Hessisch Oldendorf, 28 November 2025
As the grant percentage increases, the pricing behaviour of some suppliers changes. Consumers perceive their own contribution as stable, even though quoted prices and installation costs are rising. How can we manage this in practice so that funding fulfils its purpose rather than being swallowed up by unjustified mark-ups?The benefits of percentage-based funding
Percentage-based grants significantly lower barriers to entry because the grant grows with the investment, sharing genuine risks in the process. We create budget flexibility precisely where it is needed, for example for more expensive but more efficient system options. The funding is sufficiently technology-neutral to allow fair competition for the best solution, while also providing certainty for planning, as the funding rate and eligible costs are clearly defined. This speeds up decisions, attracts private capital and gets projects moving sooner.Additional incentives, such as the income bonus or climate speed bonus, improve social accessibility, enabling households with smaller budgets to participate too. Overall, this creates a market that learns and develops, with higher volumes, better supply chains and falling total costs over time.
What the BEG specifically provides for heat pumps
KfW provides a grant of up to 70 per cent of eligible costs for replacing heating systems in existing buildings. For single-family homes, costs of up to €30,000 are taken into account when calculating the grant; for multi-family buildings, tiered amounts apply per residential unit. This results in a maximum grant of up to €21,000 for one residential unit, subject to the 70 per cent cap.The funding package consists of a basic grant of 30 per cent and various bonuses. These include the climate speed bonus of 20 per cent and the income bonus of 30 per cent for eligible households. All components combined are capped at 70 per cent. Electrically powered heat pumps qualify for an additional efficiency bonus of 5 per cent if they use natural refrigerants or draw heat from water, the ground or wastewater. The list of recognised natural refrigerants and the rules governing the bonuses are documented by the federal government.
These rules are important because they create a strong incentive while also limiting price mark-ups through the cap on eligible costs and the maximum funding rate. However, this is also where the central challenge of percentage-based funding lies.
Why percentage-based funding can drive up prices
The grant amount is calculated as a percentage of the costs taken into account. If some market participants respond by raising their quoted prices, the price perceived by end customers changes less noticeably because the grant covers part of the increase. Increased demand, limited installation capacity and supply bottlenecks can further amplify this effect.The result is higher gross prices with seemingly stable customer contributions, even though the actual financial benefit for the customer does not necessarily improve. Percentage-based grants can make the customer's relative share appear constant, but their contribution in absolute terms rises with every price increase if the funding rate does not increase or the price remains below the eligible cost cap, meaning the grant calculation basis has not been fully utilised.
The BEG already curbs this mechanism through two measures. Firstly, cost caps prevent rising gross prices from increasing the grant without limit. Secondly, the maximum funding rate of 70 per cent limits the extent to which bonuses can be combined. Both are clearly described on the KfW information pages and illustrated with worked examples.
How we ensure that funding properly benefits the customer
Our role as an independent service provider is to bridge the gap between funding rules, technology and the market. In practice, this means:
Funding eligibility checks and documentation
We establish funding eligibility, prepare the necessary supporting documents and help plan which bonuses to apply for. This includes classifying eligible and ineligible items and correctly accounting for cost caps when reviewing quotations. KfW publishes regularly updated information and case studies on this, which we incorporate into our project processes.
Procurement with quality assurance
We prepare the specification of works, coordinate the tendering process, assess the reasonableness of quotations and negotiate the scope of work. The aim is fair competition on a level playing field and a contract award decision that brings together performance, total operating costs and the impact of the grant.
Construction supervision and acceptance
During implementation, we check milestones, document acceptance inspections and ensure that the conditions for grant payment are met. Deviations from the plans and quotation are documented transparently so that eligible costs remain substantiated.
Post-project cost review and lessons learnt
After project completion, we compare actual costs with market indices and individual quotation items. The findings inform the next procurement process and improve the reliability of data for future customers.The aim is to keep the grant calculation basis fair and make cost drivers visible. Our measures are purely operational and work alongside the BEG caps.