Energy-efficient renovation and funding 2026: what pays off and what the state pays

You own a house that has a few decades under its belt, and you face a decision: insulate the façade, replace the windows, renew the heating — or wait for now. This article is written for owners of an existing building who are at exactly this point and want to keep three things apart: what you must do, what pays off and what the state contributes.

The article sets out the measures, the obligations and the funding landscape in this order: first what an energy-efficient renovation (energetische Sanierung) covers at all, then the question of a renovation obligation, then the funding rates in the version applicable since 21 July 2026, the individual renovation roadmap, the heating rules of the new Building Modernisation Act, the effect on the energy performance certificate and finally the sensible order. Where a figure is not reliably sourced, it does not appear here — and where we only have it as an example calculation, that is stated.

#What counts as energy-efficient renovation — and what does each measure achieve?

Energy-efficient renovation means structural and technical changes to an existing building that reduce its energy demand. The Act sorts these interventions into three levels, and it is worth keeping them apart when planning, because each is governed by a different provision and a different funding pot.

The first level is the building envelope — external wall, roof, top floor ceiling, basement ceiling, windows and external doors. Anyone renewing something here ends up at § 36 of the Building Modernisation Act (Gebäudemodernisierungsgesetz, GModG) and the maximum values of Annex 7. The second level is the heat generator, that is, the heating itself; it is regulated in §§ 42 to 46. The third level is heat distribution and building services — pipes, pumps, hydraulic balancing, ventilation with heat recovery; §§ 60b, 60c and 69 apply to these.

Funding follows the same three-way split: the Federal Office for Economic Affairs and Export Control (BAFA) is responsible for the building envelope, building services other than heating, and heating optimisation; the KfW development bank (Kreditanstalt für Wiederaufbau) is responsible for replacing the heat generator. Anyone planning both therefore submits two applications to two bodies.

#What a single measure achieves — and why there is no official figure for it

Caution is called for here, for a reason that many overviews online skip over: a representative official statistic along the lines of “roof insulation saves X per cent” does not exist. What a building element achieves depends on the year of construction, method of construction, share of the area, use and the condition of all the other building elements. The only reliable figures are therefore calculations that disclose their reference building.

One such calculation is published by the non-profit advisory organisation co2online for a single renovated detached house.14 The following shares are expressly not an average for the German building stock but the effect on one specific building; co2online itself adds that in practice the values usually turn out differently.

The building in question is a detached house from 1923 in Falkensee, whose living space grew from 135 to 155 square metres in the course of the conversion. In total, heating energy consumption fell by almost 60 per cent and consumption per square metre from 211 to 78 kilowatt-hours; co2online puts the renovation costs for this house at 43,000 euros. For a complete renovation of a detached house with 130 square metres, the same source calculates investment costs of between 127,000 and 146,000 euros depending on the heating system14 — a model calculation assuming that all measures are carried out at the same time.

Two conclusions that hold up: the envelope as a whole contributes more than the heat generator, and the big savings come from the combination, not from the individual measure. Everything else applies to your house and not to a model house — and the starting point of your building is set out in black and white in the energy performance certificate (Energieausweis). Which of the two types of certificate is permitted and meaningful for your building is set out in the comparison consumption or demand certificate.

#Is there a renovation obligation in 2026?

The short answer: there is no general obligation to bring your residential building up to a particular efficiency class. The longer answer is more important, because there are indeed three obligations that many owners do not know about.

The origin of the misunderstanding lies in the European Energy Performance of Buildings Directive (Directive (EU) 2024/1275). For residential buildings it requires limits for the average primary energy consumption of the entire stock: by 2030 at least 16 per cent less than in 2020, by 2035 at least 20 to 22 per cent less. At least 55 per cent of this reduction is to come from renovating the 43 per cent of buildings with the worst energy performance. The federal information portal on building energy law states the consequence unmistakably: “Thus no individual renovation obligation is required for residential buildings. The Member States must, however, demonstrate renovation obligations relating to the building stock as a whole.”8

It is different for non-residential buildings: there the Directive introduces minimum requirements which, from 2030, affect the worst 16 per cent and, from 2033, the worst 26 per cent of the 2020 stock. Anyone who owns a commercial property should keep this difference in mind — it does not apply to residential buildings.

#The three obligations that actually exist

First, the retrofitting obligation for the top floor ceiling. Under § 35 (1) GModG, top floor ceilings (oberste Geschossdecken) that do not meet the minimum thermal insulation under DIN 4108-2 must be insulated so that their thermal transmittance does not exceed 0.24 watts per square metre and kelvin.1 The obligation is also deemed fulfilled if the roof above is insulated accordingly instead.

