Introduction

The European Union is transforming its heating and cooling sector as part of its broader transition towards a decarbonised building stock. At the heart of this transition lies heat pump technology, which has moved from a niche solution to a cornerstone of the EU’s strategy for energy independence and climate neutrality. This shift will not be accidental; it requires a sophisticated, multilayered regulatory framework that synchronises building performance standards, product efficiency, and carbon pricing to phase out fossil fuels, alongside supportive policies ensuring affordable electricity prices to guarantee economic viability for end-users.

Market trends 

The European Heat Pump Association (EHPA) provides a clear overview of recent developments in the heat pump market, a topic further explored in BUILD UP’s Expert Talk with EHPA Director General Paul Kenny. According to EHPA market data, following a record-breaking year in 2022, the European heat pump market faced significant setbacks in 2023 (-5% sales) and 2024 (-21% sales). The primary drivers were energy price disparity, with electricity costs three to four times higher than gas prices (e.g. Poland and Germany) and policy instability, such as subsidy cuts in Italy and legislative delays in Germany. After a decline, the European heat pump market showed signs of recovery in 2025, with annual sales growing by 10.3% across 16 monitored countries to reach 2.62 million units.

_{Figure 1. Annual residential heat pump sales (in million units) in 16 European countries (Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, United Kingdom). Source: EHPA.}

While roughly 90% of the EU’s gas was historically imported, heat pumps leverage a grid increasingly powered by homegrown renewables like wind and solar. In 2025, the EU successfully slashed Russian gas imports from 45% to just 12%, also through accelerated electrification and efficiency measures. This transition reduces vulnerability to external supply shocks and stabilises costs by decoupling home heating from global commodity markets. Ultimately, local, renewable-based heating ensures strategic autonomy for Europe’s built environment (REPowerEU Plan). This is reinforced by the AccelerateEU communication published on 22 April 2026, which aims to strengthen energy resilience and mitigate volatile fossil fuel costs for long-term energy security and affordability.

European policy framework 

A primary catalyst for heat pump adoption is the Energy Performance of Buildings Directive (EPBD), which requires nearly zero-energy standards for new buildings and promotes comprehensive renovation strategies for the existing stock. The EPBD effectively encourages the electrification of thermal systems and a broader fuel switch away from fossil fuels. Heat pumps are uniquely positioned to meet these stringent requirements, as they address the directive’s focus on technical building systems, including heating, cooling, and domestic hot water, while integrating renewable energy directly at the building level.

The Energy Efficiency Directive (EED) enshrines the ‘energy efficiency first’ principle. With a binding target to reduce EU energy consumption by 11.7% by 2030, the EED pushes for the adoption of high-efficiency technologies. Through energy savings obligations and specific provisions for public building renovations, the EED acts as an indirect yet powerful driver for heat pumps.

The Ecodesign Directive and the Energy Labelling Regulation ensure that only the most efficient products reach European consumers. The Ecodesign framework ensures that inefficient, older technologies are gradually excluded. The Energy Labelling Regulation provides a clear A–G scale that allows consumers to visualise the efficiency gap between heat pumps and fossil-fuel boilers, steering private investment towards greener alternatives.

A critical, albeit challenging, component of the policy landscape is the F-Gas Regulation, which forces a rapid technological pivot away from high-GWP substances towards natural refrigerants. The strategic and practical implications of these rules for the sector are detailed in a dedicated chapter later in this article, as well as in BUILD UP’s interview with Nishant Karve. 

The Renewable Energy Directive (RED) provides the statistical and legal foundation for heat pumps to be recognised as a renewable technology by acknowledging the ambient heat captured by these systems as renewable energy. 

Furthermore, a key emerging driver is the expansion of carbon pricing through the EU Emissions Trading System (EU ETS2). By increasing the cost of fossil fuels used in the buildings and transport sectors, carbon pricing shifts the economic landscape in favour of electrification. As the price of carbon makes gas and oil heating increasingly expensive, the Green Ratio, the price of electricity relative to gas, should become more favourable, making heat pumps the logical economic choice for both residential and industrial stakeholders.
The role of heat pumps in Europe is no longer just about individual appliance replacement; it is about an integrated policy approach. Further measures are expected in the coming weeks, including through the upcoming Electrification Action Plan, and the Heating and Cooling Strategy.

Navigating the heat pump transition: systemic opportunities and technical challenges

While the technology itself is mature, deploying it at scale across a highly diverse building stock presents notable hurdles. This section provides a comprehensive overview of the emerging systemic opportunities that can unlock heat pumps’ full potential in the European energy landscape, alongside the primary technical challenges facing the integration of heat pumps.

