Clarity for consumers: This is what the heating subsidy looks like

Energy - Clarity for consumers: This is what the heating subsidy looks like

Homeowners finally have clarity on what the future state subsidy for switching to a new climate-friendly heating system will look like. As the Federal Ministry of Economics informed the German Press Agency in response to an inquiry, the new heating subsidy will come into force as planned on January 1, 2024.

The Bundestag Budget Committee still has to give its approval, but this is considered certain. According to the ministry, applications for funding can be submitted to the state development bank KfW from the end of February - even retroactively for projects that have already begun. Specifically, this involves a new funding guideline for the Federal Funding for Efficient Buildings (BEG). This also includes other refurbishment measures such as roof insulation or window replacement.

New heating law and heat planning

The new Building Energy Act, which was agreed upon by the coalition government after a long struggle, is intended to accelerate the heating transition in the building sector for greater climate protection - in other words, the move away from fossil fuels such as oil and gas. At its core, the law stipulates that in future, every newly installed heating system should be operated on the basis of 65% renewable energy. It is due to come into force on January 1, 2024, but will initially only apply to new-build areas.

For existing buildings, municipal heating planning is to be the linchpin. It should be available in major cities from mid-2026 and for the remaining municipalities from mid-2028. Homeowners should then have clarity as to whether they should be connected to a district heating network, for example, or whether they should look for their own decentralized solutions for a new heating system - such as a heat pump.

Key points of future funding

The replacement of heating systems is already subsidized. A reform is now planned. The most important changes: Owner-occupiers can receive a speed bonus under certain conditions and low-income owner-occupiers can also receive an income bonus. This is intended to accelerate the switch to climate-friendly heating systems and take better account of social hardship, as stated in the directive.

Basic funding and bonuses

There is a basic subsidy of 30 percent of the investment costs for replacing old, fossil-fuel heating systems with new heating systems based on renewable energies in existing buildings. This includes heat pumps, solar thermal systems and biomass heating systems. This basic funding is open to private homeowners, landlords, companies, non-profit organizations and local authorities.

For heat pumps that use water, ground or waste water as a heat source or use a natural refrigerant, there is an efficiency bonus of an additional five percent. For biomass heating systems, a bonus of 2500 euros is granted if they meet a certain dust emission limit.

In addition, there is an income bonus of 30 percent of the investment costs. This is available to owner-occupiers with an annual taxable household income of up to 40,000 euros.

There is also an additional speed bonus of 20 percent of the investment costs - as an incentive to retrofit as early as possible. From 2029 onwards, this bonus is to be reduced by three percentage points every two years. From January 1, 2037, the bonus will no longer apply according to the directive.

According to the ministry, the "speed bonus" is granted for the replacement of functioning oil, coal, gas or night storage heating systems as well as biomass and gas heating systems that are more than twenty years old.

Extension of the "speed bonus" is not coming

After the construction summit, the plan was actually to increase the "speed bonus" to 25 percent in 2024 and 2025 and to extend it to housing companies and landlords. However, this will not happen for cost reasons. Following the Federal Constitutional Court's budget ruling, the federal government has to plug holes worth billions. However, billions of euros are still earmarked for federal funding for efficient buildings in the coming years.

Maximum limit for eligible costs

It should be possible to combine the bonuses, but only up to a maximum subsidy rate of 70 percent. The maximum eligible investment costs for a heating system replacement are 30,000 euros for a single-family home or the first residential unit in a multi-party house. In this case, the maximum amount of the state subsidy is 21,000 euros. For the second to sixth residential unit, the upper limit is 15,000 euros each, and 8,000 euros each from the seventh unit onwards. In a multi-party house, the eligible costs increase by 15,000 euros for each of the second to sixth residential units and by 8,000 euros from the seventh residential unit onwards. For non-residential buildings, according to the ministry, limits apply to the eligible costs based on the number of square meters.

Currently, for example, there is a subsidy of up to 40 percent for the installation of a heat pump, with the maximum eligible investment costs being 60,000 euros per calendar year - this applies to the replacement of heating systems and other efficiency measures.

What is new is that the maximum limits for eligible costs for replacing heating systems and for efficiency measures can be combined. In total, a maximum limit of 90,000 euros in eligible costs per calendar year would then apply for a single-family home if there is an individual renovation roadmap. According to the ministry, the maximum eligible expenditure for all measures carried out on the building is currently 60,000 euros within a calendar year.

In addition to the investment cost subsidies, low-interest loans of up to 120,000 euros per residential unit are to be offered via the state development bank KfW for private owner-occupiers of residential buildings with an annual taxable household income of up to 90,000 euros.

The funding schedule

In future, applications for grants to replace heating systems can be submitted to the state development bank KfW. The Federal Office of Economics and Export Control concentrates on promoting other efficiency measures for refurbishments. The supplementary loan can be applied for via the house bank.

According to the ministry, the heating replacement can be commissioned from December 29 after publication of the guideline in the Federal Gazette - subject to the approval of the budget committee - and the funding application can be submitted subsequently. "So you can already benefit from the new subsidy rates then." The prerequisite is that the conditions from the funding guideline are met. This transitional regulation applies to projects that are started by August 31, 2024. The application must then be submitted by November 30, 2024. The technical application for heating subsidies from the KfW for private owner-occupiers in single-family homes is expected to be possible from February 27, 2024.

According to the ministry, under the transitional regulation, a concluded supply or service contract with a specialist company must be submitted with the application for the heating subsidy and for other efficiency measures.

How associations rate the new funding

"The new BEG funding will not trigger any euphoria, but on balance we are satisfied," said Stefan Bolln, Chairman of the GIH energy consultant association. The funding for individual measures such as replacing heating systems will be more targeted in future and will reach more people, especially thanks to the speed bonus.

Martin Sabel, Managing Director of the German Heat Pump Association, said it was essential that the funding program came into force on time on 1 January 2024 - in order to end the current uncertainty. Measured in terms of BEG funding applications, demand for heat pumps is currently more than 70 percent below the previous year's level.