Second, the insulation of accessible heating pipes. § 69 (2) obliges owners to limit the heat loss of previously uninsulated, accessible heat distribution and hot water pipes outside heated rooms in accordance with Annex 8. This is one of the few obligations that requires neither scaffolding nor planning — and one that is regularly overlooked when looking round the cellar.

Third, the building element requirement as soon as you renew anyway. If external building elements are renewed, replaced or installed for the first time, under § 36 GModG2 they may not exceed the thermal transmittance values of Annex 7.3 There is a de minimis threshold: alterations that affect no more than 10 per cent of the total area of the building element group concerned are exempt. So anyone replacing three of thirty windows does not trigger the requirement — anyone re-rendering the façade, as a rule, does.

For the first two obligations there is a much-cited exception that really does exist: for residential buildings with no more than two flats, one of which the owner occupied themselves on 1 February 2002, the obligation under § 35 (3) applies only on a change of ownership — then with a deadline of two years from the first transfer of ownership after 1 February 2002. And it does not apply at all to owner-occupied one- and two-family houses insofar as the expense cannot be recovered through the savings within a reasonable period.

#Two obligations that are not renovation

Alongside the three building element obligations there are operating obligations. Water-based heating systems installed before 1 October 2009 and running in a building with at least six flats must undergo a heating check and heating optimisation under § 60b (1) by the end of 30 September 2027. After a new heating system has been installed, buildings with six or more flats must also be hydraulically balanced (§ 60c (1)).

And one point that generates many letters: an operating ban for boilers after 30 years no longer appears in the Building Modernisation Act as currently in force. The provision has been dropped; § 72, which carried the operating ban, has since borne only the note “(repealed)” in the statutory text. Replacement can nonetheless be economically attractive — funding specifically rewards the early replacement of a system that still works; more on that shortly.

#What funding is available in 2026 — BEG, KfW and BAFA at a glance?

The Federal Funding for Efficient Buildings (BEG) was revised with effect from 21 July 2026.12 Anything you read in older overviews — including ones that are still online — may have been superseded since then. The figures in this section come from the information sheets and programme pages in the version currently in force.

#Individual measures on the envelope and building services: 15 per cent via the BAFA

For insulating external walls, roof surfaces, floor ceilings and floor surfaces, for new windows and external doors, for external solar shading, for ventilation systems and for heating optimisation, the basic funding rate is 15 per cent of eligible expenditure.10 The minimum eligible investment is 300 euros gross — very small measures are therefore excluded.

What is capped is not the grant but the assessment basis: 30,000 euros for the first residential unit, 15,000 euros each for the second to sixth and 8,000 euros each from the seventh. If the bonus for the individual renovation roadmap is granted for the measure, these upper limits rise to 60,000, 30,000 and 15,000 euros — a doubling for the first two tiers, but not from the seventh residential unit (BEG EM no. 8.3.1 a).10

#Heating replacement: 30 per cent via the KfW, plus bonuses

For replacing the heat generator — heat pump, solar thermal, biomass, connection to a heating network and other options — basic funding of 30 per cent of the total eligible costs is granted.12 Two bonuses are added:

• The climate speed bonus (Klimageschwindigkeitsbonus) is 16 per cent. It goes to owner-occupiers who replace a working oil, coal, gas-storey or night-storage heating system — regardless of its age — or a working gas or biomass heating system that was commissioned at least 20 years ago. It falls for the first time on 1 February 2027 and thereafter by 4 percentage points every six months; from 1 August 2028 it no longer exists.
• The income bonus (Einkommensbonus) is 40 per cent for a taxable annual household income of up to 30,000 euros, 30 per cent up to 40,000 euros and 10 per cent up to 50,000 euros. If at least one child under 18 lives in the household, the income limit is raised by a flat, one-off 10,000 euros.

Above everything there is an upper limit: basic and bonus funding together reach no more than 70 per cent of the total eligible costs per residential unit. The often advertised 80 per cent is available exclusively to owner-occupiers with a taxable annual household income of up to 30,000 euros, or up to 40,000 euros with the family supplement. The maximum eligible costs are 28,000 euros for the first residential unit and fall by 750 euros every six months from 1 February 2027.

