On Thursday 8 October 2026, Fondation IDEA asbl published a working paper, “Heat Pumps in Luxembourg: Overcoming an Unfavorable Context to Accelerate Deployment”, examining the economic viability of heat pumps and the factors slowing their deployment in Luxembourg.

The paper was written by Jonathan Diederich, a student at the London School of Economics and an IDEA intern between June and September 2026, under the supervision of IDEA economist Frédéric Meys.

According to the report, buildings account for approximately 20% of Luxembourg's energy-related greenhouse gas emissions, including 13% from residential heating alone (2024). At the end of 2024, Luxembourg had an estimated 20,000 heat pumps, representing fewer than 80 installations per 1,000 households, while STATEC envisages more than 150,000 units by 2050.

However, this figure remains an estimate, as no regularly updated official statistics are available and sources differ considerably. EurObserv'ER, for example, estimated approximately 5,200 units in 2023. This lack of data makes it more difficult to guide public policy.

The analysis compared an air-to-water heat pump with gas and oil boilers over a twenty-year period in three typical scenarios, taking current subsidies into account. The discounted costs over twenty years, including energy consumption, were estimated at approximately €38,500 for a heat pump in a new building, compared with €45,900 for gas, with a break-even point against gas after approximately seven years.

For a standard renovation, the corresponding costs were approximately €37,500 for a heat pump, €45,900 for gas and €54,300 for oil, with a break-even point against gas after approximately six years. In a complex renovation, the estimated costs were €42,500 for a heat pump and €45,900 for gas, with a break-even point after approximately fourteen years.

Oil boilers were consistently the most expensive option in the scenarios examined. Thanks to their significantly higher efficiency, as well as subsidies and favourable electricity prices, heat pumps were found to represent a financially advantageous investment. Replacing a gas boiler with a heat pump reduces operational heating emissions by approximately 68%, compared with 76% when replacing an oil boiler.

The report also examined installation costs, which are among the highest in Europe. The representative gross cost of an air-to-water heat pump installation is approximately €35,000 in Luxembourg, similar to Germany, compared with approximately €15,000 in France, €12,000 in the Netherlands and €10,000 in Belgium (Flanders).

Higher incomes in Luxembourg only partially offset this difference. Adjusted for purchasing power, the financial burden of installation is approximately 29% lower in France, 40% lower in Belgium and 42% lower in the Netherlands than in Luxembourg, while it is approximately 70% higher in Germany. In the absence of comprehensive installation cost data, the model indicated that a heat pump remained more financially advantageous than gas up to an installation cost of approximately €50,000.

The analysis identified several factors that could influence households' decisions, including high installation costs, relatively inexpensive gas, renovation considered unnecessary by some households and barriers specific to rental properties and co-ownership.

The working paper proposed four possible approaches to accelerating deployment. The first involved improving data collection through reliable and regularly updated monitoring of the number of heat pumps, installation costs and actual performance. Such data were considered essential for better guiding public policy and evaluating the effectiveness of subsidies. Law No. 8595, adopted in summer 2026, is expected to improve monitoring of installed heat pumps.

The second approach involved maintaining a favourable electricity-to-gas price ratio, as inexpensive gas weakens the incentive to electrify heating.

The third concerned the installation of fossil-fuel boilers in new buildings, which remains possible despite existing restrictions, particularly in apartment buildings. To reduce dependence on a gas network whose fixed costs are borne by an increasingly small customer base, the paper proposed setting a date for banning new fossil-fuel boilers in newly constructed residential buildings, following a transition period and with rare justified technical exceptions.

Finally, for rental properties and co-owned buildings, the analysis considered a purely voluntary approach insufficient. It proposed combining tax incentives, advance financing and future minimum performance requirements, alongside increased support for lower-income households.

The full report is available in French on IDEA's website.