The cost of energy and favourable economics 

The ultimate opportunity for accelerating adoption lies in the economic equation. The initial capital expenditure (CAPEX) of a heat pump is generally higher than that of a conventional gas boiler. Therefore, its financial viability relies heavily on the operational expenditure (OPEX) savings it can generate over its lifespan.

For a heat pump to be economically attractive, electricity cannot be disproportionately burdened by taxes and levies. As a rule of thumb recognised by the industry, to unlock the economic opportunity of heat pumps, electricity should cost no more than three times the price of gas. When policy and market conditions align to maintain or improve this 3:1 ratio, the operational savings quickly offset the initial CAPEX, making heat pumps an increasingly attractive investment option for building owners. 

_{Figure 2. Electricity-to-gas price ratio in European countries. Source: EHPA based on Eurostat data.}

Concrete regulatory signals are already emerging across Europe to address this barrier; for instance, Belgium recently enacted a landmark tax shift framework. By structurally lowering electricity taxes for households, including a reduction down to the European minimum level of €1/MWh for social tariff customers, and offsetting the cost through increased excise duties on gas and heating oil, such policies directly strengthen the business case for zero-emission heating technologies.

The HP SUBSCRIBE project addresses the financial barriers to heat pump adoption in the leased building sector through an innovative Heat Pumps on Subscription (HPoS) model, which is explored in greater detail in BUILD UP’s technical article ‘Heat Pumps on Subscription: a service-based pathway to decarbonising leased buildings in Europe’. This service-based framework eliminates the upfront capital expenditure barrier for both landlords and tenants by shifting equipment ownership and maintenance responsibility to a specialised third party or the property owner. By replacing traditional purchase costs with a predictable monthly subscription fee, the project effectively addresses the split-incentive problem, a common market failure whereby landlords are reluctant to invest in upgrades that primarily benefit tenants through lower energy bills. 

Complementing these efforts, the EU-funded install.res project tackles financial and regulatory barriers by promoting the large-scale deployment of heat pumps in existing buildings through 12 demonstration sites across Europe. By testing innovative delivery models, such as Energy Performance Contracting (EPC) and emerging 'rent-a-heat-pump' schemes, install.res is developing a Fast Track Scheme (FTS) to provide practical, scalable tools that reduce upfront financial risks and accelerate adoption across diverse building types and ownership structures.

Sector coupling with the electricity grid 

Heat pumps offer massive systemic opportunities, most notably through sector coupling, the deep integration of the thermal and electrical sectors. 

Instead of merely consuming power passively, smart heat pumps can adjust their operation based on grid signals. By utilising smart controllers and coupling the heat pump with thermal energy storage (such as hot water buffer tanks), the system can run during periods of abundant, cheap renewable electricity and store the heat for later use. Furthermore, the inherent thermal mass of the building itself can be exploited as a virtual battery, allowing the heat pump to switch off during peak grid demand hours without compromising indoor comfort. 

HYSTORE advances flexibility exploitation by coupling heat pumps with thermal energy storage, transforming these two devices into a fundamental building and grid service. To make this possible from a control perspective, a smart aggregator and an open-source multiservice platform enable these systems to interface with grid-level operators. This framework, based on heat pumps as a sector coupling asset, allows individual buildings and local energy communities to provide hybrid services, balancing energy demand and power supply, thereby facilitating deep electric and thermal sector coupling and enhancing grid stability.

The crucial role of local energy planning 

For a full market deployment of heat pumps in the residential and tertiary sectors, decisions cannot be left only to the end users and need to be driven by local authorities through a strategic urban vision. Under the recast EED, municipalities with over 45,000 inhabitants must develop local heating and cooling plans to decarbonise the energy system, map local heat sources, and identify efficiency potential. Decentralised, individual building heat pumps are presented as the primary solution for zones where a centralised district heating network is not economically or technically viable. The LIFE project Plan4COLD completed an extensive analysis of existing tools designed to help municipalities carry out local planning. Several of these tools, which are presented via fact sheets and are freely downloadable, relate to the feasibility assessment and sizing of heat pumps. By mapping local thermal needs and renewable potential, these plans allow cities to maximise the deployment of heat pumps. 

Integration in existing buildings with high-temperature systems 

One of the most persistent barriers to widespread heat pump adoption is their integration into the existing European building stock. 

Conventional heat pumps operate at their highest coefficient of performance (COP) when supplying low-temperature heat. Forcing a standard heat pump to produce 80°C water significantly degrades its efficiency, increasing electricity consumption and straining the compressor.

