Can Italy Become a Major Hydrogen Economy, or Will Hydrogen Remain a Niche Decarbonisation Tool?
For much of the past five years, Italy has been presented as one of Europe’s future hydrogen success stories. Government strategies, European funding programmes, infrastructure announcements and corporate investment plans have created a narrative in which the country could emerge as a major hydrogen producer, a gateway for imports from North Africa and a critical hub within the continent’s future clean energy system.
The vision is compelling. Italy possesses one of Europe’s largest industrial bases, extensive gas infrastructure, strategic Mediterranean geography and direct connections to both North African energy resources and Northern European demand centres. Few countries appear better positioned to participate in the emerging hydrogen economy.
Yet beneath the headlines, a more complex reality is emerging.
The central question facing investors, policymakers and industrial consumers is no longer whether hydrogen will play a role in Italy’s energy transition. It almost certainly will. The more important question is whether hydrogen can scale beyond a limited number of industrial applications and become a meaningful pillar of the Italian economy.
The answer is likely to be far more nuanced than many early market forecasts suggested.
Italy Starts with an Advantage Most European Countries Lack
Unlike many countries attempting to create hydrogen markets from scratch, Italy already consumes significant volumes of hydrogen.
Most of this demand originates from refining and chemical production, where hydrogen has been used for decades. Refineries require hydrogen for desulphurisation processes, while fertiliser and chemical facilities use it as a feedstock rather than an energy source.
This distinction matters.
Unlike many projected hydrogen demand sectors, these applications already exist and already pay for hydrogen. The challenge is therefore not creating demand but replacing grey hydrogen, currently produced from natural gas, with lower-carbon alternatives.
Italy’s industrial geography reinforces this advantage. Large industrial clusters around Ravenna, Taranto, Venice, Porto Marghera, Priolo and other manufacturing centres provide concentrated demand that could support future hydrogen infrastructure development.
At the same time, Italy possesses one of Europe’s largest gas transmission systems. Its extensive network of pipelines, storage facilities and import infrastructure has long positioned the country as a strategic energy corridor connecting North Africa with Central Europe.
This combination of industrial demand, strategic geography and energy infrastructure explains why Italy is frequently identified as one of Europe’s most credible hydrogen markets.
However, possessing favourable starting conditions does not guarantee commercial success.
The Infrastructure Story Is More Advanced Than the Demand Story
One of the most striking characteristics of the European hydrogen sector is that infrastructure planning often appears to be progressing faster than demand formation.
Italy is no exception.
The most significant development is the Southern Hydrogen Corridor, a proposed network connecting North African hydrogen production with industrial demand centres in Italy, Austria and Germany.
The project has attracted considerable political support because it addresses a genuine European concern: future hydrogen imports.
Germany alone is expected to require substantial volumes of imported hydrogen as domestic renewable resources prove insufficient to meet projected industrial demand. In theory, Italy could become the principal transit route for these imports.
The challenge is timing.
Infrastructure developers can identify future demand and begin planning pipelines years in advance. Industrial consumers, by contrast, make investment decisions based on economics that exist today rather than policy ambitions for 2040.
As a result, Europe increasingly faces the possibility of developing hydrogen infrastructure ahead of the emergence of sufficient commercially viable demand.
This does not mean projects such as the Southern Hydrogen Corridor lack merit. Rather, it suggests that utilisation rates may initially be lower than headline projections imply.
For investors, this distinction is crucial.
The most bankable hydrogen assets during the next decade may not be hydrogen production projects but regulated infrastructure assets whose returns are less dependent on immediate market adoption.
Green Hydrogen Economics Remain Italy’s Greatest Challenge
Despite rapid technological progress, green hydrogen remains fundamentally constrained by one factor: electricity costs.
Electrolysers convert electricity into hydrogen. As a result, electricity often represents between 60 and 80 per cent of total hydrogen production costs.
This creates a difficult reality for Italy.
Although the country has expanded renewable generation significantly, it remains disadvantaged relative to some of the world’s most competitive hydrogen-producing regions.
Spain benefits from superior solar resources and lower renewable electricity costs.
Portugal enjoys similar advantages while offering abundant coastal development opportunities.
Morocco combines exceptional solar irradiation with lower land costs.
Saudi Arabia and Egypt possess world-class renewable resources and access to large-scale export infrastructure.