#The tax alternative under § 35c of the Income Tax Act

Anyone who does not want to or cannot apply for a grant has a second route: for energy-related measures on an owner-occupied building, income tax is reduced in the year of completion and in the following year by 7 per cent of the expenditure each, up to 14,000 euros each, and in the third year by 6 per cent, up to 12,000 euros.7 The property must be more than ten years old when the work is carried out and be used exclusively for the owner’s own residential purposes, the work must be done by a specialist firm with an official certificate, and the invoice must be paid cashlessly. For the costs of an energy consultant approved by the BAFA, 50 per cent applies instead.

The exclusion is decisive: you cannot have both. § 35c (3) denies the tax reduction if low-interest loans or tax-free grants are claimed for the same measure. So you decide per measure.

And the rule is time-limited: only measures completed before 1 January 2030 qualify (§ 52 (35a) of the Income Tax Act). Anyone renovating in stages over several years should factor this in — the third and final instalment of the reduction falls due only two years after the measure is completed.

Two announced bonuses are deliberately given no figure in this article: a bonus for insulation measures on particularly poor buildings (“Worst Performing Buildings”) and a value-added bonus for heat pumps made in Europe. Both have been announced for the first quarter of 2027; their amount had not been published when this article went to press. For the insulation bonus at least the condition is fixed: the measure must be part of a funded renovation roadmap, and it is granted for no more than three applications.

#What is the individual renovation roadmap — and what does the bonus bring?

Drawing it up is itself eligible for funding: the federal funding for energy advice for residential buildings covers 50 per cent of the eligible consultancy fee, up to 650 euros for one- or two-family houses and up to 850 euros for residential buildings with three or more residential units.11 Owners’ associations receive a one-off additional 250 euros if the results are explained at the owners’ meeting. One of the conditions is that the building application or building notification was made at least ten years ago.

The second benefit is the bonus within the funding itself — and here something essential changed on 21 July 2026 that is still missing from many overviews. For buildings with one residential unit, the bonus of 5 per cent is granted only from a minimum eligible investment of 30,000 euros, and it applies only to the amount exceeding that sum. With several residential units, the threshold rises to the sum of the respective upper limits without the increase from the bonus.

The roadmap is therefore worthwhile above all if you are renovating on a larger scale anyway, and secondly it is a planning tool: it fixes the order before the first tradesperson is commissioned. The inventory beforehand is provided by the energy performance certificate. At Energieausweis Portal a demand certificate costs 119.90 €, a consumption certificate 69.90 € — what makes up the price and where an on-site visit makes more sense is set out in what an energy performance certificate costs. You can order it directly via the form for the demand certificate or the form for the consumption certificate.

#What has applied to heating since the Building Modernisation Act?

The amendment was promulgated in the Federal Law Gazette on 28 July 2026; the main new rules have applied since 29 July 2026. The best-known point: the statutory requirement of a uniform share of at least 65 per cent renewable energy in heat supply has been dropped — for new and existing buildings alike.9

It is replaced by freedom of choice with a follow-up obligation. § 42 (2) lists ten permissible options, expressly including a heating system fired with gas, heating oil or liquefied petroleum gas, alongside electrically driven heat pumps, solar thermal, biomass, hydrogen, hybrid solutions, high-efficiency combined heat and power, direct electric heating and connection to a heating network.

Anyone who opts for a fossil-fuel system, however, takes on an obligation that applies with a delay. If a gas, heating oil or LPG heating system is newly installed in an existing building after 29 July 2026, the owner must ensure that from 1 January 2029 at least 10 per cent, from 1 January 2030 at least 15 per cent, from 1 January 2035 at least 30 per cent and from 1 January 2040 at least 60 per cent of the heat supplied comes from biomethane, bio-oil, biogenic liquefied gas or hydrogen.4 The requirement can also be met in other ways, by three further routes — and permanently: solar thermal (§ 43 (3) sentence 1) and a ventilation system with heat recovery (§ 43 (4) sentence 1) count towards the quota without any time limit. Only the simplification is time-limited: from 1 January 2029 until the end of 31 December 2034, the obligation is deemed fulfilled without further proof if fixed values are met — for the solar installation 0.04 square metres of aperture area per square metre of usable floor area, or 0.03 with more than two flats; for the ventilation system a heat recovery rate of at least 73 per cent, a coefficient of performance of at least 10 and supply to the entire building area. Outside this window, § 43 (3) sentence 3 requires proof for solar thermal by an expert under § 88 or a contractor’s declaration as soon as more than 15 per cent is to be counted. The third route is the heat pump hybrid heating system with a sufficient heat pump share (§ 43 (5)), the fourth the biomass hybrid heating system, in which under § 45 (2) the solid biomass fulfils the obligation.4

That leaves the question of whether a heat pump runs efficiently in an older building at all. There are now measured data on this rather than opinions: the Fraunhofer Institute for Solar Energy Systems measured 77 heat pumps in one- to three-family houses over four years. Air-to-water heat pumps achieved an average seasonal performance factor of 3.4 with a range of 2.6 to 4.9, ground-source systems an average of 4.3 with a range of 3.6 to 5.4. No correlation was found between the year of construction of the building and the efficiency of the system.13 In 2024 the CO₂ emissions of the systems measured were around 64 per cent lower than those of natural gas heating.

