Energy Renovation in Germany 2026: Duties, Costs and Funding Explained

From the GEG to the GModG

The law that now counts is the Gebäudemodernisierungsgesetz (GModG, Building Modernisation Act). It evolved from the Gebäudeenergiegesetz (GEG, Building Energy Act) of 8 August 2020, which became known as the "heating law" with its 2024 heating rules. The Bundestag passed the reform on 10 July 2026, the Bundesrat approved it, and it was published on 28 July 2026 (BGBl. 2026 I No. 226).

The law still bundles the rules on new builds, insulation, building services, heating and energy performance certificates. What is new is mainly how it treats heating in existing buildings: instead of fixed quotas and replacement obligations, there is a step-by-step requirement for newly installed fossil heating.

The 65 percent rule is history

The best-known rule of the old law, that a newly installed heating system must run on at least 65 percent renewable energy, has been abolished as a legal obligation. The deadlines tied to municipal heat planning therefore no longer matter for your choice of heating. You may again choose freely which heating to install, including a new gas or oil heating.

There is one exception for funding: if you want the KfW grant for a new heating system, the heated areas must still be heated at least 65 percent by renewables afterwards. The 65 percent has turned from an obligation into a funding condition.

New: the bio-ladder for gas and oil heating

If a gas, oil or LPG heating is installed in an existing building after 29 July 2026, a rising share of its heat must come from biomethane, bio-oil, biogenic LPG or hydrogen (§ 43 GModG). Your existing heating is not affected.

The bio-ladder can be met through a matching fuel tariff. From 2029 to 2034 a sufficiently large solar thermal system also counts, and a heat pump hybrid meets the obligation if the heat pump provides enough output. With such a new heating, landlords pay half of the CO₂ costs and gas network fees from 2028, and half of the cost of the bio share up to 30 percent from 2029.

Municipal heat planning: still relevant, but differently

Municipalities are still drawing up their heat plans, cities with more than 100,000 residents by 30 June 2026 and smaller municipalities by 30 June 2028. No heating obligation is tied to them any more. The heat plan still matters to you, though: it shows whether a heating network is planned in your street. And if your municipality has decided that your plot is to be connected to a heating network, KfW only funds that connection, not a heating system of your own.

What comes next

• 1 January 2027: energy performance certificates are issued digitally. New non-residential buildings over 250 m² need a solar system.
• 1 January 2028: new public non-residential buildings must be zero-emission buildings.
• 1 January 2030: all new builds must be zero-emission buildings, and new residential buildings need a solar system.
• By 1 December 2026: the federal government is to present a bill for a green gas and green heating oil quota, under which gas and oil for buildings would be fully climate-neutral from 2045. So far this has only been announced.

What does not change for you

The funding programs continue: the KfW heating grant, the individual measures funding through the BAFA and the KfW Effizienzhaus funding. Heating funding does fall step by step from 2027, so it pays to apply early. To see which funding you are currently entitled to, check the KfW-Förder-Finder.

The overarching goal also stays the same: Germany is to become climate-neutral by 2045. Looser obligations do not make fossil heating cheaper. The CO₂ price keeps rising, and anyone heating with new gas or oil pays extra for the bio share from 2029. If you invest in a well-insulated envelope and a Wärmepumpe (heat pump) today, you are well placed in the long run.

The one obligation that remains: insulating pipes

Under § 69 GModG, previously uninsulated, accessible heating and hot-water pipes that are not in heated rooms must be insulated, typically in the basement. It costs little and is often done in a few hours, but it saves energy straight away, because warm pipes in a cold basement otherwise give off heat for nothing.

No more replacement obligation for old boilers

Until July 2026, oil and gas constant-temperature boilers had to go after 30 years of operation. That obligation (§ 72 GEG) has been repealed, as has the ban on running fossil heating from 2045. Your old heating may keep running and be repaired.

That does not mean a replacement is not worthwhile. Old boilers are inefficient and the CO₂ price keeps rising. For funding, age is even an advantage: the climate-speed bonus is paid for replacing a working oil, coal, gas storey or night-storage heating, or a gas or biomass heating that is at least 20 years old, but only for applications until the end of July 2028.

