Heat transition threatens to fail due to costs

10.09.2025

Source: E & M powernews

The McKinsey Energy Transition Index shows: The heating transition is central to the energy transition, but costs, a shortage of skilled workers and unclear framework conditions are slowing it down massively.

The heat supply accounts for more than half of final energy consumption in Germany. According to the latest Energy Transition Index by management consultants McKinsey, decarbonizing the sector will require investments of between 245 and 430 billion euros by 2030. The study analyzed the existing municipal heating plans - the ten largest municipalities in Baden-Württemberg, which had already completed their heating planning by the end of 2023 due to early statutory regulation, served as the data basis.

Despite regional differences, the plans for the heating transition show ambitious measures across the board to reduce energy demand by renovating buildings and expanding green heating networks and heat pumps. The same approach is emerging across all municipalities for the future, emission-reduced energy source mix: while regions with a high heat demand density are focusing on heating networks, heat pumps are to be used primarily in less densely populated areas.

However, the progress made so far is not sufficient to achieve the target of climate neutrality by 2045 set out in the German Federal Climate Protection Act. The renovation rate currently stands at 0.6 percent, but should rise to up to 2 percent. According to this study, a lack of economic viability, 12,000 unfilled vacancies in the skilled trades and a shortage of funds in local authorities and budgets are also among the biggest obstacles.

High need for investment in heating networks

Heat demand in Germany is still predominantly covered by natural gas, oil and coal. In future, heating networks and heat pumps will secure the supply. Heating networks currently supply around 1.3 million buildings, but almost two thirds of generation is still based on fossil fuels.

An additional 100,000 connections per year are planned for expansion by 2030. The densification and expansion of existing networks could cover up to 80 percent of this growth, but would require investments of up to 15 billion euros. The construction of new grids would require up to a further 5 billion euros.

Expansion of renewable heat generation

The Heat Planning Act stipulates a share of at least 50 percent renewable energies or waste heat in heating networks by 2030. This figure is currently around one third nationwide. To achieve the target, an additional 75 to 80 terawatt hours would have to be provided from green sources.

Heat pumps should also play a central role. Although around 1.7 million systems were installed at the end of 2024, the 500,000 new installations per year targeted by the German government remain unattained. The German Heat Pump Industry Association (BWP) expects only 260,000 new appliances in 2025. It believes that uncertainties regarding subsidies and grid charges as well as bottlenecks in the electricity grid are hampering development.

Pragmatism in implementation

"In order to drive forward the decarbonization of heating, pragmatic approaches should also be considered," says Fridolin Pflugmann, co-author and also a Partner in Frankfurt. McKinsey therefore recommends additional measures that have so far been insufficiently considered in many municipal heating plans. Optimizing heating systems and using smart control systems could significantly reduce energy requirements. Around 80 percent of heating systems are set incorrectly; corrections could bring savings of up to 5 percent.

Geothermal energy could also make an important contribution. According to studies, the potential is up to 900 terawatt hours. Over 150 projects with a capacity of up to 2 GW are currently being planned. The gradual replacement of oil heating systems with natural gas or heat pump systems is also mentioned as a short-term option for reducing emissions.

Author: Heidi Roider