Heating replacement: Gas, oil, pellets or heat pump – what pays off long term?

Lea Foster

Energieeffizienz-Expertin, Content-Managerin

Introduction: Why this guidance matters now

The heating system is broken or at its limit – and the question is: Gas, oil, pellets or heat pump? Debate around the heating law and the planned Building Modernisation Act (GMG) has unsettled many owners and managers. Constant news on rules, funding and technology requirements makes long-term planning harder. The decision does not have to be made in the dark.

This article brings calm to the debate and offers orientation. It brings together the relevant facts: How does the choice of heating affect building efficiency and primary energy factor? What do the systems cost to install and over their lifetime? What role do the bio staircase, property value in 10 years, operating costs for tenants and achievable rents play? And what about environmental balance? So you can make an objective, long-term decision – with the aim of choosing a heating system that proves stable, economical and compliant (sustainability, good environmental balance, meeting future EU rules) (GMG key points, EPBD).

Structure: First the legal framework (GMG 2026, bio staircase), then comparison of heating systems and their impact on efficiency and the energy certificate. Then investment costs, property value, operating costs and rents, the role of the energy certificate and environmental balance. At the end a compact comparison and checklist for your investment decision.

Legal framework: GMG 2026 and your choice

The planned Building Modernisation Act (GMG) is expected to enter into force before 1 July 2026 (Baulinks – GMG 2026, ee-experten). It replaces or overlays parts of the previous Building Energy Act (GEG). For you as owner or manager this mainly means:

• End of the 65 % rule: The blanket requirement that new heating must use at least 65 % renewable energy is removed. The corresponding GEG provisions (§§ 71–71p, § 72) are deleted (Ökozentrum NRW – GEG/GMG update).
• Choice: You have free choice between heat pump, district heating, hybrid systems, biomass and gas or oil heating (ee-experten – GMG key points). The variety of options has a downside: anyone choosing a fossil heating system today often commits to 15–20 years of CO₂ costs, bio quotas and possible devaluation – the decision is still yours, but should factor in long-term risks.
• No mandatory replacement: Working heating systems do not have to be replaced. The GMG focuses on protecting existing stock and avoids mandates and operating bans.
• BEG funding: Federal funding for efficient buildings (BEG) is financially secured until at least 2029 (ee-experten).

So the GMG allows continued operation of outdated technology – while from 2029 the bio staircase applies to new gas and oil heating. You should factor this into your cost and efficiency planning from the start.

The bio staircase from 2029

From 1 January 2029 the so-called bio staircase applies to newly installed gas and oil heating (GMG key points/ee-experten). In practice:

• A minimum 10 % share of CO₂-neutral fuels (e.g. biomethane, synthetic fuels, bio heating oil) must be used. The share is set to rise in further steps until 2040; exact quotas will be set in the law.
• No CO₂ price applies to the climate-friendly share – that is intended to limit extra cost. How the market for green gas and bio heating oil will develop is still unclear.
• The aim is to ease the burden on owners and shift climate costs further into the future. Anyone choosing gas or oil will need to factor in the availability and price of bio fuels and rising quotas.

For your investment decision: New gas or oil heating remains possible, but will be tied to the bio staircase over the years. That affects long-term operating costs and planning certainty (see section on investment costs).

Against this legal background it is worth looking at the technology: How does the choice between gas boiler, oil, pellet heating and heat pump actually affect building efficiency?

Heating systems overview: Efficiency and primary energy factor

Four systems are especially in focus when replacing old heating: gas boiler (including condensing gas), oil heating, pellet heating and heat pump (air, ground, water). In addition there are hybrid solutions and district heating, depending on the property. What matters for building efficiency and the energy certificate is how much “primary energy” is counted per unit of heat supplied – i.e. the primary energy factor.

What is the primary energy factor and why does it matter?

The primary energy factor reflects the energy effort from source to use: extraction, processing, transport and losses. It is defined in the Building Energy Act (GEG) in Annex 4 and § 22 (BBSR – Primary energy factors, geg-info.de § 22). In the energy certificate it feeds into the primary energy demand (in kWh/m²a) – the lower the demand, the better the building efficiency and usually the efficiency class.

Typical values under GEG (guide values, as of sources):

• Grid electricity: 1.8 (from renewables on-site: 0.0).
• Natural gas / heating oil (fossil): 1.1; lignite 1.2.
• District heating: determined via § 22 paras. 2–5 (incl. Carnot method until 2030); large heat pumps in networks are considered separately.
• Geothermal, ambient heat, solar thermal: 0.0.
• Biomass: e.g. wood 0.2; biogas/bio oil 1.1; biomethane from grid depending on boiler/CHP 0.5–0.7.

