2025 will be year of ‘reset’ for the European heating sector – LCP Delta

2025 could be the year that the European heat sector resets following the end of the pandemic and the energy crisis that has led to volatility and decline in volumes in the European residential central heating appliance market, according to LCP Delta.

Based on an analysis of data from 21 countries, sales volumes in the European residential central heating appliance market declined for the second successive year in 2024. Part of the drop can be explained by volumes returning to more typical levels following a few years of unnaturally high sales levels in 2022 – driven strongly by government measures to stimulate activity in response to the Covid-19 pandemic. LCP Delta also believes that a high level of political uncertainty at a national and European level may also be behind some of this decline, as well as the fluctuations in energy costs for consumers on the back of the Russian invasion of Ukraine.

Moving into 2025, LCP Delta predicts that volumes in the overall heating market in Europe will stabilise and then start to grow - so the overall market will increase compared to 2024. While the macro environment of politics and energy price dynamics will remain uncertain, LCP Delta expects that the industry’s recent innovations will have a positive market impact in 2025. These innovations include specialised heat pump tariff propositions, asset-backed security funding approaches and the new generation of high-performing and widely retrofit-able electric heat pumps utilising new refrigerant gases.

While in 2025, LCP Delta expects sales volumes of both hydronic heat pumps and also fossil fuel boilers to grow, this will not be the trend until 2030. LCP Delta’s longer-term forecast is that hydronic heat pump installations will grow 10% per year, whilst boiler sales volumes will decline at 3% per year. However, it is important to note that this rate of change is not enough to keep up with the targeted level of low carbon heat deployment that European governments have all signed up to, and so under LCP Delta’s reference scenario for the market, such targets will be missed.

There are also other factors to consider. Cheaper Chinese imports could pose a challenge as while this might drive higher sales of heat pumps as costs become lower for households, it could negatively impact European manufacturing. Tariff barriers seem likely to protect European manufacturing, but this will come at a higher cost for consumers which could slow market growth.

This year will also see the introduction of the Clean Heat Market Mechanism in the UK, which will be an obligation for major manufacturers to sell a set number of heat pumps as a proportion of their boiler sales. The 2025/6 target will be set at 6%, and this policy will also help boost heat pump sales. This will be the first country in the region to implement such a policy, so many European countries and the Commission in Brussels will be watching closely to see if it’s successful and can be replicated in other countries.