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50 | THE PERFECT FIT REGULATORY ASSISTANCE PROJECT 5.3 Wärmepumpe: heat pumps in Germany In 2019, only 3.4% of residential buildings had space heating and warm water supplied by heat pumps, while 49.3% were supplied by fossil gas.81 But despite having a gas-dominated heating system, Germany has the third-largest heat pump market in Europe, in part due to the absolute size of the German market. Heat pump adoption is particularly successful in new construction, where the residential new-build market in 2020 saw 46% of homes using heat pumps.82 But with more than 40% of homes being supplied by off-grid heating systems, including more than 30% by oil boilers, heat pumps are also in a strong position to replace older heating systems in single-family detached homes. The largest barrier to heat pump adoption in Germany today is unfavourable economics due to the large imbalance in energy prices. The combination of high electricity prices (Germany currently has the highest in the EU) and fossil gas prices roughly at the EU average means that the electricity to gas price ratio rests well above four to one, competing with Belgium for the worst ratio in Europe. To address this significant handicap and improve the investment framework for heat pumps, Germany is pursuing a number policy measures, including: • Targets: While Germany does not have a technology-specific target for heat pump deployment, Germany’s national climate law has ambitious sectoral targets for the building sector that have pushed the government to place a stronger focus on heat transition policies. The recent coalition agreement also includes a target to reach a share of 50% climate-neutral heating by 2030. • Pricing: In 2021, Germany introduced a national emissions trading system for fossil transport and heating fuels. The new system increases the price of fossil heating fuels in fixed incremental steps from 2021 (€25/tCO2 = 0.5 ct/kWh fossil gas) to 2025 (€55/tCO2 = 1.1 ct/kWh fossil gas), before transitioning to a market-based carbon trading system from 2026. This carbon pricing mechanism raises revenues (€7.2 billion in 2021) which are reinvested into climate protection via Germany’s Energy and Climate Fund, and helps to rebalance the price of fossil heating fuels and electricity. In parallel, Germany is also reforming its system of taxes, levies and surcharges for electricity to lower retail electricity prices. • Financial support: The German government offers significant investment support for the installation of heat pumps via its ‘Market Investment Programme’.83 Under the programme, households are eligible for capital grants administered by the KfW bank that cover between 35% and 50% of the total investment costs, depending on whether an oil boiler is being replaced (+10%) and the household undergoes the renovation based on a building renovation passport (+5%). 81 BDEW. (2019). Wie heizt Deutschland 2019: BDEW-Studie zum Heizungsmarkt. https://www.bdew.de/energie/studie-wie-heizt-deutschland/ 82 De Statis. (2021). 39% of the residential buildings constructed in 2020 are heated by natural gas [press release]. https://www.destatis.de/EN/Press/2021/10/ PE21_N060_61_44.html 83 Bank aus Verantwortung. (n.d.). Wohngebäude – Kredit [website]. https://www.kfw.de/inlandsfoerderung/Unternehmen/Wohnwirtschaft/ F%C3%B6rderprodukte/Bundesf%C3%B6rderung-f%C3%BCr-effiziente-Geb%C3%A4ude-Wohngeb%C3%A4ude-Kredit-(261-262)/PDF Image | RAP Perfect Fit Heat Pump
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