Practical example: With the same final energy demand of e.g. 70 kWh/m²a, gas heating (factor 1.1) gives a primary energy demand of 77 kWh/m²a – a heat pump using ambient heat (factor 0) can meet the same demand with 0 kWh/m²a primary energy in the balance. So the choice of heating directly affects the primary energy demand and efficiency class shown in the energy certificate (Promietrecht – primary energy demand, Energieheld).

How heating choice shapes building efficiency

With the same heat demand of the building (same final energy demand), a lower primary energy factor leads to lower primary energy demand and thus usually to a better efficiency class in the energy certificate. The national scale (A+ to H) will be aligned with the European EPBD by end 2029 (new scale A–G) (EPBD). For buyers, tenants and lenders the efficiency class will become even more the central indicator of building quality – and heating is one of the main levers.

In short: Gas boiler and oil heating (PEF 1.1) increase primary energy demand; pellet heating (wood, PEF 0.2) is clearly lower, the heat pump (PEF 0) even more favourable. Anyone aiming long-term for a better efficiency class and higher property value should factor this into investment planning.

Investment costs: Acquisition and total costs over lifespan

The choice between gas, oil, pellets and heat pump depends heavily on acquisition and lifecycle costs. All figures below are guide values and depend strongly on building, region and specification (HeizCenter, HeizCenter pellet costs, Infranken).

Acquisition costs (before funding)

• Air-source heat pump: approx. 27,000–40,000 €; ground-source heat pump: approx. 40,000–50,000 €.
• Gas heating: approx. 9,000–15,500 €.
• Oil heating: approx. 12,000–16,000 €.
• Pellet heating: approx. 18,500–32,000 € (boiler, storage, feed system, buffer, installation; HeizCenter, ADAC).

Federal funding for efficient buildings (BEG) supports installation of heat pumps with up to 70 % of eligible costs (base funding plus bonuses, e.g. efficiency, climate or income bonus). Maximum funding is up to 30,000 € for one dwelling, up to 45,000 € for two. Important: the application must be submitted before contract signing and installation (ee-experten – heat pump funding, Infranken). Example: With 30,000 € eligible cost and 70 % grant, 9,000 € remains net – so the net cost of an air-source heat pump can move close to or below a new gas heating system. Pellet heating is supported via BEG with up to 30 % base funding (sometimes up to 70 % with replacement and climate bonuses); application before works with KfW (energie-experten). Gas and oil heating are generally not funded to the same extent at present.

Costs over 15 to 20 years

Over the lifespan, operating costs matter a lot. Example calculations (as of cited sources) for a typical single-family house – including projected CO₂ pricing (see below). Note on oil heating: Oil heating often looks so cheap in comparisons only because heating oil is currently at a historic low. For a less distorted comparison, the oil figures here are based on a 10-year average heating oil price (e.g. around 79 ct/litre, Statista).

• Heat pump: annual heating costs in the order of about 715 €/year; over 20 years total cost e.g. around 45,000 €. Electricity is subject to CO₂ pricing; the share for heating electricity is low compared to fossil fuels, so CO₂ price risk stays low.
• Gas heating: about 1,180 €/year (including CO₂ share); over 20 years e.g. about 65,000–72,000 €. With rising CO₂ pricing, total costs can be at or above the upper end.
• Oil heating: at 10-year average heating oil price about 1,350–1,600 €/year (incl. CO₂); over 20 years e.g. about 40,000–50,000 €. With rising CO₂ pricing and bio staircase (bio heating oil from 2029), total costs can be at the upper end of the range or above – same rules as for gas. At currently low oil prices, running costs are temporarily lower; long-term the 10-year average is the safer assumption for planning.
• Pellet heating: about 1,200–1,800 €/year (pellets, maintenance, electricity for feed system; no CO₂ pricing on biomass). Over 20 years e.g. about 45,000–65,000 €. Pellet prices vary (wood market, demand); often more stable long-term than oil/gas (DEPV, HeizCenter).

So heat pump and pellet heating can be competitive over 20 years despite higher acquisition cost; payback is often around 8–15 years (HeizCenter, Infranken). These figures are for orientation – projected CO₂ increases, fuel prices and the bio staircase for gas/oil can shift the calculation further and strengthen the relative advantage of the heat pump.

