Heat pumps: Why Germany's heating revolution is stalling

German Economy Minister Robert Habeck is desperately trying to promote the use of heat pumps for heating German households. The Green politician is convinced the technology has the potential to create jobs in Germany while saving the climate.

Heat pumps, which utilize ambient air or groundwater heat, are low-emission — especially when the heat pump is powered by green electricity from a private photovoltaic system.

When Habeck and his Green Party became part of Chancellor Olaf Scholz's three-party coalition government in 2022, they successfully launched a campaign to change how Germans heat their homes, which caused production and sales of heat pumps to soar, setting a record for the technology last year.

But towards the end of 2023, clouds began to gather over the heat-pump boom. 

How the confusion began

Over the next six months, sales of heat pumps "virtually collapsed" to merely 90,000 units between January and June, the German news agency dpa reported in August. According to data from the German Heating Industry Association (BDH), the figure marked a 54% decrease compared with the same period a year ago.

The drop in demand has dealt a big blow to the government's ambitious goal of installing 500,000 heat pumps annually starting in 2024.

Malte Bei der Wieden from the green think tank Institute for Applied Ecology (Öko-Institut), says more attractive subsidies announced by the government last year for 2024 may have caused homeowners earlier this year to hold back on investing in a new heating system. "Applications for people living in their own homes have only been available since the end of February 2024. For landlords and homeowners associations, applications have only recently become available," he told DW.

Critics of the new regulation say the law is a bureaucratic nightmare and has caused a lot of confusion. BDH chief Markus Staudt has called on the government to ensure greater planning security for investors. "It is of central importance that the government sends a signal of trust to the citizens," he told news agency AFP recently.

Bei der Wieden says investors' reluctance at year-end was also influenced by inadequate media coverage of the new rules,  which had led to confusion and "uncertainty." He accused some German media outlets of spreading "false information about heat pumps that wouldn't work in unrenovated buildings or that the entire house would need to be insulated first."

Complexity leaves customers skeptical

Dubbed the Building Energy Act (GEG), the new heating law is aimed at gradually increasing the amount of renewable energy sources used to generate heat in homes and other buildings. It is estimated that half of German buildings currently use gas heating systems. 

In principle, the law says newly installed heating systems in old and new buildings should be powered by at least 65% renewable energy . However, functioning heating systems can continue to run and can also be repaired if necessary. The installation of gas heaters is also permitted beyond that year if they are hydrogen-compatible, meaning that they could be converted at a later date.

Bei der Wieden says heat pumps are "technically mature, reliable, and efficient, even in most unrenovated buildings at low temperatures." He acknowledged though that there are still hurdles to a "heating revolution."

For example, the devices are more expensive in Germany than in other countries. The electricity needed for operating heat pumps is also more expensive here, and buildings with very poor energy efficiency would, indeed, need to be renovated first before a heat pump can be used effectively.

"For the majority of buildings in Germany though, a heat pump is suitable without major insulation work," he tells DW.

How much of the cost of environmentally friendly heat pumps will be subsidized by the government has been a major issue of the German public debate in 2024. Under the new law, the government will cover up to 30% of the cost of installing a heat pump as a base subsidy. A further 20% subsidy is available as a "speed bonus" for those replacing an old oil or gas heating system before 2028. An additional bonus of 10% is granted to households with an income below a certain threshold. The total amount of government subsidies, however, is capped at €30,000 per residential unit. 

Manufacturers struggle amid market swings

According to a survey commissioned by the German newspaper Die Zeit, as many as 70% of Germans reject compulsory regulations on banning heating fired by oil or gas or paying for obligatory replacements of their heating systems.

Wolfgang Gründinger, a so-called chief evangelist at German greentech startup Enpal, says the complexity of the law and the heated political debate preceding it have had "an impact" on the current slowdown in heat pump sales.  But things are already looking up again, he told DW. "We are seeing a rapidly growing demand and must continuously adjust our capacities to the rising interest."

Enpal is Germany's leading heat pump installer, with around 1,000 employees and revenue of €900 million ($1 billion) in 2023. Gründinger said Enpal would continue to work together with German and European heat pump manufacturers: "We have had very good experiences with our local partners so far and continue to trust their expertise."

And yet, news agency dpa reported recently that the situation looks quite serious for other competitors. Industry behemoths Stiebel Eltron and Vaillant are struggling amid the slump, envisaging three-digit job cuts in their heat pump units.

As German manufacturers struggle, competition is increasing from China. 

Öko-Institut's Bei der Wieden is convinced though that German companies would still benefit from customers' "trust in local professionals" and their well-established networks of manufacturers in Germany. But "additional competition is beneficial," he adds, because there was still a market gap in Germany, especially for air-to-air heat pumps, which operate without a central heating system.

According to BDH, this month's opening of subsidy applications for bigger housing companies is likely to boost heat pump sales.

"We are cautiously optimistic that the second half of this year will see higher demand," a spokesman for the industry lobby group told German news magazine Spiegel. He expects sales to increase to 200,000 heat pumps by the end of 2024.

This article was originally written in German.