Executive summary

Heating and cooling represent roughly half of the European Union's energy consumption, yet more than 70 percent of that demand is still met with fossil fuels and inefficient boilers. Electric heat pumps offer a pathway to decarbonise buildings and industry because they transfer ambient heat rather than generating it. Modern units deliver between three and five units of heat for every unit of electricity consumed, making them three to five times more efficient than gas boilers. Europe is racing to scale up deployment from today's installed base of about 25.5 million units to a target of 60 million by 2030. Achieving this target would save around 21 billion cubic metres of gas per year and avoid emissions equivalent to taking 50 million cars off the road. This guide explains why heat pumps are a critical investment, outlines the criteria procurement teams should use to evaluate solutions and provides practical examples and checklists to aid decision-making.

Why it matters

Europe's carbon and energy security goals depend on switching to efficient electric heating. Fossil fuel use in buildings accounts for a large share of the bloc's greenhouse-gas emissions and exposes households and industry to volatile gas prices. By 2024 over 25 million heat pumps were in service across 19 European countries, but sales declined 22 percent year on year to 2.31 million units due to subsidy cuts and high electricity prices. At current growth rates the continent will fall short of its 60 million unit target by about 15 million devices. Scaling up requires not only capital but also skilled labour: the European Commission estimates that an additional 750,000 installers must be trained and at least half of the existing workforce must be reskilled for heat pump installation.

Investment is accelerating but must be accompanied by supportive policy and consumer confidence. Private and public investment in heat pumps doubled from about EUR 13 billion in 2020 to EUR 23 billion in 2023, and more than EUR 4 billion has been pledged by manufacturers to expand European production capacity. The EU's Social Climate Fund will begin disbursing EUR 86.7 billion from 2026 to support heat pump installations, including targeted grants for low-income households. At the same time, electricity grids are decarbonising: in the United Kingdom a home heat pump now reduces heating emissions by about 84 percent compared with a gas boiler because grid carbon intensity has fallen from 419 g CO2 per kWh in 2014 to 124 g CO2 per kWh in 2024.

Key concepts and evaluation criteria

When comparing heat pump solutions, procurement teams should assess technology type, efficiency metrics, integration requirements and lifecycle impacts. The following concepts help structure evaluations:

Technology families

• Air-to-air and air-to-water heat pumps: Use ambient air as the heat source and can deliver heating and cooling. Air-to-air systems are common in single-family homes and small offices; air-to-water systems feed radiators and under-floor heating but may require larger radiators or low-temperature distribution to achieve high efficiencies.
• Ground-source heat pumps (geothermal): Extract heat from the ground via boreholes or horizontal loops. They offer high seasonal performance but require more capital and space.
• Water-source and sewage-source heat pumps: Utilise surface water, rivers or wastewater networks. These systems can deliver high output temperatures and are increasingly deployed in district heating networks. The 70 MW seawater heat pump in Esbjerg, Denmark delivers 280,000 MWh of heat each year to 25,000 households and avoids roughly 120,000 tonnes of CO2.

Performance metrics

• Coefficient of performance (COP) and seasonal COP (SCOP): COP measures the instantaneous ratio of heat output to electricity input, while SCOP averages performance over a year. Values above 3 indicate that each unit of electricity produces at least three units of heat; Esbjerg's heat pump achieves a COP of more than 3.
• Supply temperature and compatibility: High-temperature units (>65 degrees C) can replace fossil boilers in existing radiators, while low-temperature units (<55 degrees C) may require upgraded emitters or hybrid designs. Industrial and district heating applications can use 90-110 degrees C supply temperatures, as seen in RheinEnergie's planned 150 MW river-water heat pump in Cologne that will heat water up to 110 degrees C.
• Carbon intensity of electricity: The emissions reduction achieved depends on grid mix. Regions with high shares of renewables maximise CO2 savings; where grids remain carbon-intensive, combining heat pumps with on-site solar or purchasing green electricity may be necessary.
• Noise and aesthetics: Outdoor units can produce 40-60 dB; specifying low-noise models and proper siting is important for urban settings.

