Subsidy design likely contributes to high heat pump prices in Germany – analysis
Clean Energy Wire
The design of Germany’s heat pump subsidy scheme, one of the most generous in the world, is likely one of the reasons why installations are much more expensive in the country than elsewhere in Europe, according to a research paper by Oxford University researcher Jan Rosenow and Marek Miara from advisory organisation Heat Pumps Watch.
Heat pumps are the most important technology to decarbonise heating, which is one of the country’s laggard sectors when it comes to meeting emission reduction targets.
A specification-matched comparison found that installing an air-to-water heat pump costs around 35,000 euros in Germany before subsidies, compared with around 12,000 euros for a similar system in the UK, according to the paper.
The authors found this is only partly explained by higher German equipment prices. While the German market is dominated by European manufacturers, Asian brands hold larger shares in many other markets. Stricter installation rules (such as mandatory concrete foundations and electrical distribution board upgrades), and VAT also contribute to the difference, whereas labour costs play almost no role, the analysis found.
The remaining price gap is likely linked to the design of Germany's subsidy scheme itself, according to the paper. Because subsidies cover a percentage of costs (30 to 70 percent) rather than a fixed amount, installers who inflate quotes see the state absorb much of the increase, weakening households' incentive to negotiate down prices.
“Germany's experience carries wider lessons for European countries designing or reforming heat pump support schemes,” the authors conclude. “The interaction between proportional subsidy design and market pricing dynamics, where generous percentage-based subsidies weaken competitive pressure on installers, is a structural problem that can arise wherever installation costs are high and subsidies are proportional to them.”
Despite the high costs, heat pump sales rose 40 percent to around 195,000 units in the first half of 2026. Heating industry association BDH said manufacturers sold 352,000 heating units of all types between January and June, 19 percent more than in the same period last year. Gas boiler sales rose 1 percent to 134,000 units, while oil heating fell 11 percent and biomass systems dipped 1 percent, the BDH said.
If growth continues at the same pace for the rest of the year, total sales could reach around 700,000 units in 2026 – a modest recovery from 2025, but still well below the level needed to meet Germany's climate targets, the BDH said. “To further accelerate the modernisation of the building stock and achieve climate targets, the market needs a further boost.”
The BDH estimates around 4 million heating systems in Germany are older than 30 years, and more than 40 percent of the country's 21.5 million heating systems do not meet current technical standards.