Overview
Italy is an attractive market for both natural gas and renewable-energy technologies. Italy consumed 4.5% less energy in 2022 (149,175 kilotons of oil equivalent/ktoe) than in 2021 and still relied primarily on fossil fuels in its energy mix. According to the annual report on the National Energy Outlook from the Ministry of Environment and Energy Security (MASE), energy consumed in 2022 came from natural gas (37.6%), oil and petroleum products (35.7%), renewables (18.5%), coal (5%), imported electricity (2.5%), and non-renewable waste (0.8%). A decline in consumption was most evident in the industrial sector (down 7.8%), while the transportation sector consumed more. Electricity demand fell by nearly 1% and was still below pre-pandemic levels. The Italian Regulatory Authority for Energy, Networks, and Environment (ARERA) attributed the decline in demand to high gas and electricity prices, mild climate conditions, and government measures to reduce consumption.
Due to the war in Ukraine, Italy is seeking to improve domestic energy security and expects to become independent of Russian gas by the second half of 2024. In 2022, Italy maintained high levels of gas storage, diversified its gas supplies (e.g., pipeline imports from Algeria, Libya, and Azerbaijan and liquified natural gas (LNG) imports from the United States and others), acquired new floating storage and regasification units (FSRUs) for LNG, and accelerated the development of renewable energy and energy savings measures. Italy continues to invest in energy infrastructure and development, both in traditional fossil fuels and renewables domestically and abroad, positioning itself as a Mediterranean energy hub for Europe. The government continues to reform authorization and approval processes to accelerate energy projects – a necessary step for Italy to achieve regional energy goals. The Italian and U.S. governments’ energy policies are aligned, recognizing the importance of natural gas for energy security and, at the same time, fostering a transition to cleaner energy sources. Opportunities exist for U.S. firms in Italy in the two complementary areas of natural gas and clean energy technologies.
Leading Sub-Sectors
Liquefied Natural Gas
Natural gas demand in 2022 totaled 68.7 billion cubic meters (bcm), down 10.1% from 76.4 bcm in 2021. According to MASE, the impact of high energy costs on all sectors, mild weather in the second half of 2022, and Italy’s gas consumption plan led to this fall in demand. Imports made up 96% of Italy’s gas supplies, with pipeline imports (58.1 bcm, 4.8 bcm less than in 2021) taking 80.3 percent of that volume. The remainder were LNG imports, which grew 47% to 14.27 bcm, coming mainly from Qatar, Algeria, and the United States. Gas imports from Russia (14.2 bcm) and Libya (3.1 bcm) fell by 52% and 19%, respectively, while imports from Algeria (26 bcm), Azerbaijan (10.3 bcm), and northern Europe (7.6 bcm) increased 11%, 43%, and 250%, respectively. Algeria became Italy’s largest gas supplier, accounting for 36% of imports. In the first six months of 2023, gas imports from Russia continued to decline, falling below 5% of the total. In 2022, Italy exported 4.6 bcm of gas (1.5 bcm in 2021). Gas storage levels in December 2022 were 2.6 bcm higher than in 2021 and in late August 2023, they were more than 92% full and were expected to cover about 30% of the winter demand.
Renewable Energy
According to Italian power grid operator Terna, electricity demand in in 2022 was 317 tera-watt hours (TWh); similar to 2021, 86.4% of the need was met by national production and the rest by imported electricity. Non-renewable thermoelectric electricity production increased 7.9% and made up 64.8% of total production (48.8% from natural gas, 9.1% from solid fuels, and 6.9% from petroleum products and other fuels). Electricity generated from renewables fell from 35.3% to 30.6% and accounted for nearly 19% of total energy consumption. Due in part to lower precipitation, for the first time, the share for solar-generated electricity equaled that of hydroelectric power (about 28%). The remaining share came from wind (20.7%), biomass (17.4%), and geothermal (5.5%). Imports of electricity increased by 1.8% and exports by 16.4%.
Data for consumption and production of renewables for the first half of 2023 show an improvement over the same period in 2022. Installations of new renewable energy capacity increased 120%, adding nearly 2.5 gigawatt (GW) of capacity. Comparing the same timeframes, 17.6% more hydropower was generated, there were smaller changes for photovoltaics (4.3% increase) and wind power (2.6% decrease), and biomass and geothermal remained stable. Renewables overall accounted for 35.4% of electricity demand, while the share for electricity from fossil fuels fell 16.6%. Under the European Climate Law, EU member states must cut greenhouse gas emissions by at least 55% by 2030; the goal is to achieve climate neutrality by 2050. To reach the 2030 target, countries had to establish a 10-year integrated national energy and climate plan (NECP). Italy was one of only a handful of countries to send an update of its plan, known as PNIEC, to Brussels by the June 30, 2023, deadline. The proposal aims to increase the share of renewables in gross energy consumption to 40% by 2030, and for renewables to account for 65% of electricity consumption, 37% of heating and cooling, 31% of transportation, and 42% of hydrogen production for industrial uses by 2030.
