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The Italian Hydrogen Strategy14 April 2021

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Overview of Italy’s strategic role

Italy represents a very attractive market for the development of green hydrogen given its extensive existing renewable energy assets and country-wide gas transport network, allowing the dissemination of “power to gas” (“P2G”) technology based on the storage of surplus electricity produced by solar, wind or hydraulic power plants in the form of methane or hydrogen. Moreover, given Italy’s central location in the Mediterranean it is ideally situated to become a hub for the hydrogen trade as it is between potential major exporters in Africa and the Middle East and consumers in northern Europe.

"The Ministry of Economic Development forecasts that up to €10bn of investments will be required between 2020 and 2030 in order to launch a low-carbon hydrogen economy in Italy."

It has been estimated that hydrogen could constitute almost a quarter of Italy’s overall energy demand by 2050. Despite this great potential, Italy still faces some major obstacles, including regulatory concerns that could hinder the full development of green hydrogen. This includes the absence of specific:

  1. legislation regulating the authorisation process for plants producing green hydrogen through electrolysis. Unlike traditional natural gas reforming plants, the production of green hydrogen does not create any CO2 Therefore, the introduction of simplified authorisation procedures for the installation of electrolysers would be desirable; and
  2. incentive mechanisms to support P2G plants, which are still far from being economically and financially sustainable. The development of P2G plants is crucial to avoid wasting energy produced from renewable sources in excess of real-time demand and to generate zero CO2 emissions energy.

The production of hydrogen from renewable sources and its subsequent use is an obvious way to reduce overall CO2 emissions, so overcoming the above obstacles will likely pave the way for Italy to become a leader in the sector. As Europe’s fourth most industrialised country, Italy needs to capitalise on the opportunities offered by hydrogen to transition to an integrated, flexible and energy-efficient national system.

With this objective, and confirming the central role energy transition has assumed in Italy, a specific ministry for decarbonisation and sustainability was established for the first time in February 2021 – the Ministry for Ecological Transition (“Ministero della Transizione Ecologica or “MITE”). Additionally, a draft “Hydrogen, Mobility, Energy-Efficiency Decree” (“Decreto efficienza energetica, mobilità, idrogeno”) is being prepared.

The Italian government’s estimated budget

The Ministry of Economic Development (“Ministero dello Sviluppo Economico” or “MISE”) forecasts that up to €10bn of investments will be required between 2020 and 2030 in order to launch a low-carbon hydrogen economy in Italy and meet national hydrogen penetration demand targets (on top of investment to promote renewables).

The above amount includes investments in:

  • hydrogen production – €5-7bn;
  • hydrogen distribution and consumption facilities (hydrogen-powered trains and trucks, refuelling stations, etc.) – €2-3bn;
  • Research and Development – €1bn; and
  • infrastructure (such as gas networks) to properly integrate hydrogen production with end uses.

"To meet the 2050 coal phase-out goals set by the European Green Deal, Italy adopted an ambitious plan (the “PNIEC”) which sets a target of reducing emissions by 55% as of 2040 (compared to 1990 base levels)."

These investments do not include the c.€2bn to be allocated to develop the hydrogen supply chain within the framework of the Next Generation EU initiative to alleviate the economic impact of the Covid-19 pandemic on the national economy.

At this stage, it is clear that R&D and the first testing of new technologies and applications will be carried out by major producers (such as Eni-Enel) and national energy and natural gas system operators (such as Terna, and major TSOs Snam and SGI).

Public initiatives

In order to meet the 2050 coal phase-out goals set by the European Green Deal in December 2019, Italy adopted an ambitious plan (the “Energy and Climate National Integrated Plan”, “Piano Nazionale Integrato Energia e Clima” or “PNIEC”) which sets a target of reducing emissions by 55% as of 2040 (compared to 1990 base levels) and further increasing energy production from renewable sources.

To achieve these energy transition objectives, the PNIEC explicitly provides for the promotion – through research, development and demonstration activities – of the production and use of hydrogen generated from renewable electricity.

Pumping and electrochemical accumulation are both short-term electricity storage options that are not suitable for making use of surplus production from renewable sources in the long term.  Accordingly, the PNIEC intends to promote the development of other technologies that enable energy storage and/or integration with other carriers in the long term, including P2G. The development of such technologies will allow the accumulation of energy overproduction from non- dispatchable renewable sources in clean energy carriers (biomethane, hydrogen), thereby increasing the overall efficiency of the energy system and initiating a synergy between the two systems towards a possible merger of the gas and electricity sectors into a single energy sector.

In November 2020, the MISE published the first “Guidelines for the National Hydrogen Strategy” (“Linee Guida per la Strategia nazionale sull’idrogeno” – the “Guidelines”), identifying the sectors in which green hydrogen is expected to become competitive in the short term. Moreover, the MISE has set up a hydrogen panel bringing together over 70 national stakeholders interested in the development and implementation of green hydrogen and in the production, storage and P2G sectors, as well as end users such as industry and transportation.

The MISE is also involved in the development of an “Important Project of Common European Interest” (“Importante Progetto di Interesse Comune Europeo” – “IPCEI”) looking at the hydrogen value strategic chain as part of industrial policy initiatives promoted by Italy in cooperation with other EU Member States and the European Commission.

