The project is expected to produce up to seven tonnes of steel of different grades per hour, with the aim of reducing CO2 emissions in the steelmaking industry.
Based on six years of research, Hydra is worth a total of €88 million.
It will involve the design and construction of an operational pilot plant using hydrogen at every stage of the steelmaking cycle.
Hydra is funded by the European Commission's Next Generation EU Plan and supported by the Italian Ministry of Enterprise.
The plant will consist of a 30 m high direct iron ore reduction (DRI) tower using hydrogen as a reducing agent.
The plant is expected to be completed by 2025.