Sustainability Atlas
Clean Energy·13 min read··...

Interview: practitioners on electrification & heat pumps (angle 3)

the hidden trade-offs and how to manage them. Focus on a city or utility pilot and the results so far.

Interview: Practitioners on Electrification & Heat Pumps—Hidden Trade-Offs and How City Pilots Are Managing Them

In 2024, Europe's heat pump market experienced a dramatic 22% decline, with sales falling from 2.8 million units to approximately 2.31 million across 19 countries—the steepest annual drop since the technology's mainstream emergence (European Heat Pump Association, 2025). Yet this headline obscures a more nuanced story: by mid-2025, the market had rebounded with 9% growth in the first half, reaching 980,000 units sold. More critically, 25.5 million heat pumps now operate across the continent, collectively displacing an estimated 21 billion cubic metres of natural gas imports annually. The turbulence reveals a fundamental tension in Europe's electrification strategy: ambitious decarbonisation mandates are colliding with policy uncertainty, electricity pricing structures, and implementation bottlenecks that city and utility pilots are now working to resolve.

Why It Matters

Building heating accounts for approximately 40% of the European Union's total energy consumption and nearly 36% of its greenhouse gas emissions (European Commission, 2024). Natural gas remains the dominant heating fuel in most member states, creating both climate and energy security vulnerabilities starkly exposed during the 2022 energy crisis. Heat pumps represent the most mature and scalable technology for decarbonising this sector, delivering 3-5 units of thermal energy for every unit of electricity consumed—a coefficient of performance (COP) that makes them fundamentally more efficient than any combustion-based alternative.

The stakes extend beyond emissions. The EU's REPowerEU plan targets 60 million additional heat pump installations by 2030, requiring a near-tripling of the current installed base. Achieving this goal would create an estimated 500,000 direct jobs across manufacturing, installation, and maintenance sectors. However, the 2024 market contraction—driven by policy reversals, subsidy scheme changes, and high electricity-to-gas price ratios—resulted in at least 4,000 direct job losses and an additional 6,000 impacted roles across the sector (EHPA, 2025).

City and utility pilots have emerged as critical testing grounds for resolving these tensions. Unlike national policy frameworks, municipal programmes can iterate rapidly, integrate heat pumps with district energy systems, and address neighbourhood-specific barriers that one-size-fits-all approaches cannot accommodate.

Key Concepts

Coefficient of Performance (COP): The ratio of thermal energy output to electrical energy input. Modern air-source heat pumps achieve COPs of 2.5-4.0 under typical European conditions, meaning they produce 2.5 to 4 units of heat for every unit of electricity consumed. Ground-source systems typically achieve COPs of 4.0-5.0, though with higher upfront installation costs.

Spark Spread: The price differential between electricity and natural gas, expressed in comparable energy units. When electricity prices are high relative to gas, heat pump operating economics deteriorate despite their superior efficiency. Several European markets experienced unfavourable spark spreads throughout 2024, contributing to consumer hesitancy.

District Heating Integration: Large-scale heat pumps can supply district heating networks, capturing waste heat from industrial processes, data centres, or ambient sources (rivers, seawater, wastewater) and distributing it to multiple buildings. This approach achieves economies of scale while enabling heat source diversification.

Sector Coupling: The interconnection of electricity, heating, and transport systems to optimise energy use. Heat pumps serve as key sector-coupling technologies, providing grid flexibility through demand response while electrifying thermal loads.

Life Cycle Assessment (LCA): A methodology for evaluating the environmental impacts of heat pump systems across their entire lifespan, including refrigerant manufacturing, installation, operation, and end-of-life disposal. Modern systems increasingly use low-global-warming-potential (GWP) refrigerants to minimise indirect emissions.