"The minimum target for the development of traditional gas transport networks to carry hydrogen is set in the MISE Guidelines, which estimate that by 2030 an average of up to 2% of distributed natural gas could be replaced by hydrogen."

The current regulatory framework

Production

In order to boost development of the hydrogen market, the Italian Government anticipates the installation of approximately 5 GW of electrolysis capacity by 2030. However, the current regulatory framework for hydrogen production in Italy refers only to the production of hydrogen using fossil fuels, with obvious repercussions such as lengthy and burdensome administrative procedures.

Operators are therefore waiting for specific regulations covering the production of green hydrogen through electrolysis that could introduce both a support mechanism (to balance the high costs of the process, at least for the next ten years) and a simplification of the currently applicable authorisation procedures.  In particular, it would be desirable to introduce different authorisation regulations according to plant size and to distinguish hydrogen production processes with greenhouse gas emissions from those with low or no emissions.

The location of production plants is also a matter that should be carefully considered in order to assess the most suitable environmental verification procedure to be applied. Indeed, especially during the initial testing period, it is conceivable that many plants will be built in industrial areas, therefore being close to points of end use and making it possible to implement experimental production, transport, and consumption systems based on hydrogen (so called “Hydrogen Valleys”).

It is therefore necessary that green hydrogen as a preferred energy carrier, at least in the long term, is endorsed by the relevant authorities and administrations at all levels, in order to avoid uncertainties and obstacles to its development.

Transport and distribution networks: technical perspectives and regulatory models

The minimum target for the development of traditional gas transport networks to carry hydrogen is set in the MISE Guidelines, which estimate that by 2030 an average of up to 2% of distributed natural gas could be replaced by hydrogen.

The technical specification UNI/TS 11537:2019 (“Introduction of biomethane into natural gas transport and distribution networks” – “Immissione di biometano nelle reti di trasporto e di distribuzione del gas naturale”) sets a technical acceptability limit of 1% of hydrogen volume in biomethane that can be injected into the grid. Currently however, there is no organic legal framework for the large-scale injection of “pure” hydrogen into the natural gas transmission network in Italy.

Italy’s central location in the Mediterranean makes it ideally situated to become a hub for the hydrogen trade.

In April 2019, Snam was the first company in Europe to experiment with injecting a mix of 5% hydrogen by volume and natural gas into its transmission network. The trial, which took place successfully in Contursi Terme, Salerno, involved supplying hydrogen-gas mix (“H2NG”) to two industrial companies in the area, a pasta factory and a mineral water bottling company, for about a month. The Contursi experiment was replicated in December 2019, doubling the percentage of hydrogen by volume to 10%. Several studies and experiments by Snam and other operators in the sector show that the blending of hydrogen with natural gas up to at least 10% is a viable and safe solution.

The PNIEC allows for pilot projects to test the functionality, convenience and replicability of different technological solutions for the use of green hydrogen. Thus, in February 2020, the Italian Independent Regulatory Authority for Energy, Networks and Environment (“l’Autorità Indipendente Italiana di Regolazione per Energia Reti e Ambiente” or “ARERA”) launched a public consultation process in relation to pilot projects to optimise the management and innovative uses of existing natural gas transmission and distribution networks.

"Several studies and experiments by Snam and other operators in the sector show that the blending of hydrogen with natural gas up to at least 10% is a viable and safe solution."

ARERA focussed on the possibility of developing pilot projects related to (a) the integration of renewable gases into networks and (b) applications of P2G and Power-to-hydrogen technology (“P2H”). The latter is essential if hydrogen produced through electrolysis is also to be:

  • used as a storage carrier to reproduce electricity with reversible fuel cell systems (Power-to-power or “P2P”);
  • transported to another point of use via the natural gas grid (blending with natural gas); and
  • channelled into dedicated infrastructure and used as a fuel, e.g. for modes of transport.

According to ARERA, P2G plants will be economically viable by 2030, mainly due to the fact that this technology requires large quantities of low-cost electricity in order to be competitive (or, alternatively, incentive mechanisms).

From a regulatory point of view, a clear definition of P2G plants (usually regarded as production plants) is necessary. Especially at an early stage of incomplete market development, transport or distribution network operators will have a key role in planning and developing P2G initiatives fully integrated into the transmission network. This scenario will only exist when the market is mature and fully competitive and will require the adoption of tariff regulation and specific regulatory requirements (i.e. financial separation with respect to the other regulated activities).

The gas transport system will, therefore, play an essential role in the national energy system and should be achievable without needing to develop new large infrastructure in addition to those already planned or under construction, but through technological innovations to the existing gas transport system.

End uses: the point of view of Italian industry

Once produced, green hydrogen can be:

  1. used for transport, heating of buildings and industrial applications (i.e. refining, high temperature heat processes); and
  2. fed/injected into the gas distribution network for domestic use.

