Italy needs a clear long-term strategy and subsidy schemes for renewable hydrogen if it is to attract investments needed to create a competitive industry, analysts at sovereign wealth fund and development bank CDP said.
The country also needs to simplify permitting processes, especially for electrolysis plants, and speed up the reforms contained in its EU recovery plan which earmarks €3.6bn ($3.87bn) for renewable hydrogen, the CDP analysts said.
Many of Italy's energy-intensive industries, which account for 85pc of industrial natural gas consumption, are looking towards hydrogen to decarbonise.
The Italian government introduced preliminary guidelines for a national hydrogen strategy in 2020. But progress since has been slow and, unlike in many other European countries, targets have been revised down rather than up. In its recent draft national energy and climate plan, Rome said it was targeting 250,000 t/yr of renewable hydrogen production and 3GW electrolyser capacity by 2030. This was down from the 5GW electrolyser capacity targeted for the end of this decade in 2020.
For Italy to replace all natural gas-based hydrogen and replace one-fifth of direct natural gas consumption in industry — typically seen as the maximum share that can be blended with gas into existing pipelines and end-use infrastructure — it would need 200,000 t/yr of renewable hydrogen, according to the report.
For this, "new renewable power capacity of 25-30GW would be needed — 50pc more than Italy's current installed capacity," CDP said. In 2022, Italy's overall installed power capacity was 123.3GW, of which 61.1GW was renewable.
The renewable hydrogen sector still faces sizeable headwinds in Italy and elsewhere, including high production costs.
But Italy enjoys key advantages over some European peers, CDP said. Its geographical location could enable transit of renewable hydrogen from north Africa into Europe's industrial heartland through a gas pipeline system, much of which could be repurposed. A leading position in manufacturing energy technology that could be made hydrogen-ready also gives it an edge, CDP said. The bank has a controlling stake in the companies that run Italy's gas and power transmission grids.
But CDP noted that subsidy schemes are of the essence. "Incentive mechanisms for buying green hydrogen are indispensable to close the competitive cost gap with fossil fuels and provide the right time horizons for investments," it said.
Rome recently launched a consultation on a mechanism that would use contracts-for-difference to subsidise renewable hydrogen production and hopes to have it ready after June.