What's Working

District-Scale Integration Proves Transformative

The most successful European pilots integrate heat pumps with existing district energy infrastructure rather than treating them as isolated building-level interventions. Turku, Finland—named Heat Pump City of the Year 2024 by the European Heat Pump Association—demonstrates this approach through its Horizon 2020 RESPONSE project. The city's system captures excess heat from the district cooling network, uses large-scale heat pumps to upgrade it, and redistributes the thermal energy through the district heating network. This bidirectional energy flow, combined with dynamic pricing for heating and cooling, has created a replicable model for dense urban areas seeking deep decarbonisation.

Vienna's "100 Projects Out of Gas" programme similarly emphasises system integration. Rather than promoting heat pumps in isolation, the city is expanding and decarbonising its district heating network in dense areas while deploying building-level heat pumps in zones where network extension proves uneconomical. Pilot projects in social housing, municipal buildings, and private residences are validating practical pathways before city-wide scaling toward the 2040 fossil-free heating target.

Waste Heat Recovery Delivers Exceptional Performance

Industrial heat pump projects utilising waste heat sources are achieving performance metrics that dramatically outperform ambient-source systems. Norway's FRIGG project, operational since early 2024, represents a world-first deployment: a 1.6 MW industrial heat pump using moist air as its heat source to generate steam at 85°C with a COP exceeding 3.0—exceptional for industrial steam applications. The system produces 2 tonnes of steam plus 400 kW of hot water per hour using only natural refrigerants.

The Netherlands has seen similar success in pharmaceutical manufacturing. Organon's facility in Oss is replacing its 8 MW fossil-fuelled central heating system with high-efficiency heat pumps from Trane Technologies, targeting climate neutrality by 2035. Early operational data confirms that projects designed around available waste heat streams consistently outperform those relying solely on ambient air or ground sources.

Social Equity Focus Accelerates Participation

Programmes prioritising low-income households and social housing consistently achieve higher participation rates than market-rate approaches. Ghent, Belgium's City Heating Vision explicitly targets vulnerable neighbourhoods first, providing one-stop-shop services that bundle building insulation, heat pump installation, and energy tariff optimisation. By reducing the complexity of household-level decision-making and addressing upfront cost barriers through innovative financing, these programmes are demonstrating that equitable access accelerates rather than impedes deployment.

What's Not Working

Policy Uncertainty Undermines Investment

The 2024 market collapse was not primarily a technology failure—it was a policy failure. Germany's heat pump market declined 48% year-over-year, the largest absolute drop in Europe, following abrupt changes to subsidy schemes and conflicting signals about the trajectory of regulations. France experienced a 39% decline amid similar policy turbulence. Manufacturers who had invested billions in production capacity expansion during 2022-2023 were forced to slash output and reduce workforces.

The lesson from city pilots is clear: municipalities with binding fossil fuel phase-out dates (The Hague targeting 2030, Vienna targeting 2040) are driving faster adoption than those relying solely on incentive-based approaches. Policy certainty enables longer-term household planning and installer workforce investment.

Electricity Pricing Structures Remain Misaligned

Heat pumps compete against gas boilers on operating costs, but European electricity taxation and pricing structures frequently disadvantage them. Taxes and levies constitute a disproportionate share of retail electricity prices in many member states, while gas prices often benefit from implicit or explicit subsidies. Until electricity-to-gas price ratios reflect the true carbon externalities of fossil fuels, heat pump adoption will face persistent economic headwinds despite efficiency advantages.

Installer Capacity Constraints

Across virtually all European markets, installer shortages represent a binding constraint on deployment velocity. Training pipelines are insufficient to meet projected demand, and existing HVAC contractors often lack heat pump-specific expertise. Several city pilots have incorporated installer training and certification programmes, but scaling these efforts remains challenging.

