower Europe, a solar industry group, has concerns about the target. According to estimates, 5 GW of electrolysers would still not be enough to cover the target of 2% of final energy demand, leaving a gap to be filled with blue hydrogen or imports. “Ensuring that national hydrogen strategies place the right focus on renewable-based solutions is a key priority,” says SolarPower Europe’s Aurélie Beauvais.
A policy charter launched by the Renewable Hydrogen Coalition—an industry-led initiative coordinated by SolarPower Europe, Wind Europe and Bill Gates’s Breakthrough Energy—recommended priority markets for where green hydrogen can make the biggest impact, including hard to electrify sectors and energy-intensive transport. The charter also proposed developing a regulatory framework including “a clear, consistent and transparent EU-wide definition of renewable hydrogen” and to “ensure a level playing field between energy carriers”.
“Overall, Italy has ambitious targets,” admits Hydrogen Europe’s Mester. She says that the country will need €10 billion in funding to reach the hydrogen goals: €5 billion from public investments, €2 billion from EU-funds and the remaining €3 billion filled from private investments, “which is feasible regarding current industry dynamics”, Mester claims.
However, WindEurope’s Zipf highlights that the EU’s €672.5 billion Recovery and Resilience Facility—part of the €750 billion Next Generation EU package—“does not prioritise hydrogen investments over other forms of green investments”. The facility is designed to help member states in their post-pandemic recovery.
Italy is set to receive €191.5 billion from the recovery fund, 37% of which should be spent on green investments. “This is by far not only investments in hydrogen,” he says. “But also in electricity grids, building renovations, renewable energy facilities, research and innovation.” Italy will need to look elsewhere to get the rest of the funding it needs to build a feasible hydrogen industry.
TEXT Emanuela Barbiroglio
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