Purchase and inheritance: the 2-year deadline

If you buy, inherit or are gifted a single- or two-family home, you must insulate uninsulated heating and hot-water pipes in unheated rooms within two years of the transfer of ownership. The former obligations to insulate the top-floor ceiling and replace the boiler no longer apply to new owners either.

A look at the energy performance certificate and the chimney sweep's report before buying still shows you early what is coming, because high heating and CO₂ costs often make a renovation worthwhile even without an obligation.

Why insulating before swapping the heating saves real money

An insulated envelope lowers your home's heating load. And that load is exactly what determines how big your new heating system needs to be. In a well-insulated house, a smaller and therefore cheaper Wärmepumpe (heat pump) is enough. It has to deliver less output, gets by with a lower flow temperature, and works more efficiently as a result.

The key figure here is the seasonal coefficient of performance (SCOP, or in German the Jahresarbeitszahl, JAZ). It tells you how many kilowatt-hours of heat the heat pump produces from one kilowatt-hour of electricity. The lower the flow temperature, the higher the SCOP and the less electricity you use in operation. If you instead install the heat pump first in an uninsulated house, you size it for the old, high heating load. It becomes more expensive to buy, runs inefficiently at a high flow temperature, and you pay for that mistake every winter through your electricity bill.

• An insulated envelope lowers the heating load, so the heat pump can be smaller.
• A smaller system means lower upfront costs.
• A low flow temperature raises the seasonal coefficient of performance and cuts your electricity costs.

The individual renovation roadmap (iSFP) as your compass

So you do not set the order by gut feeling, there is the iSFP (individual renovation roadmap). A certified energy efficiency expert looks at your house and defines which measure makes sense in which order. It is your compass for the years ahead and also a financial lever.

According to BAFA, the consultation is subsidized at 50%, capped at 650 € for a single-family house and 850 € for a multi-family house (from three residential units). The finished plan is valid for 15 years, so you can spread your renovation calmly over many years.

Common mistakes and structural damage

A renovation rarely goes wrong on the big picture; it goes wrong in the details. Three mistakes come up again and again:

• Partial insulation and thermal bridges: If you insulate only the facade but leave out the cold plinth or the window reveal, you create spots where heat escapes in a concentrated way and the interior wall stays cold. That is exactly where damp appears later.
• Forgetting ventilation: New, airtight windows do not just keep the cold out, they also keep the moisture in. Without adjusted ventilation habits or a ventilation system, humidity builds up in the room.
• Insulating over damp substance: If you insulate over an already wet wall, you simply seal the moisture in instead of getting rid of it.

Roof and top-floor ceiling

A lot of heat escapes through the roof of an old house, and insulating the roof saves around 13 % of your heating energy. There are three routes: between-rafter insulation from the inside (55 to 150 €/m², the cheapest method for a finished loft), under-rafter insulation as an add-on (30 to 80 €/m²) and over-rafter insulation from the outside including a new covering (120 to 350 €/m²). Over-rafter is the most expensive, but it insulates the roof without gaps or thermal bridges and pays off above all when the roof needs re-covering anyway.

If you do not use the loft as living space, insulating the top-floor ceiling is often the smartest first measure: 20 to 35 €/m² for a non-walkable finish, from about 3,000 € in total, frequently a DIY job and usually paid off in under ten years. For many houses this insulation is a legal requirement anyway.

Facade (external insulation systems and alternatives)

The external walls are the largest single surface of your house, so the impact is correspondingly high: an insulated facade saves around 19 % of your heating energy. The most common approach is an external thermal insulation composite system (WDVS), where insulation boards are bonded to the wall and rendered. It costs 120 to 350 €/m², usually 20,000 to 30,000 € net for a detached house. Grey EPS insulation is the cheapest (135 to 165 €/m²), non-combustible mineral wool is a little dearer (155 to 200 €/m²).

There are alternatives: the rear-ventilated curtain facade (visually high-end, but pricier), cavity-fill insulation blown into double-skin masonry (very cheap if there is an air gap) and internal insulation, for cases where the facade must not be altered, such as timber-framed or listed buildings. Internal insulation is demanding in terms of building physics and belongs in the hands of a specialist firm.

