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December 2020

04. A clear vision of the future of the energy system: investments today ensure a key role for Italgas tomorrow
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The 2020-2026 Strategic Plan sees a significant commitment in terms of investments. The 7.5 billion euros put in place are the prerequisite for being an active part in the energy transition process that will lead Europe to complete decarbonisation by 2050.

Although the investments planned by Italgas look to 2026, they also reflect the vision of the scene in thirty years, with a precise role for the gas infrastructure. This infrastructure will be called upon to play a strategic role in the decarbonization process, by making itself ready to distribute gas of renewable origin, such as biomethane and green hydrogen, ensuring flexibility to a system risking further rigidity from the increasing importance of renewable energies.


To better understand what scenarios lie ahead for the next few decades and what changes will be required from the Italgas network, we give the floor to Paolo Gallo, CEO of Italgas.

Paolo Gallo, is there a broader design behind the Strategic Plan for 2020-2026 you presented?

The Strategic Plan outlines the path we intend to follow through specific objectives, starting from 2020 over the next six years. This is a vision of the future of the energy system and of our role in the long term: Italgas will continue in the digital transformation process, which started three years ago, and will play a key role in the energy transition process in Europe, which is significantly reducing emissions, thanks also to our infrastructures.


What role will gas play in the future?

Gas distribution networks will continue to play an important role in securing future energy supplies. Today, the gas system guarantees more than 60% of the 7,500 TWh of European energy consumption and this seems destined to grow rather than shrink, given that both coal and nuclear power, which provide part of the 40% of electricity consumed (equal to 1,400 TWh), are destined to be partially replaced by renewables. It is clear that natural gas will be used for the uninterrupted transition to renewables, and compensate for the rigidity induced in the system. Moreover, the complete electrification of consumption is an unrealistic hypothesis even for Eurelectric itself, which estimates average annual investments in the EU of between 9 and 11 billion euros up to 2050 to achieve an electrification rate of 60%. Why should we invest such a large amount of money, when a gas infrastructure already exists, with an articulated transport, distribution and storage network, which is readily available and which can facilitate this transition? A network that is also preparing to welcome renewable sources, such as biomethane which is already available today, and green hydrogen, which I expect will have an important role starting from 2030.

Given the increasing use of renewable sources, what are the reasons why the system will require greater flexibility?

On the one hand it will be necessary to ensure the continuity of the service even at times of peak electricity consumption, on the other hand it will be necessary to deal with the unpredictability of the quantities of energy produced from renewable sources, which will have an increasing weight in the overall mix. The keyword will therefore be “flexibility”. To meet these new needs it will be necessary to provide energy storage: if we consider that the hydroelectric energy storage capacity in pumping stations is already almost completely exploited, and that batteries are probably suitable for satisfying a limited demand, such as from the residential sector, the only solution is in the gas infrastructure, through power-to-gas technology.


What advantages does the gas system offer?

Gas has a large and widespread infrastructure in Europe: with over two million kilometers of transportation and distribution networks, it offers virtually unlimited storage capacity. Energy produced from renewable sources, in unpredictable quantities and times, can therefore be transformed into green hydrogen or synthetic methane and stored in the gas network. Furthermore, the advantages of this type of storage (power-to-gas) should not be underestimated as they are two-dimensional: in time and space. The stored energy can be used at different times and in different places from the time and place where it was produced.

When will the new gases be available?

Biomethane is already a reality today. In Italy, for example, we are witnessing a strong demand for new connections, while over 20 injection points have already been connected to the transport and distribution network. Estimates predict that by 2030 over 10% of the country’s demand for natural gas will be met by biomethane, thus facilitating decarbonisation. In the coming years, we can hypothesize that mixtures with increasing quantities of hydrogen will be introduced into the gas networks, following the success of the first experiments that have been carried out in recent years.

What factors determine the economic sustainability of green hydrogen?

