The global energy transition offers a wealth of opportunities for Italian and European businesses – but it comes with challenges too. The urgency of climate change is undeniable: 2024 saw record temperatures, with the limit of 1.5°C above pre-industrial levels being exceeded as early as January. In this scenario, the energy sector is undergoing an era-defining transformation led by renewables, which in 2024 accounted for 92% of new installed power at the global level. However, the transition is not yet complete: the world’s energy mix will include a significant fossil fuel component until at least 2050.
The transformation is dominated by China, which – thanks to decisive economies of scale – has attained a leading position in a renewables and circular economy market worth about 2,000 billion dollars. China’s leadership in the sector is, however, creating a worrying dependency in terms of critical raw materials such as rare earth minerals, and indeed the entire technology chain. While African countries are seeking to retain the refining of strategic materials on their own continent, the asymmetry remains high for the developed economies too, making it urgent for Europe to develop its own energy sovereignty.
In this context, Italy faces decisive challenges. The country’s businesses have higher energy bills than their European competitors, primarily because the generation mix is excessively weighted towards gas: 50% compared with a European average of 20%. This imbalance translates into energy generation costs that are double those of France and Germany, with the situation being aggravated by high price volatility and Italy’s dependence on imports. The consequences are particularly significant for energy-hungry businesses; they are postponing investment or moving abroad, in some cases after acquisition by foreign operators. And this fuels the risk of deindustrialization.
Given these problems, accelerating the development of renewables by drastically streamlining the procedures for obtaining permits and making better use of unused spaces such as factory roofs and carparks must be a priority. And facilitating direct contracts between energy producers and businesses through dedicated digital platforms should be viewed as equally important. In parallel with this, relaunching Italy’s nuclear sector will involve innovative technologies such as small modular reactors (SMRs) and, in future, nuclear fusion. However, following this road will require courageous decisions by politicians and transparency vis-à-vis public opinion.
Technological developments are opening up further opportunities: the growing accessibility of batteries will require a comprehensive review of the energy market to make it more flexible and better integrated with digital technologies. It will be crucial to promote industrial models based on self-production and the intelligent management of energy, thus enabling businesses to isolate themselves, at least in part, from market volatility.
But without sufficient institutional reforms the risk is that these initiatives will be ineffective. The excessive complexity of the regulatory framework is a structural barrier that requires radical reform to move on from the current “authorization Darwinism” and instead focus on project quality and prior selection mechanisms. One strategic proposal might be to create a ministry devoted solely to energy but engaging in dialogue with the environment, industry and economy ministries. Energy planning therefore requires a systemic review, with the adoption of the technological neutrality principle. That means that climate targets must be set while leaving the choice of means and methods to the market.
All of these challenges for Italy exist in an equally complex European landscape, where fiscal competition remains a decisive factor. While the EU has earmarked 270 billion euros – mainly in the form of loans – the United States have invested 369 billion dollars in direct green energy subsidies through the Inflation Reduction Act. Carbon pricing too is very uneven, with Europe applying taxes that are several times higher than in other economic areas. For this reason, the European Commission needs to provide regulatory stability and risk-mitigation instruments to attract investment, considering that in a highly regulated energy market prices often reflect regulatory distortions more than actual production costs.
Looking to the future, shifting consumption to electricity, combined with a greater use of storage, is the inevitable direction to follow, but the infrastructure is not ready for large-scale electricity penetration. With the technologies currently available, only one third of the requirement can be electrified; a further third is uncertain and the remaining third will need to use alternative fuels. At the same time, critical sectors such as aviation will require huge investments – up to 100 billion a year in Europe, according to the Draghi Report on the future of EU competitiveness – to develop sustainable fuels and alternative technologies. Here too, the EU needs to act quickly to avoid technological dependence on China.
In short, Italy has a unique potential to transform energy from a cost into a competitive advantage. But it needs a common organizational framework to surmount the current fragmentation. The energy transition must not be perceived solely as an environmental obligation but, rather, as an industrial, economic and strategic opportunity. For this, it requires governance that takes a long-term view, builds trust between businesses, investors and institutions, and provides a systemically stable, efficient and pragmatic regulatory framework for Italy’s many examples of excellence in this sphere.