Basement ceiling: often the cheapest measure

If your basement is unheated, insulating the basement ceiling almost always pays off as the first step. Insulation boards are fixed to the underside of the ceiling, which costs 22 to 66 €/m², and the material for a DIY fit is only 10 to 20 €/m². The savings come to around 5 %, and with a payback of 3 to 8 years it is the measure with the fastest return. As a pleasant side effect, the cold feet on the ground floor are gone.

Windows and front door

Modern triple glazing saves up to 15 % of your heating energy. Per window you pay 500 to 1,400 € depending on the material, with PVC the cheapest and wood-aluminium the most expensive, plus 150 to 500 € for the reveal. For 15 to 20 windows in a detached house you end up at 15,000 to 30,000 €. Important: new, airtight windows change how moisture behaves in the house, so afterwards you need to ventilate more deliberately or consider a ventilation system.

An insulated front door comes to 1,800 to 7,500 €, with 2,000 to 5,000 € being typical. It qualifies for BAFA funding if its thermal transmittance (Ud value) is no higher than 1.3 W/(m²K).

Heating: heat pump, pellets, hybrid, district heating

The air-to-water heat pump (Wärmepumpe, heat pump) is the most common choice in existing buildings. Watch the numbers here: the unit alone costs 8,000 to 16,000 €, while the complete system fully installed comes to around 27,000 to 40,000 €. That total price includes installation, the hydraulics and often the removal of the old oil tank. With a well-insulated shell and your own PV, you can cut heating costs by 40 to 60 %. A brine or ground-source heat pump is usually even more efficient, but with drilling it costs around 30,000 to 50,000 €.

Alternatives are the pellet heating system (28,000 to 35,000 €, fuel 350 to 450 €/t, though it needs a storage room), the gas hybrid system (21,000 to 50,000 €, where the gas boiler only kicks in at peak demand) and the district heating connection (5,000 to 20,000 € one-off, provided a network runs past your house). Which technology suits your house depends heavily on the state of the insulation and local conditions.

The heat pump is the future-proof route for most houses, so it is worth a close look at the technology, the seasonal performance factor (SPF) and the costs. You will find all the details in the in-depth guide Heat pump costs 2026.

Ventilation with heat recovery

The tighter your house is after the renovation, the more important controlled air exchange becomes, otherwise moisture builds up and you risk mould. A ventilation system with heat recovery returns 80 to 90 % of the heat from the extracted air back into the fresh air. A central system costs 12,000 to 25,000 €, decentralised units per room 4,000 to 8,000 €, and it saves 300 to 800 € per year. It makes particular sense in heavily insulated, airtight houses.

Photovoltaics and solar thermal

Photovoltaics pair perfectly with a heat pump, because your own solar power pushes heating costs down further. A system costs around 1,015 €/kWp (as of March 2026), and no VAT applies to the purchase (0 %). Depending on size you land at 5,400 to 20,000 €, or 13,000 to 23,000 € with a 10 kWh battery. Payback runs to 8 to 12 years.

Solar thermal, by contrast, uses the sun directly for hot water or to support your heating. A system just for hot water costs 5,000 to 6,000 €, a combined system that also supports the heating 8,000 to 15,000 €, with savings of 200 to 700 € per year.

KfW 458: heating subsidy of up to 70 percent, up to 80 percent on a low income

For replacing your heating, especially moving from oil and gas to a Wärmepumpe (heat pump), KfW 458 pays a direct grant. A new funding guideline has applied since 21 July 2026. Only owner-occupiers get the bonuses, and they depend on the date you apply, not on the installation date.

The 5 percent efficiency bonus and the emission-reduction supplement for biomass heating have been scrapped. Landlords only get the base funding. And from the first quarter of 2027 there is no grant if the house already has a renewable heating from 2008 or later or is connected to a heating network. Applications filed before 21 July 2026 run under the old conditions. As of September 2026, per the BEG EM funding guideline and KfW information sheet 458.

BEG individual measures through the BAFA

Everything to do with the building envelope and building systems, so insulation, windows, ventilation or heating optimisation, runs through the BAFA. The rate is 15 %. An individual renovation roadmap (iSFP) doubles the funding cap and adds 5 percentage points on the part of the costs above 30,000 €.

An example: with 50,000 € of insulation costs and an iSFP you get 15 % of 50,000 € plus 5 % on the 20,000 € above the threshold, 8,500 € in total. Without an iSFP it is 4,500 €, because only 30,000 € are eligible. As of September 2026, per the BEG EM funding guideline.

