Despite record sales in 2023, Germany’s political target of 500,000 heat pumps for 2024 looks out of reach amid a drastic drop in natural gas prices and a drawn-out political fight over heat pump mandates.
Germany’s building sector is a climate laggard. Installing 500,000 heat pumps a year from 2024 was the political target to help with the country’s projected CO2 overshoot of some 50 million tonnes – the annual emissions of Austria – by 2030.
However, due to a political deadlock over heat pump mandates from 2024 and a return to pre-war gas prices, that target looks to be out of reach.
Outwardly, the industry is mostly smiles. Last year was a bumper year for the sector, with sales topping 356,000 units – up 50% from 2022. Sales in Germany propped up the results for all of Europe.
But in private conversation, the industry says that pace can’t be maintained. Selling an extra 150,000 heat pumps in 2024 to meet the government target, jointly agreed with heat pump producers and installers, will prove too challenging.
“Sales have been on a downward trend since June 2023,” stressed Martin Sabel, CEO of the German heat pump industry association BWP, on 22 January. According to the lobbyist, “the most recent slump in December 2023 is particularly alarming” with a “40% drop in sales”.
A BWP industry study forecasts sales of just 260,000 for 2024 should there be “no additional measures”.
What happened?
Germany’s heat pump industry is becoming the victim of a perfect storm: regulatory uncertainty combined with low gas prices.
From 2024, the government initially wanted to make heat pumps mandatory in all of Germany – after all, the country sought to reduce its dependence on Russia as fast as possible.
This mostly “green” ambition faltered in the face of opposition from landlords and the liberal FDP – the smallest member of the tripartite government. Instead, large cities must create heating plans until mid-2026 – which citizens must check before deciding on a new heating system. For smaller towns with less than 100,000 inhabitants, mid-2028 applies.
Simultaneously, the institution doling out the subsidies to make the switch easier changed in 2024. New applications for funding can only be submitted from March.
Add the long-term natural gas prices, which the EU-wide benchmark, TTF, puts at significantly below early 2022 prices – one MWh runs around €30 for all the 2020s. New German customers can expect to pay around 7 cents per kWh of gas as of January 2024, whilst electricity comes in at around 27 cents.
Whilst heat pumps are about three times more efficient than gas boilers – given their use of ambient heat – the large price disparity adds to the industries’ sales woes. The industry and experts generally agree that electricity prices should at most be 2.5 times higher than gas to incentivise heat pump sales.
In 2023, German consumer gas prices climbed to 10 cents a kWh on average, whilst electricity hovered around 30 cents per kWh – much closer to the “ideal” ratio than can be expected for 2024.
The industry is well aware of this. “If the general conditions do not improve and politicians do not actively intervene, we expect sales to remain the same or even decline in 2024,” says Sabel.
Initially, a special electricity tax tariff for heat pumps was being designed in Berlin. The German budget woes – €60 billion in credit lines were ruled illegitimate by the top court – quickly put a stop to this process, one industry insider said.
The German government “remains true to its stance on heat pumps: grandiose targets are being missed by miles,” said Thorsten Frei, chief whip of the centre-right CDU in the Bundestag, calling the targets “expensive and inefficient.”
The major players in Germany’s heat pump markets, many of which are not publicly traded, are largely hesitant to comment on their expectations for 2024.
Vaillant did not respond to a request for comment. Viessmann, recently acquired by US juggernaut Carrier, is now publicly traded and can’t comment before 6 February. FAZ reported that Stiebel Eltron is settling overtime claims and eyeing cuts in shifts.
[Edited by Nathalie Weatherald]
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