The German state regulates every nook and cranny of a house down to the last detail – and is thus also the biggest cost driver in building and renting. Especially under the banner of “climate and energy policy”, horrendous expenses are coming down on homeowners. Probably the most drastic project: Robert Habeck’s “Heating Act” with its de facto ban on new oil and gas heating systems from 2024 – which was supposedly changed after a major coalition row.

But has it really been defused? What is in store for owners of rental and apartment buildings? Below we describe the key data of the compromise, a kind of position paper. The law itself is still being voted on in the Bundestag.

At the beginning of June 2023, the coalition agreed on a supposed compromise after a long dispute about the Heating Act – officially the Building Energy Act (GEG). It is to apply unchanged from 1 January 2024. The government’s message, however, is that German homeowners “now have more time to switch to climate-friendly heating systems”. In fact, however, there is no great difference from the previous draft.

Full course for renewable energies

– From 2024, every newly installed heating system in new buildings must now be powered by at least 65% renewable energy. New systems in existing buildings will only have to comply with the obligation “from around 2028”. In essence, nothing new. Hardship regulations were already being discussed before.

– The “transitional period” is intended to create the precondition that homeowners can weigh up the options when replacing their heating system, whether they want to switch to a heat pump or connect to a district heating network instead. The focus on district heating as a second pillar is new.

– From 2045, however, this will be the end: from then on, no more heating systems may be operated with fossil fuels such as natural gas or heating oil.

The heating technologies

The government boasts that it has “designed the law in a pragmatic and deliberately technology-neutral way”, including “individual solutions”. You can also prove the renewable share arithmetically. So nothing has changed with regard to the obligatory “65 % share”. However, owners can now choose between various “legally provided options for at least 65 % renewable heating”:

– Connection to a heating network,

– electric heat pump,

– direct electricity heating,

– Hybrid heating (combination of renewable heating and gas or oil boiler),

– heating based on solar thermal energy

– heating based on wood and wood pellets.

In addition, under certain conditions, there is the possibility of so-called “H2-ready” gas heating systems, i.e. heating systems that can be converted to 100 % hydrogen. Further options are envisaged for existing buildings: Biomass heating and gas heating that uses renewable gases, i.e. biomethane, biogenic liquid gas or hydrogen.

District heating and municipal heating planning

From 2028, there will now be municipal heat planning in Germany – and in this respect a certain possibility to connect to the district heating network, as cities and municipalities are to expand this area. This means that the GEG will be closely linked to heat planning in the municipalities and will only apply once municipal heat planning is in place. For this purpose, a separate law is to be passed that obliges municipalities to define areas that are possible for heat grids. This planning, in turn, is to be in place by 2028.

Federal Climate Minister Robert Habeck (The Greens) announced that in future 100,000 buildings are to be connected to existing or new heating networks each year. In view of 43 million German households, of which just six million are supplied with district heating, this is a drop in the ocean. The current market share is thus only 14 %. The municipalities consider a tripling of the share by 2045 possible, which would be 42 %. By 2030, the grids should have a share of at least 50 % heat from renewable sources or waste heat, and by 2045 they must be climate-neutral.

District heating will thus only be theoretical for the majority of owners: In smaller cities and municipalities, the construction of such a network is likely to be almost impossible in most cases – for purely financial reasons and because the construction of such an infrastructure is not worthwhile across the board; unless there are biomass projects there. But even in metropolises like Berlin, entire streets would have to be torn up – which will not happen in most places. Municipal heat planning is therefore only relevant for some of the owners and thus protects them from making their own investments. However, only if “a connection to a heating network is foreseeable, transition periods of up to ten years apply”, should the heating system have to be replaced from 2024.

Otherwise, the installation of a costly heat pump and the like will be due. However, as long as no heat planning exists on site, homeowners are given a grace period. They can then install a new gas heating system – as long as it can be converted to hydrogen. However, Habeck immediately sets limits to this: If a new hydrogen-capable gas heating system is installed, but hydrogen does not arrive after a transition period, the 65 per cent target of the law would have to be “met in a different way”. These are triple pirouettes that always end up with the same thing: It will be expensive.

Old enough?

For owners over 80 years of age who occupy a building with up to six flats themselves, the obligation to convert to renewable heating is to be waived in the event of a heating system failure. This is also to apply to the replacement of floor heating systems for flat owners who are 80 years and older and live in the flat themselves. Here, too: This was already being discussed before.

Are there subsidies?

Special subsidies will only be available for people in owner-occupied housing who replace an old heating system with a new one. So far there is no talk of support for landlords, apart from the – completely self-evident – tax write-offs.

Government “protects tenants” – and burdens landlords

The government pretends to be open to technology – always within its 65% dogma. But when it comes to paying, tenants are to be “protected from too high operating costs and from too high a share in the investment costs for a new heating system”. Heating costs for biogas “may then only be billed in the amount that would be required to generate the same amount of heat with a sufficiently efficient heat pump”. Likewise for “all biogenic fuels, in particular also pellets/solid biomass.”

Furthermore, if a heat pump is installed in “an energetically inferior building”, landlords should only be able to levy a modernisation charge if the heat pump achieves an efficiency of at least 2.5. Otherwise, only 50% of the investment costs can be apportioned. In these constellations, landlords are left with part of their costs.

Conclusion: Horrendous cost driver instead of 180-degree turnaround

The law – if it comes to pass – has become more open to technology. However, there is no way around the 65% share of renewables. And it will apply to every newly installed heating system from 2024. Drastic and, above all, cost-reducing changes compared to the Habeck draft are not discernible, with the exception of the plan to invest more in district heating – which will make investments significantly lower for those for whom it will be relevant. The transitional periods until 2028 also only apply to the district heating sector. Added to this is the three-year grace period within which one must convert one’s plant to renewable energy sources after an accident. A breathing space and more time for planning and financing, but at the end of the day no financial relief and certainly no “180-degree turnaround”, as celebrated by the FDP. It can be said: Habeck got his way as far as possible, but in public it was sold as relief for homeowners.

In addition, the federal government is threatening all those who quickly install a gas or oil heating system that it will be too expensive. Yet increases in energy costs are mainly due to political factors, such as the CO2 price invented under the Merkel government in 2021. It is a de facto tax that will rise to a minimum of 55 and a maximum of 65 euros by 2026.

Since investments in the heating technologies permitted from 2024 will be considerably more expensive than in proven oil and gas heating systems, many owners are faced with the question of financing and rental returns. In addition: heat pumps only work if the house is insulated and there is underfloor heating. In addition, they incur high electricity costs. This adds significant follow-up costs to the bill for the new heating system, which can drive some owners to the brink of ruin. The only way out: selling the property.

The federal government’s draft of the Building Energy Act – 183 pages long after all – went before the Bundestag on 15 June 2023. Changes are to be expected in the parliamentary procedure, which we will update here once they have been completed.