KfW Research: Halving power prices could double heat pump sales in Germany

• The electricity-to-gas price ratio is an important lever in increasing heat pump adoption
• Germany needs to catch up on other European countries with regard to this heating technology
• Three in four newly built detached houses already use heat pumps

The electricity-to-gas price ratio plays a critical role in the number of heat pumps sold in a country. They are particularly common where gas is relatively more expensive than electricity. Specifically, in a country such as Germany, where around 11 heat pumps per 1,000 households were sold in 2023 and electricity was around four times more expensive than gas in the previous year, halving the electricity price or doubling the gas price can be expected to nearly double the sale of heat pumps.

This is the finding of an analysis conducted by KfW Research. It investigated the rate of adoption of heat pumps in various European countries and critical factors for their adoption.

"The electricity-to-gas price ratio is a relevant lever in driving heat pump adoption",

said Dr Johannes Rode, energy expert at KfW Research.

"There are various starting points. One of them is a reliable and rising carbon price that leads to a higher gas price. Attractive heat pump electricity rates are another option. It must be considered that low-income households in particular tend to reside in energy-inefficient buildings. It is therefore necessary to roll out accompanying measures such as grants or low-interest loans to make the energy transition socially just."

Overall, the sale of heat pumps in Europe has roughly quadrupled in the past ten years, with a minor year-on-year drop only in 2023. In Germany, 11 heat pumps were sold per 1,000 households in the year 2023. In Switzerland it was 17, in France 23, in Sweden 36 and Norway, the top performer, it was 57. Germany ranked 17th among 21 countries studied.

The situation is similar with regard to existing heat pumps, with the Scandinavian countries again taking top positions. In Norway and Finland, half of all residential buildings already have a heat pump, while in Germany it is only five per cent.

Nevertheless, a noticeable structural change is occurring in new buildings in Germany. Heat pumps are now the main heating technology used here. In the year 2023, heat pumps were installed in 72 per cent of approved detached houses and 52 per cent of multi-family residential buildings.

The transition is evident across the entire heating market. Whereas in 2019 only one in ten heating systems sold were a heat pump, that ratio already increased to one in four in the past two years.

The full study can be found at www.kfw.de/fokus