MILAN (Reuters) – Italian utility Enel has agreed with Saras to develop a project to supply green hydrogen to the Italian refiner’s Sarroch site in Sardinia, the two companies said on Tuesday.

The project involves the construction of a 20 megawatt electrolyser powered by renewable energy generated onsite to provide green hydrogen to fuel the refinery at Sarroch.

At 1042 GMT Saras shares were up 10%.

Saras, controlled by the Moratti family, is currently studying a series of decarbonisation processes to help clean up its refinery in Sardinia.

Green hydrogen is a zero-carbon fuel made by electrolysis, using renewable power from wind and solar to split water into hydrogen and oxygen.

The European Union is keen to promote the development of green hydrogen for sectors hard to decarbonise or where electrification is difficult or impossible to reach emission reduction targets.

“The production and use of green hydrogen (is) now considered one of the strategies with the greatest potential for the decarbonisation of refining processes and the production of new generation fuels,” Saras CEO Dario Scaffardi said.

“We believe that the news has marginally positive implications for the (Saras) stock,” Milan broker Equita said in a note.

Broker Bestinver sees the Sarroch news as neutral for Saras but said: “The current valuation levels of the stock are very depressed and it represents an interesting investment opportunity in a medium-term perspective.”

Enel, one of the world’s biggest renewable energy companies, is launching a new green hydrogen business to speed up plans to be a carbon-free power producer by 2050.

It already has partnerships and projects under development in Chile, Spain, the United States and Italy.