Market drivers of heat pumps
Customers not connected to district heating typically choose between fossil fuel-based heating systems (such as gas, oil, coal, or wood), electric heaters, and heat pumps. The primary motivation for installing a heat pump is energy cost savings, as heat pumps consume significantly less energy — 3–5 times less than conventional heating methods. They become even more attractive when the electricity-to-gas (or diesel) price ratio decreases. Heat pumps also help reduce greenhouse gas emissions, an important factor for European environmentally conscious consumers. However, there are drawbacks. The initial investment is high, with air-to-water heat pumps costing around €8,000–€12,000, compared to approximately €2,000 for a gas boiler. Noise levels can also be a concern. In some cases, installing a heat pump may require modifications to the home, adding further complexity and cost to the decision.
The growth of heat pumps in Europe
The adoption of heat pumps began early in the Nordic countries between 1990 and 2010, driven by the introduction of carbon and energy taxes to reduce dependence on oil after the oil crisis in 1970s. These policies made heat pumps an attractive alternative by increasing the cost of fossil fuel-based heating, making them a dominant heating system in houses not connected to district heating by 2010. In the following decade, with the growing awareness around climate change, heat pumps gained traction across the rest of Europe, heat pumps sales grew at an average annual rate of 10–15% a year in 2012–2021, with sales in top 10 markets growing from 0.6 million units to 1.8 million units respectively. Key drivers of this growth were increasing awareness and government support through subsidies, such as grants or tax discounts. Depending on the country, subsidies covered anywhere from 30% of the total cost to 110% – as seen in Italy’s Superbonus program in 2020–2022. The subsidies significantly reduced the upfront cost of installation, making heat pumps more accessible and competitive in comparison to conventional heating systems. For instance, introducing 30% subsidies in the Netherlands in 2016 led to 100% growth of heat pump sales.
Impact of the 2022 energy crisis on heat pump sales
The energy crisis of 2022 led to a sharp increase in heat pump sales, with growth of ~40% (from 1.8 million units sold in 2021 to 2.5 million units sold in 2022 in the top 10 markets). The key drivers were extremely high energy prices and a reduced electricity-to-gas price ratio. Heat pumps became a viable solution for homeowners looking to reduce their energy expenses.
Market decline in 2024
By 2024, the heat pump market slowed down – heat pumps sales declined by ~20% in 2023–2024. One key factor was the decrease in energy prices, as wholesale prices stabilized, and governments introduced price caps or reduced taxes for retail energy prices. In addition, some countries faced uncertainty or reduction of government support in the context of elections or termination of subsidies programs. The broader macroeconomic context also played a role, driving a slowdown in new building projects (e.g., ~20% decline in building permits in 2023) that substantially affect heat pumps installations as new builds account for 30–60% of heat pump sales.
Outlook for the European heat pump market
While 2025 is expected to be a transitional year, by 2026–2027, the heat pump market is forecasted to return to its pre-energy crisis growth trajectory. Energy prices are predicted to decline – futures prices dropping by 30–40% between 2024 and 2026/2027. Additionally, government subsidy schemes are being relaunched as governments focus on meeting their energy and environmental targets. The construction market is also expected to recover with the improvement in the macroeconomic context. In addition, several countries, including Austria and Germany, are set to introduce bans on fossil-fuel heating systems in new buildings. This will provide an additional tailwind for the heat pump market. As a result, heat pump sales in Europe are expected to stabilize by 2027 and grow by 10–15% in the years following.
Country snapshot: Germany
- Germany’s decarbonization ambitions: target of 6m heat pump installations by 2030 and full decarbonization of heating by 2045, with 65% renewable energy in new heating systems (2024–2028: location size-based rollout)
- 2023 surge in demand: the “Wärmepumpenoffensive“ amid energy security concerns and high gas prices drove demand for heat pumps as a stable, long-term alternative
- 2024 market dip: regulatory uncertainty and delays in incentive programs (BEG) created confusion, while temporary gas VAT cut/cap made fossil fuel heating more attractive
- Short-term market stabilization with structural and policy-driven tailwinds: policy clarity and BEG full implementation will stabilize demand and boost consumer confidence, aligning with national climate goals
- Mid-term growth supported by subsidies and new building regulation: anticipated drop in energy prices is expected to return the market on pre-energy crisis trajectory and building’s regulation create additional tailwinds
Apricum’s new heat pump market model delivers data-driven insights
Apricum latest proprietary market model for the heat pump sector provides robust data to enhance its deep understanding of the market drivers, dynamics, technologies and regulations in the heat pump space. Updated quarterly, this new market model forecasts the number of heat pump installations in European countries in 2025–2030. It is a bottom-up model that takes into account:
- Existing heating systems in each country
- Key market drivers in each country
- Market sensitivity to the changes in the key drivers, informed by historical market behavior
The model offers three scenarios:
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- Centre scenario: assuming stabilization of energy prices closer to the pre-energy crises levels, current policies, and restored construction market
- Low scenario: assuming relatively high electricity-to-gas ratios, an unfavorable macroeconomic context, and a rule out of announced bans on fossil fuel heating systems
- High scenario: assuming relatively low electricity-to-gas ratios, restored construction market, announced or enhanced policies (for countries with targets on heat pump
How we can help you
Heat pumps play a crucial role in the energy transition. Acknowledged by politicians, investors, and cleantech thought leaders, and propelled by emerging trends, the heat pump market is experiencing growth. Companies are expanding their presence through both organic and inorganic strategies. Success in this evolving landscape demands a comprehensive understanding of market dynamics, technologies, and regulations.
Apricum has extensive experience and knowledge in the renewable energy and cleantech sector including the heat pump segment covering the full up- and downstream value chains. We offer a full spectrum of services in strategy consulting (such as market screening and assessment, value chain/portfolio strategy or business model/plan development) and transaction advisory (e.g., M&A, debt and equity fundraising, due diligence). If you would like to learn more about how we can support your company in entering or expanding your activities in the heat pump market, please contact Apricum Managing Partner Nikolai Dobrott.
Further reading on related topics
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Der Beitrag European heat pump market outlook: Insights from Apricum’s new market model erschien zuerst auf Apricum - The Cleantech Advisory.