KfW 261: full renovation to Effizienzhaus level

If you bring your house up to an Effizienzhaus (efficiency house) standard in one go, you use KfW 261. This is a low-interest loan with a repayment grant that simply cancels part of the loan. The better the Effizienzhaus level you reach, the higher the grant.

The loan runs up to 120,000 € per residential unit, or up to 150,000 € with an EE or NH class. One thing to note for 2026: the budget for this program has been slashed to roughly 2 billion €, a drop of about 58 percent compared to 2025. There is no application freeze at the time of writing, but the pot can run dry over the course of the year. So if you are planning a full renovation, apply early. As of July 2026, per BAFA/KfW.

Tax credit under Section 35c EStG: the no-application alternative

There is a second route that skips the funding application entirely: the tax reduction under Section 35c EStG (Income Tax Act). You deduct your renovation costs directly from your tax liability over three years. No portal, no grant notice, just an entry in your tax return plus a certificate from your specialist contractor.

The most important catch: it is an either-or. Even a partial subsidy through KfW or BAFA for a single, unified measure rules out Section 35c completely for exactly that measure. If you have several separate measures on the house, though, you may choose a different route for each one. As of July 2026, per BAFA/KfW.

Special cases: listed buildings and landlords

Two situations run outside the usual programs. If you renovate a listed building, or if you rent out rather than live in the property yourself, you have your own rules, and they are worth knowing.

As a landlord you cannot use the Section 35c tax credit, since it only applies to owner-occupied homes. What you do keep is the modernization rent increase and the BEG grants. As of July 2026, per BAFA/KfW.

Apply before you order, and the 2026 budget note

To make sure nothing goes wrong, stick to a fixed sequence. It applies to every grant program the same way:

• Energy consultation and iSFP: record the current state, set the order of measures, unlock the bonus.
• Submit the funding application in the right portal (BAFA for the envelope, KfW for the heating or the full renovation).
• Wait for the funding approval or grant notice.
• Award the contract and carry out the work.
• Submit proof of use, then the payout follows.

For your longer-term planning, an honest assessment: the new funding guideline runs until the end of 2030, but heating funding falls according to plan. The climate-speed bonus drops by 4 percentage points every six months from February 2027 and ends for applications from August 2028. Eligible costs fall by 750 € on the same schedule. From the first quarter of 2027, heat pumps without EU origin only get 15 % base funding. If you want to replace your heating anyway, apply early. After KfW's approval you have 36 months to complete the project. As of September 2026, per the BEG EM funding guideline and KfW information sheet 458.

Example A: Full renovation in one campaign

The owners do everything in one go: insulate the building envelope, replace the windows, rip out the oil heating, put in a Wärmepumpe (heat pump), and add solar PV with a battery. Here is what the gross costs look like:

Now the subsidies, and here is the most important misconception many people fall for: the building envelope and the heating are funded through two separate pots, never through the same pot for the same measure.

• Envelope through BAFA (BEG individual measures): facade, roof and windows together come to 55,000 €. With an iSFP (individual renovation roadmap), the doubled cap of 60,000 € per residential unit per year applies, so all 55,000 € are eligible. 15 % of 55,000 € is 8,250 €, plus the 5 % iSFP bonus on the 25,000 € above the 30,000 € threshold, 1,250 €. Together 9,500 €.
• Wärmepumpe (heat pump) through KfW 458 (application in autumn 2026): eligible costs are capped at 28,000 €. 30 % base funding plus a 16 % climate-speed bonus for replacing the old oil heating makes 46 %, so 12,880 €. With the income bonus the rate rises: for a household income up to 40,000 € to the 70 % cap, 19,600 €, and up to 30,000 € to 80 %, 22,400 €.
• Solar PV: no BEG grant, but 0 % VAT and the feed-in tariff.

Together that is around 22,400 € in subsidies (around 29,100 € with the income bonus up to 40,000 €). That brings the net cost down to around 84,600 € (around 77,900 € with the income bonus).

And what does it do for running costs?