To overcome this, a multifaceted approach is required. Deep thermal insulation is the optimal solution, as reducing the building's overall heat demand allows the existing emission system to run at lower temperatures. Where deep renovation is not immediately feasible, replacing old radiators with oversized units or underfloor heating increases the heat-emitting surface area, enabling lower supply temperatures. Additionally, the industry is responding with advanced high-temperature heat pumps, utilising specific cascade refrigeration cycles, and hybrid systems that pair a heat pump with a backup condensing boiler to handle peak winter loads without sacrificing seasonal efficiency. 

The HAPPENING project addressed the challenge of integrating heat pumps into older European buildings that traditionally require high supply temperatures (70°C–80°C) for existing radiators. To maintain high efficiency without requiring immediate, deep thermal renovations, the project utilises a two-level solution combining a centralised heat pump with decentralised devices installed in each apartment that increase the water temperature to the specific level required for domestic hot water and space heating. By decentralising the temperature lift, the system ensures optimal performance at the building level while providing a versatile, low-intrusion retrofit option for multi-family dwellings.

The refrigerant transition and the new F-gas rules 

The revised F-gas Regulation establishes an accelerated phase-down of hydrofluorocarbons (HFCs), the synthetic refrigerants traditionally used in many heat pump systems, due to their high global warming potential (GWP). This strict quota and ban system is driving a rapid technological pivot, requiring significant research and development (R&D) from the industry. However, transitioning to natural alternatives such as propane (R290), ammonia (NH3), and carbon dioxide (CO2) introduces several technical and safety considerations. Propane is flammable, ammonia requires careful handling due to its toxicity, and carbon dioxide systems operate at higher pressures than conventional refrigerant systems. 

In response, manufacturers are adapting system designs to reduce refrigerant charge volumes, improve containment measures and incorporate enhanced leak detection technologies. The transition also highlights the need for additional skills and training across the HVAC sector to support the safe installation, operation and maintenance of these systems.

This is one of the areas addressed by the LIFE project SKILLSAFE EU, which is developing a common European voluntary guidelines for the safe handling of natural refrigerants, particularly propane (R290) in Air-to-water monoblock and air-to-air split systems. As Regulation (EU) 2024/573 accelerates the phase-down of high-GWP HFCs, initiatives such as SKILLSAFE EU aim to support workforce readiness and facilitate the uptake of climate-friendly alternatives across Europe. Further information can be found in the dedicated technical article ‘Safe heat pump deployment requires unified skills across Europe’.

The performance gap between the expected and the real operation 

A critical hurdle for market trust is the performance gap, the disparity between a heat pump’s theoretical efficiency rating (measured in controlled laboratory conditions) and its actual, in-situ seasonal performance.

Closing this gap requires a paradigm shift from standard ‘install and forget’ practices to performance-based commissioning. The solution lies in continuous digital monitoring. By integrating smart meters, IoT sensors and advanced data analytics, facility managers and homeowners can track real-time performance, diagnose hydraulic inefficiencies, and optimise control strategies dynamically, ensuring the system operates exactly as intended. Regulatory frameworks are already moving in this direction to institutionalise accountability; for instance, Switzerland has pioneered this approach through cantonal energy regulations (MuKEn), which mandate continuous energy and performance monitoring for larger heat pump installations to ensure in-situ efficiency matches design expectations. 

RESkill4NetZero aims to overcome the performance gap by shifting the industry from a traditional ‘install and forget’ mindset to one of performance-based commissioning and optimisation. The project solves this gap through three primary mechanisms: Targeted Technical Upskilling (it offers 18 modular training programmes specifically designed to eliminate the technical root causes of inefficiency), an EU-wide Skills Blueprint that reduces the risk of in-field errors that typically degrade system performance, and a performance-based certification that confirms a technician’s ability not only to install but also optimise and maintain electrified systems for their entire lifecycle.

Conclusion

Heat pumps have evolved from niche technologies into a central component of Europe’s strategy to decarbonise its building stock and strengthen energy resilience. The path forward is shaped by a combination of regulatory measures, market developments and technological innovation, which together reshape the economic green ratio in favour of electrification. Success will depend on solving the current technical challenges of the existing building stock, from high-temperature retrofits to the safe adoption of natural refrigerants. Several EU-funded research projects are already providing the blueprints for these transitions, while others ensure that the workforce is equipped to close the performance gap and maintain market trust. The heat pump transition is a systemic shift. By integrating thermal storage and addressing financial split-incentive barriers, European buildings are expected to become flexible assets for a resilient renewable grid. For professionals in the built environment, the roadmap is clear: the future of heating and cooling is efficient and strategically independent.

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