CO₂ pricing in cost planning

CO₂ pricing on heating and transport fuels is already included in the operating costs of gas and oil heating and is expected to rise further. Currently the CO₂ price in Germany is about 55 €/t (2025), for 2026 around 55–65 €/t is expected (Heizung.de – CO₂ tax 2025). From 2027 the European ETS 2 emissions trading for buildings applies; prices will then be market-based, and experts expect a further rise (nachhaltiges-zuhause.de – CO₂ price trend). For a typical single-family house (example: 20,000 kWh gas or 2,000 l heating oil), current rates already mean annual CO₂ costs in the order of about 240–350 € (gas) or 350–410 € (oil) – and as price per tonne CO₂ rises, these shares increase. The heat pump is only indirectly affected via electricity; the heating electricity share and high efficiency (SCOP) keep CO₂ price risk relatively low. Pellet heating (biomass) is not subject to CO₂ pricing on the fuel. Gas and oil are affected equally: same CO₂ price (and its rise, e.g. ETS2 from 2027) and from 2029 the bio staircase (min. 10 % green gas or bio heating oil, rising). In all 20-year calculations you should therefore allow for rising CO₂ price and bio quotas for both systems; the ranges given (65,000–72,000 € gas, 40,000–50,000 € oil, 45,000–65,000 € pellets at 10-year average heating oil or typical pellet price) allow for moderate to significant CO₂ price development and the bio staircase (gas/oil).

Impact of the bio staircase on cost calculation

From 2029 the same bio staircase applies to both gas and oil heating: the mandatory share of CO₂-neutral fuels (min. 10 %, rising until 2040) applies to gas (biomethane/green gas) and oil (bio heating oil) alike. Pellet heating is not affected – pellets are already biomass and not subject to a fossil blending quota. That can increase operating costs if biogas, biomethane or bio heating oil are more expensive than conventional fuels. Exemption from CO₂ price on the bio share dampens the effect – the fossil share remains subject to CO₂ pricing, which is projected to rise further (ETS2 from 2027). Anyone planning gas or oil heating today should factor rising bio quotas, CO₂ price trends and long-term availability of bio fuels into the investment calculation.

Risks for your investment decision

The choice of heating determines which global markets and supply chains you depend on – and how exposed your operating costs are to crises.

Prices and dependence on producing countries: Gas and oil in Europe come to a large extent from countries with strong market power or political instability (e.g. Russia, OPEC countries, Norway). Prices and availability react strongly to geopolitical decisions, sanctions and production quotas. Electricity for a heat pump comes from the domestic or European mix; the share of renewables is growing and reduces dependence on individual authoritarian supplier countries. Anyone wanting to limit price shocks and supply risks long-term typically has a broader and increasingly diversified source with electricity-based, efficient heating.

Wars and global economy: Conflicts (e.g. war in Ukraine), trade disputes and recessions have in the past led to sharp price spikes for gas and heating oil. Such events are hard to predict; but a heating system is often operated for 15–20 years. Anyone factoring this volatility into planning may prefer systems whose fuel costs depend less on individual crisis regions.

Supply chains: Fossil fuels need pipelines, tankers, refineries and storage – disruptions (e.g. sabotage, embargoes or technical failure) can lead to regional or temporary shortages and price jumps. Pellet heating often sources fuel regionally (wood industry, suppliers); on-site storage is needed, and the supply chain is less dependent on individual exporting countries than gas/oil. Heat pumps get energy via the electricity grid; the supply chain is structured differently (power plants, grids, possibly decentralised generation). Components (e.g. heat pump units) are also part of global supply chains – here markets have stabilised again after recent upheavals.

For your decision: Global risks are not unique to one technology, but gas and oil are highly dependent on commodity markets and producing countries. Pellet heating mostly uses domestic or European wood resources. Heat pumps spread the risk across the electricity mix and domestic or European generation – over a lifespan of 15–20 years an additional planning factor for owners and managers.

Costs are one thing – the other question is the value of your property. How does the choice of heating affect property value in 10 years?

Property value in 10 years: Heating choice and investment

The choice of heating affects the market value of the building through several channels (How the energy certificate affects your loan conditions, Energy certificate & rent index):

1. Energy certificate: Better primary energy demand and efficiency class increase attractiveness to buyers and support or increase value.
2. Expected follow-on costs: Buyers and banks increasingly take energy efficiency into account; lower heating costs and lower refurbishment risk can mean better credit terms and higher prices (How the energy certificate affects your loan conditions).
3. Regulation: Alignment of efficiency classes with the EPBD by 2029 (new A–G scale) and possible future EU requirements can devalue buildings with outdated fossil heating long-term (“stranded asset” risk).

If you compare the extra investment in a more efficient heating system (e.g. heat pump) with the expected value trend over 10 years: often the better efficiency class, lower operating costs and higher future security justify the initially higher cost. No blanket statement is possible – building, location and financing must be checked case by case. More on how the energy certificate affects credit terms: How the energy certificate affects your loan conditions.

For let properties another factor applies: Operating costs and achievable rents.

