Replacing Your Heating System: Costs 2026 – Heat Pump, Gas and Subsidies

The new Building Modernisation Act (Gebäudemodernisierungsgesetz, GModG, in force since 29 July 2026), the revised heating subsidy and rising CO₂ prices make replacing the heating a top issue for many homeowners. What does a new heating system cost in 2026? We compare heat pumps, gas boilers and pellets, explain the subsidy landscape and show which heating pays off when.

Heating costs 2026 at a glance

Type of heating	Purchase	With subsidy	Annual running costs*
Air-source heat pump	15,000–25,000 €	10,000–18,000 €	1,200–1,800 €
Ground-source heat pump	20,000–35,000 €	14,000–26,000 €	900–1,400 €
Gas condensing boiler	8,000–15,000 €	No subsidy	1,800–2,500 €
Pellet heating	18,000–30,000 €	12,000–22,000 €	1,400–2,000 €
District heating	5,000–12,000 €	Partly	1,500–2,200 €

*Rough guide values for 150 m² of living space and an unrenovated older building; “With subsidy” is an example with the basic subsidy and the climate speed bonus. Actual quote prices vary widely by region.

The heat pump: future-proof, but expensive

Heat pumps are the most frequently installed heating in new builds and continue to be heavily subsidised in existing buildings too.

Air-to-water heat pump

Cost: 15,000–25,000 € (incl. installation)
Subsidy: 30% basic subsidy, with bonuses up to 70% (up to 80% for low incomes) – calculated on at most 28,000 € of eligible costs
After subsidy: depending on bonuses and quote price, well below the list price
Suitable for: well-insulated houses, underfloor heating

Ground-source heat pump (brine)

Cost: 20,000–35,000 € (incl. ground drilling)
Subsidy: 30% to 70% (up to 80% for low incomes), on at most 28,000 € of eligible costs
Advantage: higher efficiency, also works well in older buildings
Disadvantage: complex installation, permits required

Efficiency figure (seasonal performance factor, JAZ)

The seasonal performance factor (Jahresarbeitszahl, JAZ) shows how much heat is produced per unit of electricity:

JAZ 3 = 1 kWh of electricity produces 3 kWh of heat
JAZ 4+ = very good, only under optimal conditions

Gas heating: allowed again, but with rising bio obligations

With the Building Modernisation Act (GModG), which replaces the previous Building Energy Act (GEG) and whose main new rules have applied since 29 July 2026, the obligation for newly installed heating systems to run on at least 65% renewable energy has been dropped. Gas and oil heating may be installed again in new and existing buildings. The following applies in return:

From 2029, a binding bio share must be gradually blended into gas and oil (“bio staircase”)
From 2028 a green gas or green oil quota is planned; the details are to be regulated by a separate law by 1 December 2026
Fuels for heating are to be climate-neutral by 2045

Source: Federal Ministry for Housing (bmwsb.bund.de), as of 10/2026. A constitutional complaint against the law is pending – changes are therefore not ruled out.

Costs of a gas condensing boiler

Purchase: 8,000–15,000 €
Subsidy: none – the BEG (federal funding for efficient buildings) does not fund pure gas or oil heating
Annual gas costs: 1,500–2,500 € (fluctuating widely)

Note: CO₂ pricing under the Fuel Emissions Trading Act (2026: price corridor 55–65 € per tonne) and the future bio shares make heating with gas more expensive; how much depends on the price development for biomethane.

Pellet heating: the wood alternative

Pellet heating systems are climate-friendly and subsidised:

Cost: 18,000–30,000 € (incl. pellet store)
Subsidy: 30% basic subsidy, with bonuses up to 70% (up to 80% for low incomes)
Pellet costs: guide value approx. 350–400 €/tonne, fluctuating seasonally (current average prices are published by the German Pellet Institute DEPI)
Annual consumption: 4–6 tonnes for a single-family house

Advantage: independent of electricity and gas prices Disadvantage: storage space needed, higher maintenance effort

Subsidy 2026: how much the state pays

The heating subsidy of the Federal Funding for Efficient Buildings (BEG) runs through the KfW grant 458 (KfW is the German state development bank). New conditions apply to applications from 21 July 2026:

Subsidy rates (KfW 458, owner-occupiers)

Component	Subsidy rate
Basic subsidy	30%
Climate speed bonus (replacing an oil, coal, gas-floor-unit, night storage or at least 20-year-old gas/biomass heating)	+16%
Income bonus (taxable annual household income up to 30,000 € / 40,000 € / 50,000 €)	+40% / +30% / +10%
Maximum subsidy	70%, 80% at incomes up to 30,000 € (with a child up to 40,000 €)

Eligible costs: at most 28,000 € for a single-family house (previously 30,000 €); the amount falls by 750 € every six months from 1 February 2027.
Child supplement: if a child under 18 entitled to child benefit lives in the household, the income limit for the bonus rises once by 10,000 €.
Climate speed bonus: falls by 4 percentage points every six months from 1 February 2027 and ceases for applications from 1 August 2028.

Source: kfw.de, product page “Heizungsförderung für Privatpersonen – Wohngebäude (458)”, retrieved 30 October 2026. The subsidy is subject to available budget funds.

Example calculation for a heat pump

Air-source heat pump: 20,000 € eligible costs
Basic subsidy (30%): 6,000 €
Climate speed bonus (16%): 3,200 €
Own contribution: 10,800 € (without income bonus)

Older building vs. new build: what does the heating really cost?

New build (150 m², KfW 55)

Heat pump is standard and optimally fitted
Total heating costs: 15,000–20,000 €
No heating subsidy via KfW 458 – it applies only to existing residential buildings whose building application is at least five years old

Older building (uninsulated, radiators)

A heat pump often needs larger radiators or underfloor heating
Extra costs for adaptation: 5,000–15,000 €
Alternative: hybrid system (heat pump + gas for peak load)

Older building (renovated, underfloor heating)

Ideal conditions for a heat pump
Like a new build, minimal adaptations needed

What does the heating cost to run?

Annual cost comparison (150 m² older building)

Heating	Consumption	Cost/year
Gas (9 ct/kWh)	20,000 kWh	1,800 €
Heat pump (32 ct/kWh, JAZ 3)	6,700 kWh	2,150 €
Heat pump (32 ct/kWh, JAZ 4)	5,000 kWh	1,600 €
Pellets (350 €/t)	5 tonnes	1,750 €

Conclusion: a heat pump pays off only with good efficiency (JAZ 3.5+) or your own PV system.

Money-saving tips when replacing your heating

Maximise the subsidy: up to 70% (80% for low incomes) is possible – the climate speed bonus falls gradually from February 2027.
Combine with a PV system: heat pump + solar power is unbeatably cheap.
Have a hydraulic balancing done: compulsory for the subsidy, saves up to 15% in heating costs.
Compare quotes: price differences of 30% are normal.
Think about insulation: insulate first, then choose a suitable heating system.

The route to a new heating system: step by step

Replacing a heating system is a project that can take months. Anyone who keeps to the right order avoids expensive mistakes and does not lose the subsidy. The first step is an inventory: which heating is installed, how old is it, what has consumption been in recent years, and what condition are the insulation, windows and radiators in? On that basis the heating load can be calculated, that is, the output the building needs on cold days. An oversized system costs unnecessary money and runs inefficiently, and a heat pump also becomes noisy and cycles frequently.

In the second step, obtain at least three quotes from specialist firms. Make sure the quotes are comparable: same output, same accessories such as buffer tank or hot-water preparation, removal of the old system, hydraulic balancing and commissioning. In the third step you clarify the subsidy. Under the KfW’s conditions, the KfW grant (programme 458) must be applied for before the project starts; first, a specialist firm or energy-efficiency expert issues the “confirmation for the application” (Bestätigung zum Antrag, BzA), whose ID you need when applying in “Meine KfW”. A supply and installation contract may only be signed with a condition precedent for the funding commitment. Anyone who signs without that condition or even builds beforehand risks losing the grant. After the commitment come the installation and, after completion, proof of the measure with the invoices and the “confirmation after completion” (Bestätigung nach Durchführung, BnD) from the specialist firm.