For planning this means: the phrase “insulate first, then heat pump” is a question of economic efficiency, not of feasibility. Even an unrenovated older building can cope with a heat pump if the heating surfaces and design are right. How you can tell this in advance — and which details in the energy performance certificate help — is set out in heat pump in an older building: what the energy performance certificate reveals about suitability.

#How does a renovation affect the energy efficiency class in the certificate?

The efficiency class is not an assessment by an expert but a calculated value: under § 86 GModG, the classes of Annex 10 follow directly from final energy consumption or final energy demand.5 For residential buildings the scale from A+ to H with the limit values of Annex 10 continues to apply.6

The classes vary in width, and that explains a common disappointment. Between A+ and A there are 20 kilowatt-hours, between E and F by contrast 40. The same measure can therefore jump a class in one house and change nothing about the rating in another — though it still changes the heating bill.

One cut-off date belongs here: the Act has applied since 29 July 2026, but its energy performance certificate rules are in Article 2 of the amending Act and only enter into force on 1 January 2027 — so the sections this article quotes in the present tense already apply, the innovations described here do not yet. They affect non-residential buildings. There, energy efficiency classes from A to G will be introduced, and energy consumption certificates will then no longer be provided for them. For residential buildings the scale A+ to H remains.9

A second point is more important for planning: in which certificate a renovation becomes visible, and when. A demand certificate (Bedarfsausweis) recalculates the building element by element and reflects the new structural condition immediately. A consumption certificate (Verbrauchsausweis), by contrast, is based on bills from a continuous period of 36 months (§ 82 (4)); a renovation completed in the last year enters it only as a fraction and has only fully arrived after several billing periods. Anyone wanting to show a better class after the renovation is therefore better served by the demand certificate — the distinction in detail is set out in consumption or demand certificate.

Incidentally, an existing certificate does not become invalid through a renovation; it runs for its ten years under § 79 (3) and then simply describes an outdated condition. Whether you need one at all and from when is set out in when an energy performance certificate is mandatory.

Two further links between certificate and renovation are little known. First, under § 84 (1) the issuer must make recommendations for cost-efficient improvements — this is the point at which an energy performance certificate turns into renovation planning. Second, § 89 (1) no. 4 ties funding to the funded measure exceeding the statutory requirements. Anyone who only achieves the minimum gets no money.

#In what order does it make sense to renovate?

The technical principle is: first reduce the heat demand, then replace the heat generator. The reason is not ideology but sizing. A heating system sized before the insulation is too large afterwards — it cycles more often, runs at poorer operating points and costs more to buy than it needs to. Conversely, after insulation a system can be sized smaller and therefore more cheaply.

This principle has to be read together with the finding from the Fraunhofer ISE measurement series: if year of construction and efficiency do not correlate, the order is a question of economic efficiency, not of feasibility. Anyone who has to replace a broken heating system in January does not wait three years for the scaffolding — they have the system sized for the condition after the planned insulation.

The firmest anchor for the order is in the Act itself: as soon as you renew a building element anyway, § 36 applies with the maximum values of Annex 7. Anyone re-covering the roof must insulate it while doing so. From this follows the practical rule of combining repair and renovation dates — the scaffolding then goes up only once, and you meet the requirement anyway.

#Frequently asked questions about renovation and funding

#Conclusion: little is mandatory, much is funded — and the order decides

You do not have to renovate your residential building; you have to insulate the top floor ceiling and the accessible heating pipes and comply with the requirements of Annex 7 as soon as you renew a building element anyway. Everything beyond that is an economic decision, and since 21 July 2026 the federal government has contributed 15 per cent for the envelope, 30 per cent for the heating and at most 70 per cent — 80 on a low income. Anyone planning on a larger scale first obtains the funded advice and the renovation roadmap, sets the order and makes sure every contract with a tradesperson carries the funding clause before the application goes off. And anyone who wants to know where their building stands today starts with the energy performance certificate: it provides the figure on which every further decision depends.