Australia offers vast renewable potential and substantial project scale.
Against this backdrop, Italy is unlikely to become one of the world’s lowest-cost hydrogen producers.
The country may produce competitive hydrogen in specific industrial clusters or locations with strong renewable resources, but it is difficult to envision Italy competing directly with North African or Middle Eastern producers on pure production cost.
This has significant implications for long-term market structure.
Italy’s future role may depend less on producing the cheapest hydrogen and more on transporting, storing, consuming and trading hydrogen within the broader European market.
The Demand Reality Check
Much of the hydrogen debate focuses on supply.
The more important issue is demand.
Without economically viable demand, production projects and infrastructure assets cannot achieve scale.
Refining
Refining represents the most credible near-term demand segment.
Hydrogen is already used extensively within Italian refineries, creating a clear pathway for substitution.
However, replacing grey hydrogen with green hydrogen substantially increases operating costs.
As a result, adoption is likely to occur gradually and remain heavily influenced by carbon pricing mechanisms, sustainability mandates and regulatory requirements.
Fertilisers and Chemicals
The chemical sector presents a similar opportunity.
Existing hydrogen consumption provides a natural foundation for market development.
Yet economics remain challenging.
Green hydrogen typically commands a significant premium relative to conventional production methods, creating pressure on international competitiveness unless support mechanisms remain in place.
The sector will almost certainly become one of the first adopters of low-carbon hydrogen, but scaling will depend heavily on policy support and carbon pricing trajectories.
Steel
Steel is perhaps the most discussed future hydrogen market.
The concept is straightforward: replace coal-based production with hydrogen-based direct reduced iron processes.
The reality is more complicated.
Italy’s steel industry operates within an intensely competitive global market. Unless hydrogen costs fall substantially, large-scale adoption may prove slower than many forecasts assume.
Hydrogen-based steelmaking will likely emerge, but probably within a limited number of strategically supported projects rather than through widespread sector-wide transformation before 2035.
Heavy Transport
Hydrogen’s prospects in transport appear considerably weaker than early industry narratives suggested.
Battery-electric technology continues to gain ground in heavy-duty trucking.
Rail electrification remains more economical for many corridors.
In maritime transport, ammonia and methanol may ultimately play larger roles than pure hydrogen.
Hydrogen-derived e-fuels are likely to become important for aviation, but demand volumes may remain modest relative to some early projections.
Consequently, transport is unlikely to become the primary driver of Italian hydrogen demand during the next decade.
The Industry Remains Deeply Dependent on Public Support
Perhaps the most important reality facing the sector is that hydrogen economics remain heavily influenced by policy intervention.
European funding mechanisms, including the Hydrogen Bank, IPCEI programmes and national support measures, have become central to project viability.
Italy’s National Recovery and Resilience Plan has accelerated project development and infrastructure planning.
However, many projects remain dependent on some combination of carbon pricing, investment grants, operating subsidies, state-backed financing and regulatory mandates.
This raises an uncomfortable but necessary question.
How much hydrogen demand would exist today if public support disappeared?
The answer is almost certainly far less than current market announcements imply.
Hydrogen is progressing, but it is not yet fully competitive across most applications.
Capital Is Moving, But Far More Selectively Than Headlines Suggest
One of the more revealing aspects of Italy’s hydrogen story is the widening gap between announced ambitions and deployed capital. Political discourse frequently refers to a future multi-billion-euro hydrogen economy, yet actual investment activity remains concentrated in a relatively small number of infrastructure, industrial decarbonisation and hydrogen valley projects.
This distinction matters because the market is entering a phase where execution, rather than ambition, will determine winners and losers.
Perhaps the clearest signal comes from infrastructure. While much of the public discussion focuses on hydrogen production, some of the largest and most bankable investments are occurring in transport and network assets. Snam has emerged as one of the central actors shaping the market. Through the development of the Italian Hydrogen Backbone and its participation in the Southern Hydrogen Corridor, the company is positioning itself to become a critical conduit between future North African supply and European industrial demand.
This reflects a broader trend visible across Europe. Infrastructure operators are increasingly making investment decisions based not on today’s hydrogen market, but on anticipated industrial demand over the next two decades. The logic is straightforward: while hydrogen production economics remain uncertain, regulated transport assets offer potentially more stable and predictable returns.