There are two variables that influence production costs: firstly, the cost of electricity. This is expected to decline over the next decade, mainly thanks to the contribution of renewables: there will increasingly be energy produced from renewables that will not find space on the market. The second variable is the availability of technologies, which substantially reduce the cost of the electrolysers needed to obtain hydrogen from the excess energy produced by photovoltaic or wind power plants. We expect that by 2030, thanks to the reduction in the price of excess energy from renewable sources and the lower cost of transformation, hydrogen could fall below 35 euros per MWh and therefore be competitive with other sources.


What visibility do you have on this potential drop in costs?

For this purpose, we have launched a pilot project that will help us fully understand the value chain of green hydrogen production and assess its impact on our infrastructure. In Sardinia, where we are laying a “digital native” network to methanize the island, we will analyze the possibility of mixing natural gas and hydrogen with the aim of distributing it to residential or industrial users. We will therefore produce green hydrogen and inject it into our “smart” grids. We will then test the pressure reduction stations and the entire control system. We already know that a mixture with 10-15% hydrogen does not present technical problems, but we want to directly check what happens as the proportion of hydrogen increases step by step. In the project, which we think will become fully operational by the end of 2021, we are in partnership with the Polytechnic of Turin and the CRS4 Center of Sardegna Ricerche, the research and innovation agency of the Autonomous Region of Sardinia, in order to have solid scientific support in managing the trial.


Is there a consensus on the future role of green hydrogen?

All the studies carried out, and the discussions in which I participated at the Italian and European level, converge in the belief that green hydrogen will be the predominant gas in the near future, once it has reached a competitive cost.


The future therefore offers a series of interesting opportunities for a gas distribution operator. Does the scenario also present any challenges?

From my point of view, the number one challenge is being able to contain methane emissions. This aspect is also at the top of the European Commission’s agenda. On this point we have set ourselves a goal: to reduce our CH4 emissions by 20% in the coming years, using the Picarro technology we have at our disposal. The other challenge is to adapt our infrastructure to the new gases. There is only one way to achieve this goal: to completely digitize the network. Only in this way we will be able to then use Artificial Intelligence and advanced “smart” tools. This is the path we took three years ago and which is already bringing us concrete benefits, as seen by the results achieved in the first nine months of 2020. Facing the heavy restrictions imposed by the Covid-19 emergency, it was essential to be able to count on remote monitoring of construction sites or on remote-controlled maintenance procedures, which was possible thanks to the level of digitalization already achieved.


Is an intelligent grid therefore necessary to transport the new gases?

It is essential: there is no transition without digitization. It will be essential to know in real time what type of gas, or mixture of gasses, is present in a specific pipeline. Precisely for this purpose, we are installing devices for gas analysis, the so-called “gas analyzer”, which will allow us to know whether we are transporting CH4, or CH4 mixed with biogas and, in the future, also with hydrogen. Given the different calorific value of hydrogen, we will have to be able to provide the end customer with a mixture that always releases the same amount of energy. The investments we are making for the digitization of assets will allow us to introduce, and therefore distribute, different types of gas into the network. This is our response as an operator in the face of the need to facilitate the path towards a decarbonised economy.


Italgas operates in a regulated business. What view does the Regulator take on investments required to carry out this type of network transformation?

If we want to respond promptly and effectively to these new challenges, we must without doubt be able to move within a regulatory framework which is both fair and open to innovation. The Italian regulator has already shown in the past that it looks much further ahead than any other regulator in Europe: just think of the ambitious project to replace traditional meters with smart meters. If we consider the consultation document on innovation, we see that currently there is an intention to support development projects in new areas, which deal with the optimization of network management, the innovative use of existing infrastructures, as well as the technological and operational innovation of networks.


With this Plan to 2026, do you think Italgas has made the best tactical choices?

Italgas has the skills and resources to respond to these challenges, which are at the same time great opportunities. The investments already planned between now and 2026 show that we intend to strengthen and make our network even smarter and more intelligent, following the path of digital transformation to the end. A transformation that involves the whole company: not only the assets, but also the processes and people, with the latter involved in an intense re-skilling program. After all, having such a large amount of data available, it will be necessary to have people able to interpret and use it effectively.