New German study warns gas heating costs could nearly double by 2040, heat pumps offer stable savings

Rising gas heating costs

The IW study, quoted by RP Online, calculates the annual heating cost for a typical household in a partially renovated apartment with 10,000 kilowatt-hours consumption. Under the baseline scenario, costs rise from around 1,080 euros in 2026 to 1,952 euros by 2040. This near-doubling is driven by the new legal requirement to blend increasing shares of biomethane from 2029 onward, which pushes up fuel prices.

Households could be tempted into investments that appear permissible in the short term but prove uneconomical or regulatory unsustainable in the long term.

Heat pump cost stability

By contrast, a heat pump would largely hold heating costs steady over the same period. For a partially renovated older apartment, the study projects savings of 1,000 euros or more per year compared to a gas system. The institute therefore recommends favouring heat pumps despite the new law allowing continued installation of fossil-fuel boilers.

Policy pivot and rising uncertainty

The Merz government’s reformed heating law scrapped the previous 65-percent renewable energy mandate for new heating systems. While gas and oil boilers remain permitted, they must use a rising minimum proportion of climate-neutral fuels such as biomethane starting 1 January 2029, a mechanism dubbed the “bio staircase.” The IW researchers argue this creates fresh regulatory and cost uncertainty, with the possible price spread much wider under the new rules than if gas were used alone.

Fraunhofer’s parallel warning

Earlier in July, the Fraunhofer Institute issued a similar caution. Its study concluded that a large-scale shift to biogas will fail because most households will instead adopt heat pumps or connect to district heating networks, making the gas grid economically unviable.

The switch to biogas doesn’t work because a large portion of households are moving to heat pumps or district heating networks.

Fraunhofer predicted that energy suppliers “will not be able to offer competitive gas prices by 2045 at the latest,” adding that gas networks will “in all likelihood” be decommissioned by then.

Market signals already shifting

Heat pumps already became the most-installed heating technology in Germany in 2023, and the IW expects further momentum in 2026. The contradictory signals, permitting gas boilers while cutting heat-pump subsidies, risk locking households into investments with built-in cost escalation, the institute warned.