Bundestag passes amendment to Building Energy Act

The Bundestag has passed the watered-down amendment to the Gebäudeenergiegesetz (GEG), or Building Energy Act, in a significantly toned-down approach to the original draft for new heating systems proposed by Federal Minister of Economics Robert Habeck, which would have amounted to an effective ban on all new oil and gas boilers.

The move is designed to accelerate the shift to heat pumps, solar panels and hydrogen boilers as part of a broader drive to reach a national target of carbon neutrality by 2045. The controversial amendment was eventually passed earlier this month (September) with 679 votes cast: 399 voted in favour of the law, 275 members against and five abstained.

From January next year, the amended GEG will require newly installed heating systems to be powered by at least 65% renewable energy. For heating systems in existing buildings and in new buildings outside of new development areas, the 65% regulation will only apply once municipal heating plans are in place, i.e. in cities with more than 100,000 inhabitants from 1 July 2026 at the latest, and in smaller municipalities from 1 July 1 2028.

The watered-down version of Habeck’s draft bill, which called for the 65% renewable energy target to apply to all new heating systems, would have led to total savings of around 54 million metric tons of CO2 equivalents between the years 2024 and 2030, according to the Öko-Institut. However, under the terms of the passed bill, the savings are likely to be cut to around 39 million metric tons.

Building sector to miss 2030 emissions targets

Habeck has defended the amended bill as a ‘good law’ and criticised the opposition for its constant attacks on the plan: ‘I think it is justified to respond to this law with specific and concerned questions,’ he said. What you shouldn’t do, however, is pull the wool over people’s eyes: to say that we set (climate) goals but we do nothing to ensure that these goals are achieved.’ However, his ministry has admitted that under the terms of the weakened bill, the building sector will miss its 2030 emissions targets.

The bill ignited one of the most bitter fights in Chancellor Olaf Scholz’s fragile coalition, which has also struggled with in-fighting over contentious topics such as child benefit and nuclear power. The departments in charge of the GEG amendment, Construction and Economics, are focusing in particular on electric heat pumps. However, under pressure from the Liberals, numerous exceptions were written into the bill. Landlords who invest in a GEG-compliant heating system will be able to pass on 10% of the costs to tenants instead of 8%. Linked to the higher modernization levy is an obligation to provide advice before installing new heating systems that run on solid, liquid or gaseous fuels.

In principle, the Building Energy Act applies to all buildings that are heated or air-conditioned. Most of the regulations relate to heating technology and thermal insulation. However, since the energy balance of the building also plays a role, other points are also regulated by the Act, in particular specifications on hot water generation, ventilation systems and the electricity required to operate building services, such as boilers and pumps.

The German government has committed itself to reducing the proportion of heating in the building sector that is powered by fossil energy. This is because, according to the Ministry of Economics, more than 80% of heating demand is met by burning oil and gas - before the start of the Russian war, mainly via natural gas from Russia. According to the German Association of Energy and Water Industries, 148 million metric tons of CO2 were produced in 2021 in heating, cooling and hot water provision in buildings. This corresponds to 22 percent of energy-related CO2 emissions in Germany. The Federal Environment Agency puts fossil CO2 emissions from heat generation in private buildings at 115.15 million metric tons for 2021.

District heating accounts for 14% of the market: could triple by 2045

Six out of 43 million households in Germany are currently supplied with district heating, which corresponds to a market share of 14%, according to those who track the market.

The municipal utilities, which operate 90% of the heating networks in Germany, are confident about the expansion. The VKU, which brings together the municipal utilities, believes that a tripling of the market share of district heating is conceivable by 2045.

However, many district heating offers are suspected of being overpriced because the operators of heating networks are monopoly suppliers. Once you have abandoned your old boiler and connected up to the heating network, you are usually tied to a contract for many years, making it hard to switch. The German Tenants' Association (DMB) and the Federation of German Consumer Organizations (VZBV) are calling for improved consumer and tenant protection in the expansion of district heating.