To date, hydrogen consumption in Italy is almost entirely limited to industrial uses in refinery and chemical processes (e.g. ammonia) and is predominantly grey hydrogen (see our Beginner’s Guide to Hydrogen for more information). Currently hydrogen consumption in Italy is approximately 16 TWh, equal to 1% of overall national energy consumption (1,436 TWh) and corresponding to about 480,000 t/year, of which about 8,500 t/year are marketed in cylinders and special pipes.

"Regarding the maritime sector in particular, new technologies for the use of hydrogen as fuel in gas turbines are entering the market, making it possible to study combined cycle propulsion systems with high efficiency and low emissions."

The General Confederation of Italian Industry (“Confindustria”) analysis
According to the “Hydrogen Action Plan” (“Piano d’azione per l’idrogeno”), published in September 2020:

- In the transport sector, hydrogen may be used initially for public transport, especially for long-distance routes, commercial freight fleets and non-electrified parts of the rail network. Hydrogen refuelling stations will initially be operated by regional or local transport companies based on a clear analysis of fleet demand and the different requirements for light and heavy vehicles;
- Hydrogen fuel cell trains could be developed for non-electrified commercial rail routes. Approximately 4,763km of Italy’s main network is still served by diesel technology and some hydrogen train applications are already cost-competitive; and
- In the long term, hydrogen may also become an option for decarbonising the aviation and maritime sectors, through the production of liquid synthetic kerosene or other synthetic fuels.

Regarding the maritime sector in particular, new technologies for the use of hydrogen as fuel in gas turbines are entering the market, making it possible to study combined cycle propulsion systems with high efficiency and low emissions. However, the possibility of real success in marine transport will depend on the availability of an extensive refuelling network, as vessels operating in the maritime sector, except for local ferries and smaller local transport units, require long travel ranges to cover very long distances with limited refuelling possibilities. Hydrogen, although liquefied, requires much higher volumes than fossil fuels. In any case, hydrogen potentially represents a good compromise, with range being equal, to fossil fuels, guaranteeing a total reduction in emissions at the expense of reducing part of the available storage capacity. In the future, mass introduction of hydrogen re-fuelling stations at major national and international ports may facilitate the reduction of on-board fuel storage volumes. Given the complexity of the sector, the diversification of the types of ships and of the operations they deal with, to date there is no established and unequivocal strategy for this. Certainly, in this context, hydrogen and hydrogen-rich fuels will play a crucial role.
The analysis of the Italian Hydrogen and Fuel Cells Association
According to the study entitled “Support instruments for the hydrogen sector. Priorities for the development of the hydrogen supply chain in Italy” (“Strumenti di supporto al settore idrogeno. Priorità per lo sviluppo della filiera idrogeno in Italia”), published on 19 January 2021:

- A body of national laws could be passed first for transporting hydrogen in pipelines, for which a European regulatory framework has not yet been defined, to set out rules to allow experimental transport solutions and pre-regulatory tests. This would allow Italian companies to test their technologies in advance and thus be more competitive internationally (i.e. by implementing hydrogen selective separation systems such as membranes);
- A large part of the existing natural gas transmission and distribution network in Italy is compatible with the transport of NG/H2 mixtures with hydrogen concentrations even higher than 10%.
- The use of existing natural gas networks provides advantages in terms of cost, speed of implementation, energy-efficiency and the possibility of storing significant amounts of energy in line packs. Also, the construction of medium-length pipelines dedicated to hydrogen should be taken into consideration, both in regard to industrial facilities (consortium areas) and to exploit hydrogen production from renewables that are not far from consumption centres; and
- Hydrogen liquefaction is a technology with medium- to long-term development prospects. For long-distance transport, in particular transoceanic transport and international trade (large quantities), this currently appears to be the only possible alternative to the use of pipelines. Transport of liquefied hydrogen in trailers or ships is also becoming more widespread.

"It is essential, however, that Italy's “natural advantage” is combined with the introduction of legislation to simplify the authorisation process for plants producing green hydrogen through electrolysis, so as to provide a clear regulatory framework for investors."

New horizons

In Italy, ecological and, as such, energy transition goals can be achieved by exploiting the potential of hydrogen and the country’s particularly favourable geographical and climatic conditions.

It is essential, however, that this “natural advantage” is combined with the introduction of legislation to simplify the authorisation process for plants producing green hydrogen through electrolysis, so as to provide a clear regulatory framework for investors.

An appropriate classification of the hydrogen produced, according to the different technologies available, should be defined in advance, to represent its environmental qualities and to establish its suitability for target recognition, as well as an equally coherent tracking system to certify its origin.

It will also be necessary to introduce a regulatory framework for transporting hydrogen in existing pipelines and, if necessary, creating new dedicated transport infrastructure, by defining systems for the controlled injection of hydrogen into the network and the related pressure.

In addition, Italy will need to introduce incentive mechanisms to support P2G plants, as already established for other renewable energy production plants, which will absorb the high costs of creating electrolysers.

To seize the opportunity and boost the economy in the post-Covid era, Italy should therefore focus on accelerating business

This is the seventh article in our ‘Hydrogen – What is the hype about?’ series, which provides an overview of the hydrogen sector and the strategy for its development in multiple jurisdictions. To read other articles in the series please click here.

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