Equipment manufacturing represents another area where capital deployment is becoming increasingly tangible. Companies such as De Nora have invested heavily in electrolyser manufacturing capacity, betting that Europe will require substantial domestic equipment production regardless of which specific hydrogen projects ultimately proceed. In many respects, manufacturing may prove more commercially resilient than hydrogen production itself. Even if some projects are delayed, the broader European decarbonisation agenda continues to support demand for electrolysis technology.
Public funding remains the single most important catalyst behind much of this investment activity. Programmes supported through Italy’s National Recovery and Resilience Plan, European Hydrogen Bank auctions and IPCEI initiatives have significantly improved project economics. Yet this support also highlights a fundamental reality: much of the sector remains dependent on policy intervention. Without grants, contracts for difference, state aid mechanisms and carbon pricing frameworks, many projects would struggle to compete with conventional alternatives.
The result is a market that is developing, but not yet standing on purely commercial foundations.
Separating Operational Reality from Announced Capacity
The challenge for investors is that hydrogen markets are often analysed using project announcements rather than operational outcomes.
Italy provides a useful example of why this distinction is critical.
A growing number of hydrogen projects have been announced across the country, ranging from industrial clusters and hydrogen valleys to large-scale import infrastructure and future transport corridors. However, only a fraction of these developments have progressed into advanced execution phases.
Some of the most credible projects are concentrated around industrial decarbonisation.
The Puglia Green Hydrogen Valley, involving partners including Edison, Saipem and Sosteneo, represents one of the most advanced examples of hydrogen deployment linked directly to industrial demand. Supported by substantial European funding, the project aims to combine renewable generation with electrolysis to supply industrial consumers in southern Italy. Importantly, the project is linked to existing industrial activity rather than relying on the creation of entirely new demand sectors.
Elsewhere, hydrogen deployment in rail transport has moved beyond conceptual discussions. Lombardy’s hydrogen train programme is among the most visible examples of hydrogen infrastructure progressing from strategy to implementation. While relatively modest in terms of total hydrogen volumes, projects of this nature provide evidence that certain niche applications can achieve commercial and operational viability.
Beyond these developments lies a larger category of projects that remain strategically important but are still several years from operation. Hydrogen valley initiatives in Emilia-Romagna and other industrial regions have secured political support and industrial participation, yet many remain dependent on final investment decisions, infrastructure availability and long-term demand certainty. Similarly, major transmission projects, including sections of the Italian Hydrogen Backbone, continue to advance through planning, permitting and engineering phases rather than construction.
The most uncertain category consists of large-scale hydrogen import and export schemes whose economics depend on multiple variables aligning simultaneously. The Southern Hydrogen Corridor remains one of Europe’s most strategically significant infrastructure concepts. If successful, it could connect low-cost production regions in North Africa with industrial consumers in Italy, Austria and Germany. However, the commercial viability of the corridor ultimately depends on hydrogen being produced competitively in exporting countries, transported economically across borders and consumed at sufficient scale within Europe.
This is why distinctions between announced, probable and operational capacity are becoming increasingly important.
Announced capacity reflects ambition.
Probable capacity reflects projects that have secured financing, industrial partners, regulatory support and realistic routes to execution.
Operational capacity reflects the projects that actually reach commercial operation.
Across Europe, the difference between these three categories remains substantial, and Italy is unlikely to be an exception.
For investors, this suggests that the next phase of market development will be defined less by the volume of announcements and more by the industry’s ability to convert plans into functioning assets.
Italy Versus Its European Competitors
Compared with Germany, Italy enjoys lower renewable development costs and superior access to North African imports.
Compared with Spain, however, Italy faces a more difficult renewable resource base and higher electricity costs.
The Netherlands benefits from established industrial clusters and major import infrastructure.
France possesses abundant low-carbon nuclear power that can potentially support hydrogen production at scale.
Italy’s strongest competitive advantage lies neither in production nor in consumption alone.
Instead, it lies in geography.
The country occupies a unique position between North African supply and Northern European demand.
This strategic location may ultimately prove more valuable than domestic hydrogen production itself.
Winners and Losers
The next decade is unlikely to reward all parts of the hydrogen value chain equally.
Infrastructure operators appear among the strongest potential beneficiaries. Pipeline owners, storage operators and transmission companies can often access regulated or semi-regulated revenue models with lower exposure to commodity price volatility.
