GModG: What Germany’s New Heating Law Means for Energy Procurement and Real Estate Portfolios

Germany’s new Building Modernisation Act (Gebäudemodernisierungsgesetz, GModG) replaces the previous Building Energy Act and gives property owners greater choice when replacing heating systems. However, the decision does not necessarily become easier: in addition to capital expenditure, owners and managers must consider the long-term cost and availability of gas, biomethane, bio-oil, electricity and district heating.

For larger real estate portfolios, replacing a heating system therefore becomes a combined investment, operational and procurement decision. A technology may appear attractive based on its initial cost, but lead to substantial long-term expenditure through carbon pricing, network charges, mandatory biogenic fuel shares or unfavourable supply contracts.

The German Bundestag and Bundesrat have approved the GModG. Its principal amendments will enter into force following formal execution and publication. Details of the green gas and green heating oil quotas planned from 2028 are to be set out in separate legislation.

Key Points at a Glance

• The previous general requirement for new heating systems to use at least 65% renewable energy will be abolished.

• Owners will be able to choose between heat pumps, district heating, hybrid systems, biomass, and gas or oil heating.

• Newly installed gas and oil systems will have to use progressively higher shares of climate-neutral fuels from 2029.

• From 2045, all heating fuels used will have to be climate-neutral.

• Where new fossil-fuel heating systems are installed in existing residential buildings, certain running costs will be shared more extensively between landlords and tenants.

• The economically appropriate solution cannot therefore be determined on the basis of initial investment costs alone.

Greater Technology Choice – and Greater Commercial Responsibility

The GModG does not make the heating decision on behalf of owners. Instead, it expands the range of available solutions. Heat pumps, district heating, biomass and hybrid systems remain possible, while new gas and oil heating systems will also continue to be permitted.

This flexibility is particularly relevant for heterogeneous existing portfolios. Not every building can immediately accommodate a stand-alone heat pump. District heating is not available everywhere, while hybrid systems increase both technical and contractual complexity.

The central question is therefore not simply: Which technology is legally permitted? The more important question is: Which heat supply solution is viable for the individual property over its entire investment, operating and energy procurement lifecycle?

What Is the Biogenic Fuel Escalator?

Owners installing a new gas, oil or liquefied petroleum gas heating system will have to use progressively higher proportions of climate-neutral fuels. The legislation provides for the following minimum shares:

Date	Minimum share of climate-neutral fuel
from 2029	10%
from 2030	15%
from 2035	30%
from 2040	60%
from 2045	100%

Eligible options are expected to include biomethane, biogenic liquid fuels and certain forms of hydrogen. Compliance will generally be demonstrated through the fuels purchased and the corresponding supply contracts, rather than solely through the technical design of the heating installation.

This creates three additional tasks for owners and property managers:

1. The required biogenic share must be clearly specified and verifiable in the supply contract.

2. Price premiums, origin, sustainability evidence and contractual terms must be made comparable.

3. The future availability of the required volumes must be considered before the heating investment is approved.

Why a New Gas Heating System Becomes an Energy Procurement Decision

For fossil-fuel and hybrid solutions, commercial viability will increasingly depend on the ongoing energy supply. Relevant factors include:

• wholesale natural gas price developments;

• the price and availability of biomethane and other eligible fuels;

• increasing mandatory blending requirements;

• carbon pricing;

• gas network charges and potential cost increases as the number of connected users declines;

• contract term, price structure and volume flexibility;

• the quality of evidence and regulatory eligibility of the products purchased.

An apparently inexpensive boiler may therefore create substantial price and availability risks over its operating life. Conversely, a heat pump is not automatically the most economical solution. Its viability depends, among other factors, on the building fabric, required flow temperature, load profile, electricity price and possible network or capacity charges.

New Cost Implications for Residential Tenancies

For new fossil-fuel heating systems installed in existing residential buildings, the GModG provides for greater landlord participation in certain running costs. From 2028, tenants are generally expected to bear only half of the gas network charges and carbon costs. From 2029, landlords will also bear half of the additional cost associated with the mandatory biogenic fuel share, limited to a maximum biogenic share of 30%. A hardship provision is planned for certain smaller landlords.

Energy procurement decisions will therefore no longer affect recoverable service charges alone. Part of the additional cost may remain with the owner and directly affect property cash flow and net operating income.

Asset managers should assess at least three levels in their business case:

• capital expenditure and available subsidies;

• expected energy and operating costs over the useful life;

• allocation of costs between owner and occupier.

What Owners and Managers Should Review Now

1. Assess Heat Supply at Portfolio Level

For larger portfolios, properties should be segmented according to their suitability for heat pumps, district heating, hybrid solutions or an interim gas-based supply. Building systems, existing contract terms, consumption data and municipal heat planning should be assessed together.

2. Centralise Energy and Contract Data

Robust decisions require at least the following information:

• supply points and relevant meter or market location identifiers;

• historical consumption and load profiles;

• current electricity, gas and heat supply contracts;

• prices, pricing formulas, terms and notice periods;

• existing renewable energy shares and supporting evidence;

• allocation of supply points to properties, owners and uses;

• planned heating modernisation measures and implementation dates.

3. Model Scenarios Instead of Relying on Current Prices

A comparison of current unit prices is insufficient. Scenario analysis should cover carbon costs, network charges, increasing biogenic fuel shares, electricity and gas prices, and different consumption paths. This shows how resilient each technical option is to market and regulatory change.

4. Procure Biomethane and Biogas Competitively

Compliance with the mandatory biogenic fuel shares should not automatically be based on a standard product offered by the incumbent supplier. Products differ in price premium, origin, sustainability criteria, supporting evidence, flexibility and contract term. A structured competitive tender creates comparability and reduces the risk of becoming tied to an expensive or inflexible solution.

5. Integrate Technical Planning and Procurement

Technical consultants design the heating installation. Energy procurement and asset management assess the long-term supply position and commercial viability. Both perspectives should be combined before the investment decision is made.

How NeoBid Supports Real Estate Companies

NeoBid supports professional real estate owners and managers with the structured procurement of electricity, gas and lower-carbon energy products. In the context of the GModG, this particularly includes:

• central collection and structuring of supply point, consumption and contract data;

• analysis of existing gas, electricity and heat supply contracts;

• presentation of price, term and volume risks at property and portfolio level;

• development of an appropriate procurement strategy;

• competitive tendering for natural gas, biomethane, biogas and electricity;

• comparison of prices, origin, evidence and contractual terms;

• support with supplier selection, contracting and supply commencement;

• a consolidated data basis for asset management, property management and ESG reporting.

NeoBid does not design heating systems and does not replace technical or legal advice. We complement the technical investment decision with energy market, data and procurement expertise. This enables owners to assess whether the required energy sources can be procured over the long term on commercially viable and transparent terms.

Conclusion: Technology Choice Requires a Robust Energy Procurement Strategy

The GModG expands the options available when replacing heating systems. At the same time, it places greater responsibility on owners and managers. Selecting a technology also means making a long-term decision about energy prices, availability, evidence requirements and cost allocation.

Real estate portfolios should therefore not assess each heating system in isolation or solely on the basis of capital expenditure. A combined view of technology, energy markets, contracts, data and cash flow is required.