Italy’s energy transition: managing the energy crisis and shaping the future

On September 27th, together with the International Energy Agency (IEA), the FSR organised an episode of #FSRDebates to discuss how Italy is managing the energy crisis and its progress towards reaching the climate targets. The event offered a chance to discuss the IEA Italy Energy Policies Review Report released earlier this year, as well as the updated Net Zero Roadmap, which were presented by Alessio Scanziani from the IEA’s Strategic Initiatives Office.  

Italy effectively handled the energy crisis, but the solutions are unsustainable in the long term 

Russia’s invasion of Ukraine, preceded by the COVID-19 pandemic, has notoriously caused a global energy crisis whose effects still persist. As an immediate reaction, Italy, no differently from other countries, repaired towards an increased reliance on coal in 2022, despite the Italian government had already confirmed its dedication to the 2025 phase-out target. On the good side, Italy managed to significantly reduce its dependence on Russian gas, substituting it with imports from North Europe, Azerbaijan, Algeria, and an increased use of LNG terminals.  

Clara Poletti, representing ARERA, elucidated how energy regulators played a pivotal role in assisting the public during the surge in energy prices. They employed a tool designed to support customers with socio-economic needs, based on the Equivalent Economic Status Index (ISEE), which evaluates and certifies a household’s annual income and assets. Eligible households automatically received a bonus to help alleviate the burden of rising energy bills. 

ENI’s Claudia Squeglia commended Italy’s response to the energy crisis, highlighting the nation’s achievements in securing energy supply, avoiding blackouts, finding new energy sources and suppliers, and shielding consumers from price spikes. However, these accomplishments came at a cost, involving an increased reliance on coal to ensure energy security and substantial public expenditure to shield consumers from price surges. These measures are not sustainable, and they also indicate that the energy crisis did not necessarily accelerate the energy transition. 

Strong action is needed to achieve climate targets

Italy’s National Energy Climate Plan for 2030 was recently updated to align with the EU’s Fit for 55 (FF55) package and the goal of attaining carbon neutrality by 2050. In pursuit of the FF55 package’s renewable electricity generation goal, the government has projected the need to introduce approximately 5GW of fresh renewable generation capacity each year from 2020 to 2030. However, during the period from 2014 to 2022, Italy managed to incorporate only a total of 8.6GW in new renewable capacity. While there has been a recent uptick in efforts, it is evident that Italy remains considerably distant from reaching its targets without implementing new measures.  

The discussion revolved around the factors contributing to the sluggish adoption of renewable energy initiatives in the country. One prominent hindrance has been the resistance from the local public. Ms. Squeglia noted that while the public is eager to combat climate change, there is often reluctance to accept and host energy infrastructure in their localities. Addressing this challenge calls for a collaborative and intensified effort between the public and private sectors. Additionally, a significant barrier lies in Italy’s complex permitting procedures. The speakers unanimously urged for a swift overhaul of these permitting processes, emphasising the need for investments in staff, including within the public administration, to expedite progress in this critical area. 

The concepts of flexibility and efficiency were woven into the conversation at various points. The experts underlined the importance of flexibility at the distribution level to avoid congestions and dispatching  problems. Mr. Bulgarelli urged for the investment into network management, while Ms. Squeglia stressed the significance of both energy efficiency and efficiency in public spending. Mr. Scanziani commended Italy for a very high penetration of second-generation smart meters, noting that their usage could be improved and policies that help consumers use electricity when it’s better for the system should be introduced. Drawing inspiration from Denmark’s successful model, he suggested the creation of a real-time electricity pricing app, enabling consumers to make informed decisions about their energy consumption. 

While the IEA has already commended Italy’s efforts to promote biofuels and biomethane, SNAM’s Giulia Branzi has outlined three key areas where Italy could introduce policies to further enhance its efforts. One is hydrogen, where Italy has the opportunity to establish national-level hydrogen certification to expand the market. New decrees and new investment into biomethane as well as the evaluation of negative emissions which is not addressed at the EU level, could be addressed by Italy thereby contributing to advancements in the mobility sector. The last area is CCUS – carbon capture, utilisation and storage – where Italy can establish a framework that delineates the utilisation and development of the value chain, which could prove highly beneficial.  