Engineering firms and industrial contractors are also positioned to benefit from infrastructure deployment regardless of which production technologies ultimately prevail.
Industrial gas companies retain advantages due to operational expertise and existing customer relationships.
Electrolyser manufacturers may benefit from the broader European hydrogen build-out even if some domestic projects are delayed.
By contrast, pure-play hydrogen production projects face significantly greater uncertainty.
Many announced developments may never reach final investment decision.
Others may be delayed until stronger demand signals emerge.
The companies most likely to create long-term value may therefore be those supplying the enabling infrastructure rather than producing hydrogen itself.
Investment Outlook 2026–2035
Between now and 2035, investment is likely to concentrate around four themes.
The first is transmission infrastructure. The Italian Hydrogen Backbone and associated cross-border corridor developments could attract several billion euros of investment over the coming decade, particularly if European demand signals strengthen.
The second is industrial decarbonisation. Refineries, chemical producers and selected steel facilities are likely to account for the majority of actual hydrogen consumption growth, making them the most credible recipients of project capital.
The third is electrolyser manufacturing and supply chains. Europe increasingly views domestic manufacturing capability as a strategic necessity, creating opportunities for companies operating across equipment production and engineering services.
The fourth is import infrastructure. Ports, storage terminals and interconnection facilities could become increasingly important if Europe transitions towards a large-scale hydrogen import model.
Institutional investors are likely to favour infrastructure assets and contracted industrial projects over merchant hydrogen production, reflecting the continuing uncertainty around long-term hydrogen pricing and demand.
Three Scenarios for 2035
Bull Case
In the most optimistic scenario, electrolyser costs continue to decline rapidly, renewable electricity prices fall, carbon pricing strengthens and infrastructure deployment accelerates.
Under this outcome, Italy successfully positions itself as Southern Europe’s primary hydrogen gateway. Multiple industrial clusters convert significant portions of their hydrogen consumption to low-carbon alternatives, the Southern Hydrogen Corridor reaches meaningful utilisation rates and investment exceeds expectations.
Hydrogen production capacity could expand into the multi-gigawatt range, supported by strong industrial demand and increasing imports from North Africa.
Base Case
The most likely outcome is more measured.
Hydrogen adoption expands steadily within refining, chemicals and selected industrial applications. Infrastructure develops selectively, imports begin to supplement domestic production and several hydrogen valleys reach commercial operation.
However, adoption remains concentrated in sectors where alternatives are limited and policy support remains important.
Hydrogen becomes an important industrial decarbonisation tool rather than a universal energy carrier.
Bear Case
In the downside scenario, hydrogen production costs remain stubbornly high, industrial demand develops more slowly than expected and many projects struggle to achieve commercial viability.
Infrastructure investment continues, but utilisation rates disappoint. Several announced projects fail to reach final investment decision and hydrogen remains confined to a limited number of subsidised applications.
Under this scenario, Italy still develops a hydrogen sector, but one that falls significantly short of today’s most ambitious expectations.
Conclusion: Italy Is More Likely to Become a Hydrogen Gateway Than a Hydrogen Superpower
The most realistic outlook for Italy is neither the optimistic vision often presented by industry advocates nor the sceptical view held by some critics.
Hydrogen is unlikely to transform every sector of the economy.
Nor is it likely to disappear.
Instead, Italy’s future role increasingly appears to be that of a strategic hydrogen gateway connecting North African supply with European industrial demand.
The country will almost certainly develop meaningful domestic hydrogen production, particularly within industrial clusters. It will also become an important consumer of low-carbon hydrogen in refining, chemicals and selected heavy industrial applications.
However, the strongest long-term opportunity may lie in infrastructure rather than production.
Italy’s geography, pipeline network and industrial position suggest that it is better placed to become a hydrogen corridor, trading hub and industrial consumption centre than a globally dominant producer.
The coming decade will therefore be less about proving whether hydrogen works and more about determining where it genuinely creates economic value.
That distinction will separate the projects that attract capital from those that remain PowerPoint ambitions.
The reality is that Italy is unlikely to become Europe’s hydrogen superpower. What it can realistically become is something arguably more valuable: the bridge between low-cost hydrogen production regions and the industrial heartlands that will ultimately consume it.
Author: Derek Michalski, Editor