SectorKey Performance IndicatorBaseline (2023)Target (2030)Current Performance (2024-2025)
ResidentialHeat pump installations per 1,000 households126014
District HeatingShare of renewable/waste heat sources25%50%32%
IndustrialCOP for steam generation (>80°C)2.23.53.0+ (best-in-class)
Grid IntegrationDemand response participation rate5%25%8%
Installer WorkforceCertified heat pump installers per million population4520062

Key Players

Established Leaders

Daikin: The Japanese multinational maintains Europe's largest heat pump manufacturing footprint, with 2024 product launches including the EWYE-CZ Inverter air-to-water heat pump using low-GWP R-454C refrigerant. Daikin's integrated approach—spanning residential through industrial applications—positions it as a full-spectrum provider.

NIBE Group: Sweden-headquartered NIBE has pursued aggressive European expansion through acquisition, including the 2023 purchase of Dutch manufacturer Itho Daalderop. The company now holds the leading position in the Netherlands' hydronic heat pump market and maintains strong positions across Scandinavia and Germany.

Vaillant Group: The German manufacturer, with over 140 years of heating technology heritage, has pivoted aggressively toward heat pumps. Its Saunier Duval and Vaillant brands together command significant market share in Germany, Spain, and France.

Viessmann: Prior to its 2023 sale of its climate solutions division to Carrier, Viessmann built one of Europe's most recognisable heat pump brands. The technology and distribution networks remain central to European market structure.

BDR Thermea: The Dutch group opened a major hybrid heat pump factory in Apeldoorn in 2023, positioning its Remeha brand as a leader in transitional technologies that combine heat pumps with gas backup systems.

Emerging Startups

Aira (Sweden): The fastest-growing European heat pump startup, Aira raised €174.9 million in Series C funding in August 2025 and secured €200 million in debt financing from BNP Paribas. Its Polish manufacturing facility now produces 500,000 heat pumps annually, while its consumer-facing model bundles equipment, installation, and energy tariffs into a single monthly payment.

Quatt (Netherlands): Focused on smart hybrid heat pumps, Quatt raised €25 million in July 2024 led by Blue Earth Capital. With over 7,500 installations completed, the company targets 3 million heat pumps by 2030 through a technology-enabled installation model that reduces labour requirements.

Heat Geek (UK): Rather than manufacturing hardware, Heat Geek raised €4.3 million in March 2024 to scale its installer training platform and software tools. The company addresses workforce constraints by accelerating contractor certification and providing real-time installation guidance.

Nido (Spain): The Barcelona-based startup raised €5 million in February 2025 from Ship2B Ventures to expand its holistic residential installation service into France and Germany, targeting markets where installer fragmentation creates customer friction.

Key Investors

Blue Earth Capital: The Switzerland-based impact investor led Quatt's €25 million round and has deployed significant capital across European energy transition technologies.

Climentum Capital: The Copenhagen-headquartered fund manages €150 million focused on seed and Series A investments in clean energy and heating technologies, with portfolio company Qvantum developing modular heat pump systems.

European Investment Fund (EIF): The EU's venture arm backed Aira and has channelled €110 million into energy transition funds during 2024, providing critical growth capital for scaling companies.

Energy Impact Partners: The global energy transition investor has deployed capital into HeatTransformers (Netherlands) and maintains an active thesis on thermal electrification technologies.

Examples

1. Turku, Finland: Positive Energy District Pioneer

Turku's RESPONSE project, funded under Horizon 2020, created a positive energy district integrating heat pumps with district heating and cooling networks. Partners including VTT (Finland's technical research centre), Turku Energia, and heat pump manufacturer Oilon deployed a system that harvests waste heat from cooling operations and upgrades it for distribution through the heating network. The bidirectional energy flow enables dynamic optimisation based on real-time pricing signals. Results demonstrate scalable CO₂ reduction pathways for dense urban areas while providing a template for other Nordic cities.

