Rapid Growth in the Heat Pump Market

Germany's heat pump market expanded considerably in 2020 – up 41% relative to 2019 – and entered the European top three for the first time ever. This expansion continued in 2021, with the market growing 28% for an annual total of 154,000 units sold. The German market is dominated by air-to-water heat pumps (increasing from a 79% share in 2020 to 82% in 2021), followed by ground-source heat pumps (18% in 2021).i The federal government also has set a target of a cumulative six million heat pumps to be installed by 2030 – six-times the stock of 2020.

The market has benefited from a succession of climate policies aimed at promoting more sustainable heating systems. For example, Germany's 2019 Climate Policy Package bans the use of oil heating in new and existing buildings starting in 2026, and the 2020 National Energy and Climate Plan sets a target for 27% renewable heating by 2030. In practice, the right conditions for replacing oil with heat pumps in new buildings are set by a combination of energy performance building regulations (the Energy Saving Ordinance, or EnEV) and an aggressive subsidy system, supported through the government-funded Market Incentive Programme (MAP) and preferential interest loans delivered through the KfW development bank.ii

Launched in 2000, the MAP provides low-interest loans or investment grants of up to 35% for conversion to a renewable heating system if gas boilers are replaced and up to 45% if an oil heater is replaced. Because the programme has significantly lowered the upfront costs of heat pump installation, by 2016 around 23% of new homes in Germany were using a heat pump as their main heating system, up from less than 1% in 2000. For existing buildings, the country requires replacing all fossil fuel heating systems that are more than 30 years old; however, even though the MAP grant is higher in such cases, these systems typically still are replaced with more efficient gas or oil boilers. Germany's national heat pump association estimates that nearly a quarter of the heat pumps installed in 2020 replaced old oil-fired systems, amounting to some 30,000 units. A barrier to greater uptake of heat pumps is the high price of electricity in Germany, among the highest in Europe due to significant taxes and surcharges, amounting to 53% of the total bill in 2020. A carbon tax, introduced in 2021, will be redirected towards green subsidies, helping to reduce the gap between the electricity price and the price of natural gas or oil. In early 2022, the government went a step further by announcing the removal of the renewable energy levy (”EEG surcharge“) on electricity bills by 2023. in April 2022, the timeline was moved up in response to the sharp rise in energy prices and the need for a secure heating supply, and the EEG is now slated to be transferred to the federal budget as early as July 2022.

i German statistics do not include reversible air-to-air heat pumps to avoid counting units used only for cooling.

ii KfW supports businesses and municipalities using larger heating systems, while the MAP incentives are directed towards private consumers, professionals, companies, municipalities and other eligible parties such as non-profit organisations. Source: See endnote 22 for this section.

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