Part of the problem is that gas heating systems, for example, have been subsidized in Germany for a long time, according to Benjamin Pfluger from the Fraunhofer Research Institution for Energy Infrastructures and Geothermal Energy IEG: ‘Germany made itself comfortable in its cozy corner of cheap Russian gas and slept through the transformation. And that's hitting us doubly hard now,’ he said. And now, a lot of action has to be taken, and fast: ‘The way we heat is simply not sustainable. Therefore, moving away from fossil fuel heating systems is completely inevitable.’

‘Eerie mixture of attentism and investment reluctance among owners and landlords’

Yet the issue of cost is still rearing its ugly head. As president of Haus & Grund Deutschland, Kai Warnecke, told ‘WirtschaftsWoche’: ‘As a consequence of the numerous uncertainties, there is an eerie mixture of attentism and investment reluctance among owners and landlords’ who fear drastically rising costs for new heating systems. ‘If we take a classic single-family house from the seventies, then replacing the oil heating system is no longer feasible for €10,000,’ he said. ‘Then the complete refurbishment with a heat pump can cost €100,000,’ Warnecke warned. To ease the burden on owners and tenants alike, the law provides for government subsidies of up to 70% of the investment cost.

When it comes to subsidies, it makes a big difference whether a landlord or owner-occupier applies for them. Yet tenants also want to know what a new heating system would mean for their rent.

Subsequently, the German government now wants to promote and push the purchase of climate-friendly heating systems, although the country lags behind its peers: only 5.75 heat pumps per 1,000 households were sold in Germany last year, compared with almost three times as many in the Netherlands and France, according to the European Heat Pump Association (EHPA).  Scandinavian countries are well ahead, with Finland leading the way with 69.36 heat pumps. Manuel Ruppert, group leader for transport and energy at the Karlsruhe Institute of Technology (KIT), believes that the amendment to the GEG is in principle ‘a sensible instrument’: ‘In recent years, we have observed a very high inertia in the building sector as far as renovations are concerned,’ he said. Ultimately, if Germany wants to achieve its climate targets, greenhouse gas emissions must be reduced in all areas.

Fear that subsidy could ‘massively disadvantage’ tenants and landlords compared to owner-occupiers

However, not everyone in the industry is impressed. Real estate associations have voiced concerns that the cap of €0.50 per square meter is, in many cases, not economically feasible for landlords. The housing industry association GdW has complained that the subsidy planned according to the GEG would ‘massively disadvantage’ tenants and landlords compared to owner-occupiers. GdW president Axel Gedaschko went so far as to call it a ‘farce’, calling for further improvements.

Still, the big question of how to heat your own property in the cheapest and most climate-friendly way possible is certainly one that everyone is asking. Ultimately, people will have to decide whether to invest in a heat pump or whether to rely on a supply of district heating or heat from wastewater. The Heat Planning Act (WPG) passed by the German cabinet last month should make the decision easier because it enables home owners to see what heat supply their local municipality is primarily considering, as well as showing whether the municipality is planning a local or district heating network at a site or plans to convert the current gas network to hydrogen.

In principle, municipal heat planning gives homeowners more options for climate-neutral heating. However, the Federal Association of the German Heating Industry (BDH) points out the long lead times to plan and implement heating networks. As a result, it is likely to take until the end of the decade for heating networks to be noticeably expanded. This could further delay the heat turnaround. According to the Association of Municipal Companies (VKU), policymakers need to promote heating networks much more strongly in order to achieve measurable progress.

For now, the political infighting continues. Katharina Droeg of the Green party has hailed the bill as ‘a huge step for climate protection’ providing future heating that is ‘reliable, predictable and affordable for all’. Others are more sceptical. As Alexander Dobrindt, a member of the centre-right CSU puts it: ‘People are simply afraid that they won’t be able to afford the heating law and this fear is plainly justified…it is polarising society.’