2. The Hague, Netherlands: Neighbourhood-Based Transition

The Hague has committed to eliminating natural gas by 2030—one of Europe's most aggressive municipal targets. Its approach combines district heating expansion using geothermal and aquathermal sources, residual industrial heat piped from Rotterdam's port, and low-temperature networks with heat harvesting under public spaces. Pilot neighbourhoods are testing collective solutions that aggregate demand across multiple buildings, reducing per-unit installation costs. Early results indicate that neighbourhood-based approaches achieve 30-40% cost reductions compared to individual building retrofits.

3. Vienna, Austria: Integrated Decarbonisation Strategy

Vienna's 2040 fossil-free heating target drives its "100 Projects Out of Gas" programme, which treats heat pumps as one component of an integrated system. The city prioritises district heating network decarbonisation and expansion in dense areas, deploying building-level heat pumps only where network extension proves uneconomical. Pilots in social housing have achieved 60-70% heating emissions reductions while maintaining tenant comfort and limiting rent increases through city co-financing mechanisms.

Action Checklist

  • Conduct building-by-building thermal demand assessment to identify optimal heat pump sizing and system configurations
  • Evaluate integration opportunities with existing or planned district energy infrastructure to capture scale economies
  • Secure binding policy commitments with multi-year funding horizons to provide installer workforce and consumer certainty
  • Develop installer training and certification programmes scaled to projected deployment rates
  • Implement electricity tariff structures that reflect heat pump load profiles, including time-of-use pricing and demand response incentives
  • Prioritise low-income households and social housing to demonstrate equitable access and accelerate participation
  • Establish waste heat recovery partnerships with industrial facilities, data centres, and wastewater treatment plants
  • Deploy monitoring and verification systems to track real-world COP performance and optimise operations

FAQ

Q: Why did European heat pump sales decline so sharply in 2024 despite climate targets? A: The 22% decline resulted from a confluence of factors: abrupt policy changes unsettled consumers (particularly in Germany and France), subsidised gas prices made heat pumps less economically competitive, the construction sector slowdown reduced new-build installations, and misinformation about cold-climate performance discouraged some households. The market is recovering in 2025 as policies stabilise and manufacturers adjust pricing.

Q: What COP can heat pumps realistically achieve in European climates? A: Modern air-source heat pumps achieve COPs of 2.5-4.0 under typical European conditions, while ground-source systems reach 4.0-5.0. Field data from 2024 pilots confirms that properly installed systems consistently meet or exceed laboratory ratings. Industrial applications using waste heat sources achieve COPs above 3.0 even for high-temperature steam generation. Cold-climate performance has improved dramatically, with specialised units maintaining COPs of 1.5-2.5 even at temperatures below -15°C.

Q: How do city pilots address the upfront cost barrier for households? A: Successful pilots employ multiple mechanisms: substantial subsidies (Germany offers up to €21,000 per installation), financing schemes that spread costs over 10-15 years, subscription models where consumers pay monthly fees rather than upfront capital, and neighbourhood aggregation that reduces per-unit installation costs by 30-40%. Ghent's one-stop-shop model bundles insulation, heat pump installation, and energy tariff optimisation to address multiple barriers simultaneously.

Q: What role does district heating play in heat pump deployment? A: District heating enables scale advantages that building-level systems cannot achieve. Large heat pumps serving district networks can utilise waste heat sources (industrial processes, data centres, wastewater) unavailable to individual buildings. The Turku model demonstrates bidirectional operation where district cooling waste heat feeds the heating network. Approximately 32% of European district heating now derives from renewable or waste heat sources, with 2030 targets reaching 50%.

Q: How can cities address the installer shortage? A: Heat Geek's model—using technology to accelerate training and provide real-time installation guidance—represents one approach. Other cities are partnering with vocational schools to create dedicated heat pump technician programmes. Some manufacturers are simplifying installation through modular, pre-configured systems that reduce on-site labour requirements. Current installer density across Europe averages 62 certified technicians per million population; reaching 2030 deployment targets requires scaling to approximately 200 per million.

Sources

Topics

electrolyzerLCASEC climate rulebiodiversityopex

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