German Heating & Cooling Update: What does the new Building Modernisation Act mean for you?

The heating transition is set to take on a new face. On 24 February 2026, the CDU/CSU and SPD coalition factions presented key points for a new German Building Modernisation Act (Gebäudemodernisierungsgesetz - GMG) – thereby initiating a regulatory break. However, it is only a key issues paper at this stage. There has been no cabinet decision, no draft bill and certainly no law. Gas and oil heating systems are to remain permissible under certain conditions, district heating is to be upgraded in regulatory terms and municipal heat planning is to be simplified. Assuming that the key points become law exactly as presented: Read on to find out what this means for you in concrete terms.

What do the key points say?

• Removal of restrictions:
  Sections 71–71p and Section 72 of the German Building Energy Act (Gebäudeenergiegesetz - GEG) will be completely deleted. The 65% renewable energy requirement for heating modernisation will be completely abolished. Operating bans for certain types of heating are no longer planned. Instead, a technology-open catalogue of permissible heating systems will apply in future, which will also cover gas and oil heating systems in particular. 
  In the future, the decision on the type of heating will once again be left solely to the owners.

  Current developments show that the majority of owners are already opting for heat pumps or district heating when choosing a heating system. The coalition expects that the regulatory realignment will trigger a large number of previously postponed renovation projects and that heating replacement will pick up speed again overall.
   

• Bio-ladder from January 2029:
  From 1 January 2029, new gas or oil heating systems must use at least 10% climate-friendly fuels (in particular biomethane and synthetic fuels). The proportion is to increase in three stages by 2040, with the specifics of the stages still to be determined.
   

• Green gas quota:
  In addition to the bio-ladder, a green gas and green heating oil quota will be introduced for distributors (starting in 2028: up to 1%, increasing gradually). Biomethane, green, blue, orange and turquoise hydrogen, hydrogen derivatives, bio-oil and synthetic methane are permitted. 
  The quota will be credited to the bio-ladder. The green gas quota and green heating oil quota do not apply to the sectors industry and commerce.
  Important for you: The quota can be fulfilled on a purely accounting basis – a guarantee of origin or accounting mechanism is sufficient; the quantities do not have to physically enter the respective local network. The interlinking of both instruments – supplier quota and consumer staircase – reduces the additional share that individual consumers have to prove, insofar as a gas supplier already fulfils part of its decarbonisation obligation through its green gas quota. This significantly increases the complexity of compliance. Key points for concrete implementation are to be available by summer 2026.

  Dr. Matthias Lang, Head of the International Energy & Utilities Sector Group, says: "It remains to be seen how the interlinking of green gas quotas and the bio-ladder will prove itself in practice – it will be particularly interesting to see what role the accounting compliance option can play in the actual decarbonisation."
   

• Simplified municipal heat and cooling planning:
  Heat planning will be greatly simplified for municipalities with fewer than 15,000 inhabitants (approx. 20% of the regular effort). The aim is to complete heat planning within a few months. At the same time, the obligation to consider cold supply will be limited to municipalities with more than 45,000 inhabitants.
   
• District heating regulations:
  The German Federal Funding for Efficient Heating Networks (Bundesförderung für effiziente Wärmenetze - BEW) will be incorporated into law and increased. The cost neutrality requirement (§ 556c German Civil Code (Bürgerliches Gesetzbuch) in conjunction with German Heat Supply Ordinance (Wärmelieferverordnung)) will be moderately relaxed. There are also plans for a mandatory price transparency platform, strengthened price supervision and an arbitration board, all bundled together in a new heating law.
  
  Dr Sandra Schuh, German Corporate / M&A Partner, says: "The introduction of a price transparency platform offers heating operators and district heating companies the opportunity to identify any ineffective price adjustment clauses and associated additional payment obligations at an early stage. The extent to which risks will be minimised in the long term will become apparent in the specific design of the platform."

What do the key points mean for you from a legal perspective?

• Only key points, no law yet:
  From a purely legal perspective, the key points do not mean anything at this stage. It is a concept that has been politically agreed upon within the coalition and still has to go through the parliamentary process. Things may still change during this process.
   
• Implications for gas network operators:
  The key points send a clear political signal: the gas infrastructure should remain in place, but be gradually transformed towards green gas variants. The possibility of fulfilling the green gas quota on a purely accounting basis would result in a noticeable regulatory relief in the short term. There are no plans for a regulatory-enforced shutdown of the networks or an immediate need to convert to hydrogen-ready infrastructure. The stranded asset risk would be reduced, but not eliminated. In the long term, the structural decarbonisation path of the gas network would remain in place. 
  The consequences of a decline in fossil energy consumption and the associated decline in connection densities remain unclear.
   
• Implications for the district heating sector, energy contracting:
  The planned amendment to the Ordinance on General Conditions for the Supply of District Heating (Fernwärme-Versorgungsbedingungen-Verordung - AVBFernwärmeV), the legal implementation of the BEW and a new heating law signal a regulatory upgrade of the district heating sector. The mandatory price transparency platform would increase regulatory complexity, but would also offer the opportunity to strengthen the confidence of institutional investors.
   
• Implications for project developers (construction industry), investors, building owners:
  Restoring technological openness creates more freedom of choice for project developers, investors and building owners, but at the same time noticeably weakens the special regulatory status of district heating. With the removal of Sections 71–71p and Section 72 of the GEG and the introduction of the bio-ladder, the privilege of district heating connection, which was previously based on the 65% renewable energy requirement, would no longer apply: Gas and oil heating systems would remain a permissible alternative with moderate requirements, which would significantly reduce the pressure on building owners to connect to district heating, open up a wider range of technologies for project developers and thus create new scope for cost savings. Broader acceptance of the technology is likely to reduce the political vulnerability of the framework and thus create more predictable investment conditions in the medium to long term than a regulatory-enforced but politically fragile expansion course. At the same time, it remains to be seen to what extent this change will influence demand for heat network expansion.

Outlook:

A cabinet decision is planned by Easter 2026, so that the law can come into force before 1 July 2026. An evaluation in 2030 may lead to adjustments if the building sector fails to meet its targets. 
It remains unclear whether the key points will provide a sufficient basis for the climate targets for 2045. It therefore remains to be seen what the final draft of the law will look like and what changes it will undergo in the legislative process.