Under the National Recovery and Resilience Plan (NRRP), EU post-COVID recovery funds, Italy allocated €59 billion to promote the “green revolution and ecological transition” in the 2021-2026 period. Specifically, €23.78 billion is intended to incentivize renewable energy, hydrogen, and sustainable mobility and networks. To overcome some of the difficulty Italy had in spending NRRP funds, it requested and received EU approval to move funds to projects than can be completed by 2026, which include those to strengthen power and gas grids and to make the economy greener.
Opportunities
Liquefied Natural Gas
In 2022, Italy imported 47% more LNG than in 2021 for a total of 14.27 bcm. A new FSRU, the Golar Tundra received its first LNG cargo in July 2023 and a second purchased FSRU, the BW Singapore, should be operational in the second quarter of 2024 once regulatory approvals and gas-grid connections are complete. A July 2023 law allows for proposals for additional FSRUs.
LNG from the United States can help diversify the Italian natural gas import mix and bring down prices. U.S. exports of LNG to Italy tripled from 2021 to 2022, from 0.9 bcm to 2.89 bcm, and accounted for more than 20% of Italy’s total LNG imports. In the first five months of 2023, an additional 2.2 bcm of LNG came from the United States, 20% more than during the same period in 2022 and 31% of Italy’s total imports that period. Due to high worldwide demand for U.S. LNG, Italian firms are encouraged to secure supplies from the United States through long-term contracts to avoid future supply disruptions. There is also demand for technologies that can reduce methane and CO2 emissions in LNG plants and for technologies that can contribute to the overall functioning of LNG regasification plants.
Energy Storage
Local industry contacts and U.S. companies in the sector have indicated to CS Italy a need for long-duration energy-storage solutions. As of April 2023, Italy had more than 300,000 storage systems, with a total power of about 2,350 MW and a maximum capacity of about 4,000 MWh. In addition, Terna has systems totaling 60 MW of power and 250 MWh of capacity. Almost all of the systems are smaller than 20 kWh in size with a clear predominance of systems with capacities between 5 kWh and 10 kWh (33%) and those with capacities between 10 kWh and 15 kWh (36%).
Hydrogen-related technologies
U.S. technologies that relate to the development of hydrogen are welcome in the Italian market, both for the supply of clean hydrogen and ammonia and for the infrastructure necessary to transport them, which should be complementary to that needed for LNG. In November 2020, Italy launched a national hydrogen strategy to help decarbonize the economy and meet European climate targets. The NRRP confirmed the strategy and earmarked nearly €3.6 billion for hydrogen, specifically for production at brownfield sites or “hydrogen valleys” (€500 million), hydrogen utilization in hard-to-abate sectors (€2 billion), hydrogen experimentation for road (€230 million) and rail (€30 million) transport, and hydrogen R&D (€160 million). The objective is to install 5 GW of electrolysis capacity by 2050 and to produce and transport one million tons of renewable “green” hydrogen. The government’s objective also includes producing 700,000 tons of hydrogen by carbon capture, or “blue hydrogen,” in the next ten years. Renewable production through solar plants in northern Africa could increase production of green hydrogen that could be transported to Italy and the rest of Europe through Snam’s network. The 2023 Hydrogen Innovation Report from Milan’s Polytechnic University puts Italy’s approach into perspective: 24 projects of 631 in all of Europe; 1.97 GW of electrolysis capacity vs. 93.55 for the EU. The report highlights how, in contrast with other areas, 63% of the planned NRRP funds have already been allocated.
Carbon Capture and Storage
Italy’s PNIEC includes a new chapter on Carbon Capture and Storage (CCS), characterizing it as indispensable. According to the plan, CCS could help cut an estimated 20-40 million tons of CO2 (MtCO2) each year, but there is no precise target for 2030. To make CCS operational, the focus will first be on using depleted or nearly depleted offshore hydrocarbon fields in the Adriatic, which could have a capacity of about 500 MtCO2. Saine aquifers, with a potential storage capacity greater than GtCO2 (billion tons of CO2), will also be considered. However, the necessary regulatory adjustments and a more precise estimate of the real capacity are missing. To facilitate CCS development, in addition to a revised regulatory framework, national projects need to be developed and transport infrastructure needs to expand, with a view to supporting cross-border projects already in the pipeline. Italy is part of an initiative with Greece and France to create the first CCS infrastructure in the Mediterranean basin and export CO2. Italy is also involved in projects that are candidates for EU priority projects – Callisto Mediterranean CO2 Network, Augusta C2 and Prinos CO2 storage.
Resources
Ministry of Environment and Energy Security
ARERA (Italian Regulatory Authority for Energy, Networks and Environment)
Snam (Italian gas infrastructure operator – 31.4% government-owned)
Overview of NRRP chapter on “green revolution and ecological transition”
Overview of NRRP projects incentivizing renewables, hydrogen, and sustainability and networks
U.S. Commercial Service Italy:
Federico Bevini, Commercial Specialist
U.S. Commercial Service, U.S. Consulate Milan
Tel: +39 02 6268 8520
E-mail: federico.bevini@trade.gov