Operating costs and tenants: What heating means for tenants

The chosen heating directly affects allocatable operating costs. These include operation, maintenance and provision of heating and hot water. On average, operating costs in rented homes in 2023 were about 2.51 €/m²/month (Heizspiegel – operating costs). More efficient heating usually reduces consumption and thus costs that can be passed on to tenants – that increases the attractiveness of the dwelling and can reduce rent arrears and vacancy. Passing on modernisation costs (e.g. new heating) is subject to tenancy law and limited (§ 559 BGB – allocation of modernisation).

Impact on achievable rents

In many cities the energy consumption indicator from the energy certificate feeds into the rent index. For example the Berlin rent index has included energy indicators since 2009 as value-increasing or value-reducing factors (Berlin rent index, BMGEV – EVK):

• Low values (e.g. below 120, 100 or 80 kWh/(m²a)) are treated as value-increasing – premiums on the reference rent of up to about +20 % are possible.
• High values (e.g. above 170, 210 or 250 kWh/(m²a)) are treated as value-reducing – discounts of up to about −20 % are possible.

For an 80 m² dwelling the difference between the upper and lower end of the range can be more than 250 € per month – solely due to the energy indicator (Energy certificate & rent index). Investing in efficient heating therefore improves the energy certificate and creates the basis for higher achievable rents. Details in the article Energy certificate & rent index: How energy indicators affect rents and property value.

All these effects – efficiency class, value, rents – are reflected in one document: the energy certificate.

The energy certificate: Where heating choice shows up

The energy certificate is the central document where your heating decision is reflected in indicators:

• Primary energy demand (qP) in kWh/m²a – largely influenced by the primary energy factor of the heating system,
• Final energy demand or consumption,
• Energy efficiency class (currently A+ to H; from May 2026 gradually new scale A–G under EU rules),
• CO₂ emissions of the building.

After a heating replacement a new energy certificate is usually required, as the system technology and thus the balance change. A heat pump typically leads to clearly better values than pure gas or oil heating; pellet heating (PEF 0.2) sits between fossil systems and heat pump. How a heat pump specifically affects the energy certificate is described in the article How a heat pump affects the energy certificate.

Besides euro amounts and property value there is another argument: environmental balance.

Impact on environmental balance

Regardless of cost and property value, the choice of heating has an environmental dimension. Over a lifespan of 20 years a heat pump (with today’s electricity mix) in typical comparisons causes about 50 tonnes CO₂ less than gas heating (HeizCenter, Infranken – order of magnitude). As the share of green electricity grows, the heat pump’s balance improves further. Pellet heating (biomass) is treated as CO₂-neutral in the balance and improves the environmental balance compared to gas/oil. Oil and gas heating remain dependent on burning fossil fuels; the bio staircase softens the CO₂ balance but does not raise it to the level of fully renewable heat supply.

For many owners and managers environmental balance is an additional, non-monetary argument: anyone considering sustainability and meeting future EU climate targets has more planning certainty long-term with an efficient, renewable or hybrid solution and a clear contribution to climate protection.

Comparison and decision guide

BEG: Federal funding for efficient buildings; application required before commissioning. With funding, the net cost of a heat pump can fall to the order of a new gas heating system. Pellet heating: up to 30 % base funding, with bonuses up to 70 % possible (KfW).

There is no blanket “best” system – the optimal choice depends on the building, the availability of district heating or ground loops, budget and your planning horizon. As a checklist for your decision you can use:

1. Legal: Check GMG 2026, bio staircase from 2029, BEG funding and application deadlines.
2. Costs: Acquisition plus rough operating costs over 15–20 years including projected CO₂ pricing (and bio staircase for gas/oil).
3. Energy certificate: What primary energy demand and efficiency class are achievable with which heating?
4. Property value: Expected value trend over 10 years and financing terms.
5. Tenants/rents: Impact on operating costs and achievable rents (rent index).
6. Environment: Weight given to CO₂ balance and future regulation.

In short: The choice of heating directly affects primary energy demand and efficiency class in the energy certificate – and thus property value, achievable rents and operating costs. With the right preparation you make a decision that fits your building and your planning horizon.

Conclusion and next steps

The polarised debate around the heating law does not have to dominate your investment decision. How heating affects building efficiency is something you can follow in this article via primary energy factor, costs, property value, rents and environmental balance. That leads to nuanced recommendations – not a blanket “one solution for all”, but orientation depending on your building and your priorities:

Three concrete steps for implementation:

1. Check energy certificate – What indicators does your building have today? How would they change with different heating options? A current energy certificate provides the basis for planning.
2. Secure funding – For heat pump, submit the BEG application before commissioning; check deadlines and conditions with KfW/BAFA.
3. Get advice – If unsure (e.g. refurbishment status, heat demand, suitability for heat pump) use qualified energy advice.

That way you make a level-headed decision tailored to your situation as owner or manager – without rush, but with clear orientation from the analysis above. Heating remains one of the most important levers for building efficiency; your consideration is worth it.