Germany mandates switch to heating via renewables with Building Energy Act amendment

The legislation, which supports Germany’s decarbonisation plans, was passed by the Bundestag on 8 September 2023. Subject to exceptions, it will apply from 1 January 2024.

The amendment is the second update made to the Building Energy Act since it came into force on 1 November 1 2020. The Act contains, among other things, requirements for the energy quality of buildings, the preparation and use of energy certificates and the use of renewable energies in buildings. The Act implemented the EU Buildings Directive, which imposed the lowest-energy building as standard for new buildings from 2021.

The second amendment enshrines in law the switch to renewable energies for heating, and will spur the decarbonisation of heat supply in Germany. Around three quarters of heating systems in Germany are currently powered by fossil fuels, particularly gas and oil.

Dr. Sönke Gödeke, an energy law expert at Pinsent Masons, said: "The amendment is a further building block in achieving the targeted climate neutrality in 2045. To achieve this, Germany must become independent of fossil fuels, especially for heating."

The amendment has far-reaching implications for companies, particularly in the construction industry, the skilled trades, and the housing sector. In new construction areas, every heating system installed in new buildings is to use at least 65% renewable energies from 1 January 2024, unless the transitional periods or exemptions provided for in the amendment apply by way of exception.

The focus of the amendment is on new heating systems, as these are used for an average of 20 to 30 years and the government wants to ensure they are low carbon from the outset. Existing heating systems, however, can continue to be operated as before. This is a compromise reached in the legislative process to mitigate the economic hardships otherwise caused by the amendment.

The shift to cut emissions associated with heating  is to be further implemented by a law for heat planning and decarbonisation of heat networks, the Heat Planning Act. In this context, comprehensive government support is to help accelerate the transition and provide support for the economic burdens. The obligation to install new heating systems will only apply once binding municipal heat planning is in place. According to the draft law, which has not yet been passed and is also scheduled to come into force on 1 January 2024, municipalities with a population of 100,000 or more will have to draw up a binding municipal heating plan by 30 June 2026, and municipalities with a population of up to 100,000 by 30 June 2028.

According to the proposals, if municipalities submit the heat plan before the deadlines, the 65% requirement will apply from one month after the heat plan is announced. Financial support is provided in the form of various investment cost subsidies, low-interest loans from the state development bank KfW, or tax benefits. Households with low incomes may be eligible for a subsidy of up to 70% of the acquisition costs.

"The new energy laws confront builders and the construction industry with significant economic burdens and increasingly complex regulatory challenges," said Gödeke.

The second amendment is designed to be technology neutral. Those who want to switch to heating with 65% renewable energy under the Building Energy Act can choose between various technological options, such as connection to a heating network, electric heat pump, direct electricity heating, hybrid heating – which is a combination of renewable heating and gas or oil boiler – as well as heating based on solar thermal energy. A shift to so-called "H2-Ready" gas heating systems – heating systems that can be converted to 100% hydrogen – will also be possible.

"The increasing variety of options for heat supply poses new challenges for manufacturing businesses and makes the centralisation of the necessary know-how in larger corporate units attractive," said Dr. Sandra Schuh, an expert in M&A and corporate law at Pinsent Masons.

Gödeke and Schuh said that the heat transition offers great challenges, but also great opportunities for the economy. They said the amendment of the Building Energy Act for the installation of new heating systems provides companies in the construction industry with a degree of certainty that will help them to make investment decisions in climate-neutral products, facilities or services. However, they added that large areas of the future heating infrastructure in Germany still remain unclear.