Italy drives Europe’s shift to green energy but supply chain risk remains

The future of green energy can count on the support of the Italian manufacturing sector, because its development of renewable energy technologies is already well underway.

Energy transition, one of the leading subjects of the Recovery and Resilience Plan for the use of EU funds for business to restart following the Covid-19 outbreak, is based on solar and wind power. Italy is highly advanced in these sectors, even if hydroelectricity has supplied the lion’s share of non-fossil fuel-based energy throughout the last century.

The country’s topography is, by and large, hilly and mountainous, rich in water streams and poor in coal and hydrocarbon reserves. This has led Italy to achieve, ever since the early 1900s, a cutting-edge position in the production of hydroelectric power.

Such a renewable source of energy makes up a relatively small but valuable portion of the overall production of electric power for Italy even today.

There has been a flattening of the production curve by the hydro sector since the 1960s, despite a surge in demand for energy at the same time. Hydroelectricity covered a little more than 15% of the national whole in 2018.

Italy remains ‘the sunny country’, and its mountainous terrain also makes it potentially suitable to the production of wind power. Italy has therefore been developing and producing technologies to support renewable energy sources, particularly solar power, over a long period and is very advanced on a global level.

According to a recent report published by Intesa Sanpaolo, titled Energy transition: the production chain of renewable energy technologies in Italy, the country is the second-biggest producer in Europe – after Germany – of technologies exclusively used in renewable energy plants (known as FER in Italy) in every sector, except for wind power (for which more than half the production is in Denmark). Italy is particularly noteworthy in producing speed multipliers (24%) and photosensitive devices (22%).

The sector is reliant on other countries for several components, so supply chain risks should never be underestimated. But Italy is the sixth-largest exporter overall, with a 3% global share in the field (amounting to €4.7bn), behind China (more than 25%), Germany (11%), United States (7%), Japan and Hong Kong.

On the other hand, Italy occupies fourth place for the production of speed multipliers. In 2020, as the global market was impacted by the pandemic, the export of renewable energy components registered only a small drop (-2.3%), in the face of a -10% decrease experienced by manufacturing as a whole.

However, compared with the eastern countries, both Italy and the rest of Europe are much more advanced in research and in registering patents.

EU member states hold more than a third of the patents deposited worldwide for renewable energies, covering more than four markets and a 62% share in wind power alone. As for Italy, 55% of the 1,200 patents registered by the country at the European Patent Office are for solar thermal and photovoltaic energy technologies.

The Intesa Sanpaolo report estimates that 400 companies operate in the field of FER components, for an overall turnover of €23bn, produced by almost 60,000 employees in 2019. The total includes companies of every size, operating in the mechanical, electronic and electrotechnical sectors.

These companies tend to be highly innovative, with one company out of four holding at least one patent, and one out of five holding at least one patent in the field of environmental technologies.

This is a rapidly expanding sector in which some small enterprises recorded double-digit growth in their profit between 2017 and 2019. This is a good starting point within the European Union, which plans to become the leader in reducing pollution and emissions on a worldwide basis.

Nevertheless, the dependency on raw materials and on basic components, often produced in the Far East, remains a significant risk.