Concept and strategy collapse in the renewable energy market with heat pumps: causes, challenges and perspectives

In 2024, the German market for heat pumps experienced a dramatic slump that raised far-reaching questions and uncertainties. Despite intensive political efforts to promote more climate-friendly heating systems, sales of heat pumps fell by a full 54 percent compared to the previous year. While 356,000 devices were sold in the first half of 2023, this number fell to just 90,000 in the same period of 2024. This massive decline highlights the discrepancy between the federal government's ambitious goals and the reality of the renewable energy market.

The Federal Heat Pump Association (BWP) had originally forecast sales of around 500,000 heat pumps for 2024, but this estimate turned out to be significantly too optimistic. The reasons for this slump are diverse and range from legal uncertainties to economic and technical challenges. The question of how the market for heat pumps can be revitalized is of central importance, not only for achieving Germany's climate goals, but also for the future of the entire renewable energy sector.

Political goals and reality

The German government has set itself ambitious goals as part of the Building Energy Act (GEG): The proportion of climate-friendly heating systems is to be increased significantly, with heat pumps playing a central role. These are considered a particularly environmentally friendly alternative to conventional gas and oil heating as they use the heat stored in the environment and therefore work largely emission-free. The federal government plans to install up to 950,000 heat pumps annually by 2030.

However, these ambitious goals are in stark contrast to current market developments. The drastic decline in sales figures in 2024 clearly shows that it is not enough to set political guidelines - the framework conditions must also be right so that consumers trust in new technologies and are willing to invest in them.

Uncertainty caused by the Building Energy Act (GEG)

One of the main reasons for the collapse in heat pump sales is the uncertainty caused by the new Building Energy Act (GEG), which will come into force in 2024. The law sets stricter requirements for heating systems in order to reduce CO₂ emissions from buildings and achieve climate goals. Although these regulations are fundamentally sensible and necessary to combat climate change, they have caused considerable uncertainty for many homeowners.

The often opaque and constantly changing legal situation, coupled with the discussion about possible technological openness, leads to a wait-and-see attitude.

Many potential buyers wait because they don't know whether their property is even suitable for the use of a heat pump or whether expensive retrofits will be necessary. Older buildings in particular are often not adequately insulated or have outdated heating systems, which makes the use of heat pumps difficult or even impossible. In such cases, extensive renovation measures would have to be carried out, which deters many homeowners.

In addition, the discussion about municipal heating plans is causing uncertainty. These plans should be available by 2028 at the latest and could provide for alternative energy sources such as district heating. Many consumers therefore hesitate to decide on a heat pump because they fear that their investment could be unnecessary in a few years.

Technical challenges in existing buildings

Another problem lies in the technical requirements for the use of heat pumps in existing buildings. While new buildings are often already designed so that they can be optimally operated with a heat pump - for example through good insulation and underfloor heating - the situation is often different in older buildings. Many of these houses are poorly insulated or have radiators that rely on high flow temperatures. However, heat pumps work most efficiently at low temperatures.

In order to be able to effectively operate a heat pump in an old building, extensive modernization measures are often necessary. This includes, among other things, improving insulation and replacing old radiators with modern low-temperature heating systems such as underfloor heating or special radiators for operation with heat pumps. These measures cause additional costs and deter many homeowners.

Economic factors and funding programs

Another key factor in the market collapse is the economic situation of many households. Purchasing a heat pump involves high investment costs - especially if additional renovation work is required. Although there are government funding programs to support the switch to climate-friendly heating systems, these are often not enough to fully cover the high initial investments.

In addition, rising construction and material costs in recent years have led to many homeowners having to postpone their construction or renovation plans. Even if long-term savings in operating costs are possible - since a heat pump uses less energy than conventional heating systems - many consumers are put off by the high initial costs.

Perspectives and solutions

Despite the current challenges, there are ways to revitalize the heat pump market and make it successful in the long term. Targeted information campaigns as well as transparent and reliable political frameworks play a central role.

1. Improving the information situation

Many homeowners feel unsure about whether their property is suitable for a heat pump or what measures would be necessary to use this technology sensibly. Consulting services could help here: Independent energy consultants could show individual solutions and thus strengthen trust in the technology.

2. Adjustment of the funding programs

In order to make switching to climate-friendly heating systems more attractive, government funding programs should be further expanded. Lower-income households in particular need additional financial support to be able to afford such an investment.

3. Technological advancements

The efficiency of heat pumps could be further increased through technological innovations - for example through new systems that work efficiently even at higher flow temperatures or through hybrid solutions that combine different energy sources.

4. Long-term planning security

In order to eliminate uncertainties regarding municipal heating plans, they should be drawn up as quickly as possible. The sooner homeowners know whether their region will be connected to a district heating network or not, the sooner they can make informed decisions.

5. Promotion of remediation measures

Since many existing buildings cannot easily be operated with a heat pump, energy-saving renovations should also be given greater support. Better insulation not only reduces a home's overall energy needs, but also enables a heat pump to operate efficiently.

High electricity prices act as a disincentive

Another important factor is the high electricity prices in Germany. Although heat pumps are considered particularly energy efficient and emit significantly less CO₂ compared to gas or oil heating, they still require electricity to operate. The high electricity costs make operating a heat pump less attractive compared to conventional heating systems.

Industry representatives are therefore calling for a reduction in electricity prices for users of heat pumps or special tariffs in order to make the operation more economically profitable. Such a measure could help more households switch to this climate-friendly technology.

Better integration of heat planning and GEG

Another uncertainty factor is the interlinking of the GEG with municipal heat planning. Many homeowners are waiting because they don't know whether their region will be connected to a district heating network in the future or whether other local solutions will be available. This lack of clarity leads to investments in new heating systems being postponed. Early creation of municipal heat plans: Municipal heat planning should be accelerated in order to give citizens clarity as quickly as possible about the future heat supply in their region. The sooner homeowners know whether their region will be connected to a district heating network or not, the sooner they can make informed decisions.

Consistent regulations: It is important that the regulations for heat planning and the GEG are designed without contradictions. There are currently still discrepancies between the GEG and the Heat Planning Act (WPG) that urgently need to be clarified5. Clear and coherent legislation would help restore consumer confidence.

Extension of transition periods

The transition periods in the GEG ensure that homeowners have time to adjust to the new regulations, but many still feel under pressure. Extending these deadlines could help take the pressure off consumers and give them more time to make an informed decision.

More flexible deadlines for existing buildings: Older buildings in particular often require extensive renovation work before a heat pump or other climate-friendly heating system can be sensibly operated. Longer transition periods or additional exceptions could be granted here.

Strengthening trust through stable legislation

The frequent changes to the GEG have weakened the trust of many consumers in the heating transition. In order to regain this trust, it is important that future changes to the law are well prepared and clearly communicated.

Creating stability: The government should be careful not to make any short-term changes to the GEG or at least announce them at an early stage. This would help create planning security for investors and homeowners.

Better involvement of citizens: Citizens should be more closely involved in the decision-making process for shaping the energy transition5. This could be done through public consultations or information events. Greater participation would not only increase trust, but also help ensure that measures are better tailored to the needs of the population.

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• The market for heat pumps collapses by over half (54 percent) - uncertainty caused by the Building Energy Act and other factors