Delving Deeper: Advancing Electrification in Buildings 

Mr. Scanziani pointed out that buildings are responsible for approximately one-fifth of Italy’s greenhouse gas emissions, and the progress toward electrifying them has been notably sluggish. In an effort to incentivise this transition, authorities introduced the “Super Bonus 110%” tax break scheme, which was already scaled back due to its high costs. Additional incentives were extended, such as discounts on electricity, gas bills, and transportation fuels. However, experts concurred that such broad incentives often disproportionately benefit wealthier individuals, leading to a regressive impact. Consequently, one of the key recommendations was to refine and target relief measures more effectively. Within the realm of building sustainability, a highly effective approach involves improving access to support for energy efficiency enhancements. Elevating home efficiency emerges as a mutually advantageous solution in this context. Greece’s successful subsidy programs for households installing solar rooftops, including subsidies for batteries and storage could serve as one of the references. 

One of the FSR hosts, Ilaria Conti, initiated the discussion by posing a question to the speakers about the changing trends in the buildings sector, particularly in light of the increasing demand for heat pumps in Germany. Mr. Scanziani responded, noting that Germany has had incentives for heat pumps in place for a longer duration, while Italy has recently accelerated its adoption, installing 350,000 heat pumps in 2021. Giulia Branzi from SNAM emphasised that electrification is entirely feasible and achievable with current regulations. She also pointed out that “green molecules” could serve as an alternative for decarbonising buildings where electrification faces historical or other constraints. Ms. Squeglia proposed biomethane as an excellent solution for decarbonising the residential sector, emphasizing that electrifying residential buildings is not a particularly challenging endeavour.  

In contrast, Ms. Poletti drew attention to the challenges of electrifying heating within buildings, specifically related to the complexities of the internal building grids that are typically located behind the meter. She noted the difficulty for regulators to address this issue, as it falls outside their purview.  

Mr. Bulgarelli shared a set of recommendations for enhancing residential sector electrification. These recommendations centred on maximising energy savings per hour and bolstering energy security. He outlined the long-term goals, such as decarbonising the economy, creating more sustainable cities, reducing energy dependence, and lowering prices. He also advocated for a rapid transition from traditional boilers to heat pumps. 

The implementation of the EU ETS in the Italian context 

The speakers highlighted the significance of the ETS (emissions trading system), the EU’s primary decarbonisation tool, applauding its efficiency and technology-neutral nature. Nonetheless, they also underscored certain limitations. These included the imperative for supplementary policies in sectors not currently covered, such as transportation, which might necessitate being addressed on a national level. Another drawback is the system’s one-size-fits-all approach, as each country, sector, and even segments within the same sector exhibit unique characteristics, warranting tailored strategies.  

Ms. Branzi discussed the particulars of the ETS implementation in Italy, including the establishment of a register of guarantees of origin before the summer season. This initiative has significantly streamlined compliance with the ETS, enabling various sectors within the system to procure guarantees of origin for biomethane and hydrogen as a means to fulfill their obligations. 

Ms. Squeglia advocated for a more adaptable approach that accommodates diverse decarbonization methods, encompassing biomethane, hydrogen, CCUS (Carbon Capture, Utilisation, and Storage), nuclear, biofuels, and emerging technologies. Ms. Poletti emphasized the increasing relevance of energy storage and mentioned that the Italian government has proposed to the European Commission a scheme to develop a technology-neutral, market-based storage solution, expressing hope for a streamlined state aid procedure. 

Conclusion 

In conclusion, the discussion on Italy’s energy landscape and its response to the challenges of the energy crisis and climate targets yielded several key insights and recommendations. The energy crisis, exacerbated by the pandemic and geopolitical events, necessitated swift actions, including increased coal usage, which may not be sustainable in the long run. While Italy has made significant strides in reducing dependence on Russian gas and diversifying its energy sources, there is a pressing need for more sustainable solutions. 

Italy’s efforts to achieve its climate targets, aligning with the EU’s Fit for 55 package, revealed the urgency of enhancing renewable energy capacity. Despite recent progress, Italy falls short of its targets, necessitating more ambitious measures. 

The discussion also shed light on the importance of public acceptance and streamlined permitting procedures in advancing renewable energy initiatives. Flexibility and efficiency emerged as crucial elements in the energy transition, with recommendations to prioritise network management, energy savings, and technology-neutral approaches. 

The implementation of the EU ETS showcased both its merits and limitations. While efficient and technology-neutral, it requires supplementary policies, especially in sectors like transportation. Tailored strategies and flexibility are essential to accommodate the diversity of countries, sectors, and segments within the same sector. 

The conversation further delved into specific areas for improvement, including hydrogen certification, biomethane, CCUS, and energy storage. These technologies offer promising pathways toward decarbonisation and energy security. 

Overall, the discussion emphasized the complex and multifaceted nature of Italy’s energy transition, highlighting the need for comprehensive, adaptive, and innovative approaches to address the challenges and opportunities in the pursuit of sustainable and resilient energy systems.