Municipal heat planning and district heating

Whether district heating or a heat network is an option depends on where you live. Under the Heat Planning Act (Wärmeplanungsgesetz), municipalities must draw up heat plans showing where heat networks or hydrogen networks are planned in future. Large cities had to submit their plans by mid-2026; smaller municipalities have until mid-2028. Before deciding, ask your city or municipality about the state of planning: if a heat network is to be extended into your street, connecting can be cheaper and more secure in the long term than your own system. Connection is not possible everywhere and depends on the supplier.

District heating has different costs from your own heating. There is a connection fee, a basic charge and a usage price, and you are often bound by price-adjustment clauses that you should check in the contract. One advantage: you do not have to worry about maintenance and fuel. One disadvantage: you have only one provider. Compare the supplier’s information on prices and the origin of the heat before you commit.

Heat pump electricity costs and controllable consumption devices

Heat pumps need electricity, and the tariff decides the economics. Many grid operators offer a dedicated tariff for heat pumps. Under the rules on controllable consumption devices (section 14a of the Energy Industry Act), heat pumps can be briefly throttled when the grid is overloaded, in return for reduced grid charges. The heat supply is usually bridged by a buffer tank, so you hardly notice it in everyday use. Whether a separate meter is worthwhile depends on the grid operator; ask about the conditions before installation.

The running costs of a heat pump depend heavily on the seasonal performance factor. With the calculation shown above at 32 cents per kilowatt hour and a heat demand of 20,000 kilowatt hours, heating costs about 2,150 euros at a factor of 3 and about 1,600 euros at a factor of 4. The difference of 550 euros a year shows how much good design and low flow temperatures are worth. A photovoltaic system of your own reduces the electricity drawn from the grid because part of the heat pump’s power is generated yourself, especially in spring and autumn.

A gas heating system is cheaper to buy, but its running costs are harder to predict. The Fuel Emissions Trading Act puts a CO2 price on fuels, which in 2026 lies in a corridor of 55 to 65 euros per tonne. As a rule of thumb, natural gas produces about 0.2 kilograms of CO2 per kilowatt hour. At consumption of 20,000 kilowatt hours that is about 4 tonnes and therefore roughly 220 to 260 euros a year included in the gas price. If the price rises, your bill rises too, without you changing anything about consumption.

Then there is the planned bio staircase: from 2029, a mandatory bio share is to be blended gradually into gas and oil, which may make the fuel more expensive. How much is open today, because biomethane and green fuels have so far been scarce and more expensive than fossil natural gas. Anyone installing a gas heating system now should therefore allow for price increases in the economic calculation and check whether the system is hydrogen-ready or can later be switched to a heat-network connection. Note also that a constitutional complaint against the law is pending.

Typical mistakes when replacing a heating system

Among the most common mistakes is signing the contract before the funding application. Equally expensive is an oversized system, because the installer calculates with a flat output for safety instead of a calculated heating load. A missing hydraulic balance also costs money permanently in operation, because some rooms are over-supplied while others stay cold. Another mistake: the radiators are not checked. Often it is enough to replace individual radiators to lower the flow temperature, which makes the heat pump more efficient.

Also plan for ancillary costs: electrical work, meter cabinet, foundation for the outdoor unit, noise protection, disposal of the old oil tank or chimney conversion. These items are not always included in the quote. Have additional costs quantified in writing and keep a buffer of about ten percent of the total costs ready. Anyone who also takes up an energy consultation gets a neutral assessment and can receive advice on a sensible order for insulation and heating replacement.

Conclusion: which heating in 2026?

New build: heat pump is standard and the first choice.
Renovated older building: heat pump with underfloor heating is ideal.
Unrenovated older building: hybrid solution, or insulate first.
Near woodland/storage space: consider pellets as an alternative.

With high bonuses, a subsidised heat pump can come close to a gas boiler in purchase cost. Even though gas heating may be installed again since the GModG: rising CO₂ prices and the bio shares required from 2029 make running fossil heating systems hard to predict in the long term. Get several quotes and have an energy efficiency expert advise you before you decide.