Germany wants to get away from fossil fuels for understandable reasons – and as quickly as possible. To this end, by 2040, if possible, all of the energy that has been generated from the combustion of oil, gas and coal should come from renewable sources.
For comparison: Today almost 50 percent of the electricity comes from renewable sources. Of course, it would be more honest to take a look at Germany’s total energy consumption, i.e. including consumption for heat and transport – because here the share of renewables is a modest 17 percent.
If you want to decarbonize not only the German economy, but also society, you must not ignore space heating in private households. Economics Minister Robert Habeck (Greens) is undoubtedly right. Space heating accounts for around 70 percent of the energy consumption in private households and is largely generated using gas and oil. Around 40 percent of the natural gas consumed in Germany is used to heat buildings.
There are 43 million apartments in Germany. Of these, more than 30 million were built before 1990, more than half of them before 1977, i.e. before the first Energy Saving Ordinance. The building sector regularly exceeds the maximum emissions permitted under the Climate Protection Act, including 2022.
The federal government is now planning to only allow the installation of heating systems from next year that use at least 65 percent of the energy from renewable sources. Indirectly, the plans therefore amount to a ban on oil and gas heating. By 2030, the number of heat pumps is expected to increase from the current one million to four to six million.
government is under pressure
The electric heat pump is an efficient technology for generating thermal heat, as the high quality of the electricity is used in the best possible way. It uses the ambient heat from the ground or the outside air and raises its temperature with the help of an electric-powered compressor and two heat exchangers.
Very efficient plants require one unit of electricity to produce three to 4.5 units of heat. Anyone who burns 2,000 liters of heating oil in a year would therefore get by with around 5,000 to 7,000 kilowatt hours of electricity – with today’s heating oil and electricity prices, this is roughly a zero-sum game.
The installation of a heat pump only makes economic sense in new buildings or old buildings that have been renovated in terms of energy efficiency. Currently, only one percent of the building stock is renovated in terms of energy efficiency each year. So far, the very ambitious target of 2 or even 2.5 percent has been aimed for, in which case it would take 40 to 50 years to completely renovate the existing building. However, an annual renovation rate of at least four percent is necessary.
With this planned technology change, the government is under great time pressure. According to the draft law, fossil fuel heaters are to lose their operating license at the end of December 2044. Since heating systems have a service life of at least 20 years, replacement must begin quickly.
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The government does not appear to be relying on market-based instruments to take effect quickly, as many economists recommend. The hope: CO2 emissions trading makes fossil fuels more expensive, so that households are encouraged to switch to a heat pump.
The problem: The gradual price increases for pollution certificates often do not have a sufficiently strong signal effect due to the habituation effect. This can result in markets not reacting quickly enough, even if they have great future potential, the contribution to climate protection that can be expected is significant and there is great socio-political interest in the growth of this market.
In this case, the state can try to correct market failures through regulations. Market forces are then replaced by government intervention, such as a ban on oil and gas heating, which implicitly amounts to the mandatory installation of heat pumps in residential buildings.
Prof. Bert Rürup is President of the Handelsblatt Research Institute (HRI) and Chief Economist of the Handelsblatt. For many years he was a member and chairman of the German Council of Economic Experts and an adviser to several federal and foreign governments. More about his work and his team at research.handelsblatt.com.
In this way, the federal government is trying to solve the coordination problem in the emergence of a market – the “chicken and egg problem”. Because investments must be made on both the supply and the demand side, which must be coordinated with one another. The manufacturers of heat pumps are now to be relieved of part of the investment risk associated with large-scale production capacities, since the de facto installation obligation ensures high demand.
Because the market potential for heat pumps is immense. Last year, 980,000 heating systems were installed in Germany. Of these, 655,000 were gas or oil heaters and 236,000 were heat pumps. Starting next year, more than 800,000 heat pumps would have to be installed every year – some as a hybrid solution with an additional gas heater for particularly cold days.
Demand for electricity will increase noticeably, especially in winter
So far, the federal government has aimed for a target of 500,000 heaters. For understandable reasons, Veronika Grimm is skeptical that the required heat pumps can be manufactured and installed quickly enough.
A problem that has received too little attention so far is that the demand for electricity will increase noticeably, especially in the winter months, i.e. a season in which significantly less renewable electricity is produced than in summer. Since the Federal Republic of Germany will no longer use nuclear energy from this spring, a large part of the electricity required will have to be generated from fossil fuels – by coal or gas-fired power plants. The positive climate protection effect of switching to the heat pump is therefore likely to be small for a long time to come.
The government is under time pressure to change technology in the energy sector.
(Photo: dpa)
In addition, the hesitant expansion of the power grids could prove to be a bottleneck. Possible electricity rationing at peak times is already being discussed between energy suppliers and the automotive and heating industries. The reason: the growing number of private households installing heat pumps or charging stations for e-cars.
The Federal Network Agency therefore warns of “local power failures”. The expansion of the transport infrastructure for electricity is therefore at least as important as the production and installation of heat pumps and renewable energy.
Minister Habeck’s heat pump plan may be well intentioned, but it is not well done. The state’s coordination function in market development cannot be limited to securing demand through an indirect installation obligation.
Politicians should also ensure that the complementary investments in the expansion of renewable energies and electricity grids and the energy renovation of the building stock are carried out in parallel. If this does not succeed, the rapid change in technology is likely to fail – and thus an important pillar of climate protection policy will collapse.
More: Ban on oil and gas heating – This is what the plans mean for owners