KfW in the 'conversion phase': heating subsidies are already being cut surprisingly

Germany's state-backed development bank, KfW, has entered a transitional phase that has led to unexpected cuts in its heating system funding program. Starting immediately after midnight on July 9th, new applications for replacing heating systems can no longer be submitted. This temporary suspension is set to last until July 20th, during which time necessary technical adjustments will be made by both KfW and the Federal Office for Economic Affairs and Climate Action (Bafa). According to the German Ministry of Economics, these changes aim to prepare for the implementation of new funding conditions, which will take effect starting July 21st. The ministry explained that there is a trust protection regulation in place. Individuals who have received a valid application confirmation or a technical project description but have yet to submit their formal application can still apply under the previous conditions during this transition period. A spokesperson for KfW stated that applicants who already have a valid application confirmation but have not yet submitted their application can still proceed with their application up to July 20th under the existing terms. However, the website of the German Association of Heat Pumps noted that having an application confirmation does not constitute a valid funding request. Customers who already possess such a confirmation were advised to submit their application via the KfW portal before Wednesday evening. The association had previously emphasized that suspending the possibility of submitting applications would send the wrong signal to consumers, craftsmen, and other market participants. Prior to this change, the Budget Committee of the German Parliament had approved modifications to the federal funding for efficient buildings. According to KfW, the basic funding remains at 30 percent of eligible total costs as of July 21st. However, for the first residential unit, the maximum support for installing climate-friendly heating systems will decrease to 28,000 euros, down from the current 30,000 euros. This amount will further reduce by 750 euros every six months—specifically on February 1st and August 1st of each year. The government cited financial constraints as justification for these reductions, noting that the funds come from the Climate and Transformation Fund, a special budget allocated by the federal government. The Ministry of Economics stated that the federal government will continue to provide comprehensive financial support for building renovations based on the revised federal funding framework. Economics Minister Katherina Reiche (CDU) said that the funding would become more socially equitable, benefiting those most in need. She added that the funding would be used more effectively while contributing to sound fiscal management. Future funding for heating systems will include stronger social stratification. Changes primarily concern the so-called income bonus. Environment Minister Carsten Schneider (SPD) stated that the reform of the heating subsidy allows for savings while maintaining positive effects on climate protection and modern heating technology. Green Party politician Katrin Uhlig criticized the move, stating that reduced funding means less investment and less climate protection, leading to potentially disastrous consequences for the energy transition. She highlighted the growing uncertainty, noting that over years it was communicated that financing would be secured until 2029. This trust, she argued, is now being broken. These changes coincide with a major planned reform by the coalition government. The new Building Modernization Act aims to overturn key provisions from regulations passed by the former traffic-light government. Specifically, the core of the existing Building Energy Act will be removed—the 65 percent rule requiring newly installed heating systems to operate using 65 percent renewable energy. Despite these changes, the installation of new gas and oil heating systems will still be permitted, provided certain conditions are met.