Cost and financing

The installed cost of a residential air-to-water heat pump typically ranges from US$3,000 to US$6,000 but can be two to four times the cost of a gas boiler. Operating costs depend on electricity and gas prices and the COP. Incentives such as rebates, zero-interest loans and tax credits can lower the payback period; the EU's Social Climate Fund will subsidise installations for vulnerable households. For large district heating projects, capital costs can run into hundreds of millions of euros; RheinEnergie's 150 MW project has a budget of about EUR 280 million.

Workforce and supply chain

Availability of skilled installers and maintenance technicians is a key bottleneck. Europe needs to train 750,000 additional installers and reskill existing plumbers and HVAC professionals. Manufacturing is scaling: around 300 heat pump production facilities exist across Europe, providing over 430,000 jobs, and 73 percent of units sold in Europe are made locally. Supply chain considerations include refrigerant availability and sustainability (preference for low-GWP refrigerants like R290 propane) and the potential for component shortages.

What's working

1. Large-scale district heating projects demonstrate feasibility and efficiency. The Esbjerg seawater plant delivers heat equivalent to a coal plant using two CO2-based heat pumps with a combined capacity of 70 MW and provides load shifting capacity of 16 MW. Even when powered by coal electricity the system consumes only one-third of the primary energy of a conventional boiler. Cologne's planned 150 MW river-water heat pump will serve around 50,000 households and help the city phase out coal-fired district heating.

2. Industrial heat pumps are scaling. Industrial heat pumps delivered about 6,489 GWh of heat to European district heating networks in 2023, a 44 percent increase over the previous year. Germany alone has over 50 large heat pump projects representing about 900 MW of capacity and expects installations to reach 6 GW by 2030.

3. Manufacturers invest heavily in production capacity. Companies have announced more than US$4 billion in new manufacturing investments worldwide to meet growing demand. Most units are made in Europe, reducing supply-chain risks and ensuring compliance with European climate standards.

4. Policy momentum and financial support are growing. The EU's Heat Pump Action Plan aims to phase out fossil boilers, streamline permitting and launch a heat pump accelerator to foster rapid deployment. The Social Climate Fund provides targeted subsidies for households and small businesses, and many member states offer additional rebates or tax credits.

What isn't working

1. Sales have slowed due to high electricity prices and policy uncertainty. European heat pump sales fell 22 percent in 2024, revealing sensitivity to volatile energy prices and subsidy changes. Some governments reduced incentives, causing consumers to delay purchases. Stable long-term policies are needed to maintain momentum.

2. Installer shortage is a serious bottleneck. The sector lacks enough trained installers and service technicians. Without rapid expansion of vocational programmes and upskilling, even generous subsidies cannot translate into installations. Simplifying system design and using pre-configured packages can partly alleviate this bottleneck.

3. Higher upfront costs and financing gaps remain. Heat pumps cost two to four times more than gas boilers, and many households lack the liquidity to finance installations. Existing grant programmes often require households to pay for improvements upfront and apply for rebates later, creating cash-flow barriers.

4. Electricity grid constraints and grid carbon intensity matter. In regions with carbon-intense grids or weak distribution networks, electrification can strain infrastructure and may not deliver significant emissions reductions. Coordinated planning with grid operators, demand response and integration of thermal storage can mitigate these issues.

Quick framework for procurement teams

To evaluate heat pump proposals, procurement teams can follow a structured due-diligence process:

1. Define objectives and boundary conditions. Determine whether the goal is to replace individual boilers, supply a district heating network or provide industrial process heat. Identify required supply temperatures and performance targets.
2. Assess the resource context. Evaluate local electricity carbon intensity, renewable availability and grid constraints. For water-source systems, assess permitting and ecological impacts; for ground-source systems, consider drilling feasibility.
3. Evaluate technical proposals. Compare COP and SCOP values, refrigerant types, noise levels, sizing relative to peak load and defrost strategy. Review integration with existing radiators or distribution systems.
4. Examine lifecycle costs and financing. Request total cost of ownership calculations covering capital, maintenance, electricity costs and incentives. Explore financing mechanisms such as on-bill financing, third-party ownership or energy service contracts.
5. Check supply chain and sustainability credentials. Confirm that equipment is manufactured in Europe or meets EU sustainability criteria. Review refrigerant GWP and end-of-life disposal plans.
6. Plan for workforce and maintenance. Verify installer availability, training and certification. Ensure maintenance contracts include remote monitoring and emergency support.
7. Engage stakeholders and manage change. Communicate benefits to occupants and building managers. Provide training for end-users on operation and simple troubleshooting.