• Heating costs: from around 3,920 € down to about 700 € a year. The insulated envelope cuts the heat demand, and the heat pump runs with a seasonal performance factor of around 3.7. That saves roughly 3,200 € a year, plus the solar PV adds a benefit of roughly 1,200 € a year.
• CO2: from around 7.5 tonnes to under 1 tonne, so roughly 90 % less.
• Payback: 84,600 € divided by around 4,400 € saved per year works out to roughly 19 years. In reality it is shorter, because the CO2 price on heating oil keeps rising (around 55 to 65 € per tonne in 2026, and from 2028 likely much higher under the European emissions trading scheme) and costs for the oil tank, chimney sweep, and boiler servicing disappear.

Example B: Step by step over five years with an iSFP

The basic idea is still right: the heat pump comes only once the envelope is insulated. The heating load is then smaller, so the heat pump can be smaller and cheaper and runs with a higher performance factor. But if you only apply for the heat pump funding in 2029, you lose the climate-speed bonus, and the eligible costs will be lower by then.

In 2027 the BAFA subsidy applies at 15 % of 33,000 € plus the 5 % iSFP bonus on the 3,000 € above the threshold. In 2028 the costs are below 30,000 €, so only the 15 % applies. In 2029 the heat pump gets only 30 % (15 % base funding plus the 15 % value-added bonus for an EU device) on at most 24,250 €; without EU origin it would be only around 3,600 €. The solar PV gets no BEG grant but benefits from the zero VAT rate.

The bottom line: Example B lands at the same 107,000 € gross, but at only around 15,700 € in subsidies plus 650 € for the iSFP, around 6,700 € less than Example A. The lesson: spreading the work out is more predictable, but more expensive, especially for the heating.

Payback: 15 to 20 years, often shorter in practice

If you count only the energy you save against your out-of-pocket share, a typical unrenovated single-family home from the 1970s quickly lands at 15 to 20 years. An example: if roughly €84,600 is left as your own share after subsidies and you save around €4,400 in energy costs per year, that works out to about 19 years on paper.

But that number is deliberately conservative. In practice the payback comes sooner, because two things get added in. The CO2 price makes fossil heating more expensive year after year, and switching to a Wärmepumpe (heat pump) removes running costs that the pure energy math often overlooks, such as the annual chimney-sweep and boiler service, the oil-tank inspection, and eventually the cost of removing the tank.

Value increase: real, but heavily location-dependent

An energy renovation usually raises a property's value. By how much can only be estimated responsibly. Market studies cite an average increase of around 23 percent. Moving from a poor efficiency class (F, G, or H) up to Effizienzhaus level can, depending on location, lift the value by 30 to nearly 50 percent.

The CO2 price makes fossil heating more expensive

If you keep heating with oil or gas, you pay a growing surcharge. As of 2026, the national CO2 price sits at roughly €55 to €65 per tonne. An unrenovated oil-heated house easily emits 7 to 8 tonnes of CO2 a year, which already means several hundred euros just for the CO2 portion.

For 2027, a government draft keeps the same corridor of €55 to €65. From 2028, the European emissions trading scheme for buildings (EU-ETS 2) sets the price on the market. Nobody knows today how high it will go, but a level well above today's is expected. For you, that means the gap between fossil heating and an efficient Wärmepumpe (heat pump) grows wider every year, not narrower.

What you cannot measure in euros

Part of the benefit shows up in no payback calculation, yet you notice it quickly in daily life:

• Comfort: warm interior walls instead of cold floors, even temperatures, no draughts from old windows, quieter rooms.
• Independence: less exposure to volatile oil and gas prices and to political price shocks.
• Planning certainty: renovating today leaves you ready for a rising CO₂ price and secures the funding before it falls further.
• Healthier indoor climate: a properly insulated building envelope with the right ventilation lowers the risk of mould rather than raising it.

Is the new heating law already in force?

Yes. The Gebäudemodernisierungsgesetz (GModG, Building Modernisation Act) was published in the Federal Law Gazette on 28 July 2026 and has applied since 29 July 2026. It replaces the GEG (Building Energy Act). Individual parts, such as the digital energy performance certificate, follow on 1 January 2027, with more in 2028 and 2030.

Do I have to install a heating system running on 65 % renewables?

No, that obligation was abolished with the GModG, along with the deadlines tied to heat planning. You may install a new gas or oil heating again. It is then subject to the bio-ladder from 2029: 10 % biomethane, bio-oil or hydrogen from 2029, 15 % from 2030, 30 % from 2035 and 60 % from 2040. For KfW funding of a new heating system, the 65 percent threshold remains a condition.