Fast-moving segments to watch

1. High-temperature industrial heat pumps: Adoption is rising in sectors like food and pulp and paper. New designs deliver 120-200 degrees C process heat, enabling electrification of drying, distillation and pasteurisation. Expect rapid deployment as electricity prices stabilise and carbon levies rise.
2. Wastewater and ambient heat recovery: Urban utilities are piloting sewage-source heat pumps that recover low-grade heat from wastewater. These systems can provide base-load heat for districts while reducing effluent temperatures and improving treatment plant efficiency.
3. Modular neighbourhood heat pumps: Manufacturers are offering containerised heat-pump plants for small communities or new developments. These plug-and-play systems shorten installation time and mitigate installer shortages.
4. Hybrid systems with thermal storage and demand response: Combining heat pumps with thermal storage allows shifting demand to periods of low electricity prices and high renewable output. Participation in demand response markets can provide additional revenue streams.
5. Policy-driven electrification of public buildings: Municipalities are phasing out fossil boilers in schools, hospitals and office buildings. Procurement teams should monitor upcoming public tenders and align offerings with decarbonisation targets.

Action checklist for procurement teams

• Audit existing heating systems and energy demand profiles.
• Identify available subsidies and financing programmes in your country or region.
• Engage with multiple vendors and request detailed technical proposals with COP/SCOP data.
• Include lifecycle costs and financing mechanisms in tender documents.
• Evaluate supply chain resilience and local content requirements.
• Plan workforce training or partner with certified installers.
• Consider pilot projects and phased roll-outs to de-risk larger investments.
• Coordinate with grid operators on load forecasting and demand response participation.
• Communicate benefits and savings clearly to decision-makers and occupants.

Frequently asked questions

How much can a heat pump reduce emissions compared with a gas boiler? The emissions reduction depends on both the efficiency of the heat pump and the carbon intensity of electricity. In the UK, carbon intensity fell from 419 g CO2 per kWh in 2014 to 124 g CO2 per kWh in 2024. As a result, a household heat pump now cuts heating-related emissions by around 84 percent compared with a gas boiler.

Are industrial heat pumps viable for high-temperature processes? Yes. Recent innovations have pushed output temperatures above 150 degrees C, making them suitable for many industrial applications. Europe already has more than 50 large projects and expects industrial heat-pump capacity to reach about 6 GW by 2030.

Is there enough skilled labour to install the heat pumps needed? Not yet. The EU estimates it needs 750,000 additional installers and must reskill at least half of existing heating technicians. Training programmes and simplified systems are critical to avoid bottlenecks.

What is the payback period for residential heat pumps? Payback depends on installation cost, available incentives, electricity and gas prices, and system efficiency. Incentives such as rebates and zero-interest loans can reduce payback to below ten years in many countries, especially when paired with building fabric improvements and on-site renewables.

Can heat pumps provide cooling as well as heating? Air-source heat pumps can reverse operation to provide cooling in summer. In regions experiencing hotter summers due to climate change, this dual functionality can increase demand and improve cost-effectiveness.

Sources

• European Commission. (2024). Heat Pumps: Energy Efficiency and Installer Needs Assessment. European Commission.
• European Commission. (2024). Heat Pump Investment, Social Climate Fund and Policy Initiatives. European Commission.
• European Heat Pump Association. (2025). EHPA Market Report 2025: Sales, Installed Base and Manufacturing Footprint. EHPA.
• International Energy Agency. (2024). The Future of Heat Pumps: Costs and Manufacturing Investments. IEA.
• Carbon Brief. (2024). UK Grid Decarbonisation and Emissions Reductions Analysis. Carbon Brief.
• DIN Forsyning. (2024). Esbjerg Seawater Heat Pump: Capacity, Energy Delivered and Emissions Avoided. DIN Forsyning.
• RheinEnergie. (2024). Cologne River-Water Heat Pump Project: Capacity, Households Served and Cost. RheinEnergie.
• European Heat Pump Association. (2024). Industrial Heat Pumps and Large-Project Statistics. EHPA.