Do I have to replace my old heating system?

No. The former replacement obligation for oil and gas constant-temperature boilers after 30 years (§ 72 GEG) has been repealed, as has the ban on running fossil heating from 2045. Your heating may keep running and be repaired. A replacement can still pay off, because the CO₂ price is rising and funding falls from 2027.

I bought or inherited an old house. Which deadlines apply?

As the new owner of a single- or two-family home, you have two years to insulate uninsulated, accessible heating and hot-water pipes in unheated rooms (§ 69 GModG). The former obligations to insulate the top-floor ceiling and replace the boiler no longer exist.

How much funding do I get for a new Wärmepumpe (heat pump)?

Through KfW 458 you get 30 % base funding. Owner-occupiers also get the climate-speed bonus (16 % for applications until 31 January 2027, then 4 points less every six months) and an income bonus of 40, 30 or 10 % for a taxable household income up to 30,000, 40,000 or 50,000 €. The cap is 70 %, or 80 % on a low income. Eligible costs are at most 28,000 €, so up to 22,400 € in grants. From the first quarter of 2027, heat pumps get 15 % base funding, plus 15 percentage points with EU origin. To see which rates apply to you, use the KfW-Förder-Finder.

What is the iSFP (individual renovation roadmap) and why does it pay off twice?

The individual renovation roadmap is drawn up by a certified energy-efficiency expert, and the BAFA funds it at 50 %, up to 650 € for a single-family home. It sets out the sensible order for your measures, doubles the funding cap for insulation and windows from 30,000 € to 60,000 € per residential unit and year, and adds 5 percentage points on costs above 30,000 €. The iSFP is valid for 15 years.

In what order should I renovate?

First the building envelope (roof, facade, basement ceiling, windows), then the heating system, and after that renewable generation such as solar PV. Here is why: an insulated envelope lowers the heating load. A smaller, cheaper Wärmepumpe (heat pump) then does the job, running at a lower flow temperature and a higher seasonal performance factor. If you flip the order and swap the heating first, you often end up paying for an oversized system.

Can I combine funding with the section 35c tax bonus?

Not for the same measure. Even partial funding of a single measure rules out section 35c for that exact measure completely. If you carry out several separate measures on the same house, you may choose a different route for each one. Section 35c gives you 20 % over three years (7 %, 7 %, 6 %), up to a maximum of 40,000 € per property, with no application needed since it runs through your tax return.

What does an energy-efficient renovation of a typical single-family home cost?

For an unrenovated 140 m² house from the 1970s, the cost is roughly 80,000 to 170,000 €, depending on your target level (Effizienzhaus 70 to 55). After funding, your own share works out at around 35,000 to 120,000 €. A full renovation to new-build standard can cost 210,000 to 392,000 €. These are ballpark figures that vary widely by region and condition, especially for labour-intensive measures. For an estimate tailored to your house, use the Sanierungskosten-Rechner.

Does insulation cause mould?

No. Proper full insulation raises the surface temperature of your interior walls and actually reduces the risk of mould. Problems come from the opposite: partial insulation, uninsulated thermal bridges, new airtight windows without an adjusted ventilation routine, or insulation applied to damp material. Cleanly planned and executed, insulation is not a mould risk.

Should I expect a freeze on applications?

As of September 2026, there is no freeze on applications. That said, the loan budget for a full renovation to Effizienzhaus level (KfW 261) was cut sharply for 2026, to around 2 billion €. It could run out over the course of the year. So the rule is: apply early and wait for your approval notice before you place the order.

I rent out the property. Can I pass the renovation on to the rent?

Yes, through the modernisation surcharge under section 559 of the German Civil Code (BGB): 8 % of the cost per year, capped at 3 €/m² within six years, or at 2 €/m² if the starting rent is below 7 €/m². You have to deduct any grants you received from the passable costs first. New since July 2026: after installing a heat pump, you may only pass on the full costs if a specialist firm proves a seasonal performance factor of at least 2.5 or the building meets the conditions (such as heating with a flow temperature of at most 55 °C); otherwise only half (section 559f BGB). Landlords cannot use the section 35c tax bonus, which is reserved for owner-occupiers.