Heating system replacement: costs, financing and trends

The Swiss electorate approved the “Climate and Innovation Act” in June 2023. It aims to make Switzerland CO2-neutral by 2050. One of the measures that will help achieve this is for outdated oil, gas and electric heating systems to be replaced. Instead of banning fossil fuel heating systems, Switzerland is promoting the installation of heat pumps and other climate-friendly solutions by providing CHF 200,000,000 per year until 2030.

However, the cantonal energy laws are authoritative. “Model cantonal provisions in the energy sector” (MuKEn) apply in most cantons: anyone wishing to replace a gas or oil heating system 1:1 with a fossil heating system must either implement selective measures to improve the energy efficiency of the property or meet at least 10 to 20 percent of the energy requirements with renewable energies.

In practice, this requirement often prompts homeowners to switch to a climate-neutral heating system. Individual cantons such as Zurich or Basel-Stadt have more far-reaching regulations in their cantonal laws. In these cantons, the replacement of an old heating system with a new fossil fuel boiler is now only possible in exceptional cases. The next edition of the harmonized cantonal regulations will probably go in a similar direction.

At CHF 5,000 to 10,000, the cost of purchasing a new condensing boiler is comparatively low. Installation costs must be added to this. This investment is sufficient to continue operating an existing oil or gas heating system for a while longer. A more comprehensive renovation project, including a new oil tank and chimney renovation, will be more expensive. Switching from oil heating to gas heating costs around CHF 10,000 to 20,000 (all figures refer to a standardized one-family house and are correct for the year 2024). Complying with cantonal guidelines usually also comes at a cost – e.g. compensatory measures such as installing a photovoltaic system.

Homeowners who want to heat ecologically must reckon with a higher initial investment. Converting to a “clean” heat pump will cost around CHF 27,000 for an average one-family house in 2024. Depending on the initial situation, for example if complex boreholes are needed for geothermal probes, the investment is much higher and can even double to up to CHF 60,000.

An estimate of operating costs depends a great deal on price trends for the associated energy source. However, there are no reliable long-term price forecasts for oil, natural gas or electricity. As a guide: in October 2024, the costs of heating with oil or natural gas were roughly the same.

Converting to renewable energy with a heat pump (powered by electricity) could still be worthwhile because the annual usage costs including electricity consumption are likely to be significantly lower.

Single-family homes that have already been significantly improved in terms of energy efficiency are also cost-effective: with an energy requirement of around 10,000 kWh per year, the operating costs of both heat pumps and fossil fuel heating systems are likely to be considerably lower, but heat pumps still offer cost savings.

The new UBS Mortgage Energy offers particularly attractive interest conditions for replacing a fossil fuel heating system with a climate-friendly heating system, installing solar panels or fitting a photovoltaic system. The mortgage is designed as a fixed-rate mortgage, and you can choose between terms of two to ten years. The offer is aimed exclusively at private customers, and the minimum amount is CHF 25,000.

From a financial point of view, this is a worthwhile investment. In many cases, the mortgage is likely to be self-supporting, as the interest payments and amortization can be financed with the savings made on the usage costs of the energy system.

The economic advantages are most evident in older, unrenovated single-family houses with relatively high energy consumption. In most cases, replacing an oil heating system should pay for itself in less than ten years.

The initially high investment costs of a heat pump are amortized by lower annual usage costs. If potential cantonal subsidies of up to CHF 10,000 and tax benefits are also included in the calculation, the investment is even amortized after as little as three to five years. Owners also benefit from the longer service life of the heating system and low service costs. In comparison, longer amortization periods can be assumed for residential buildings that have already been renovated.

As soon as the investment costs exceed CHF 40,000, it takes 20 years before switching to a heat pump pays off. If subsidies are obtained so that the investment costs are lower, the amortization period is reduced to less than 15 years.

Replacing a fossil fuel heating system that is still in working order can almost always be amortized in an unrenovated old building – even if the heating system has only recently been replaced. The answer is less clear in a renovated building. If the oil heating has already exceeded half its service life, installing a heat pump is likely to pay off. However, it will take considerably longer before the investment has paid for itself.

Be that as it may, a replacement is not only worthwhile financially. A study by the environmental organization WWF concludes that a quick switch makes sense: in their comprehensive ecological balance sheet, the authors took into account the manufacture, operation and disposal of each heating system. They also allowed for the fact that the ongoing CO2 emissions are potentially damaging to the climate. Their findings show that anyone who still has an oil or gas heating system in their building should switch to a heat pump, pellet or district heating system “as soon as possible” from an environmental perspective, even if the existing heating system still works.

Besides this, the legal and technical requirements are gradually becoming stricter. So, there is a lot to be said for replacing an oil or gas heating system as soon as possible. In addition, a future ban on these heating systems could cause capacity bottlenecks in the construction industry and push up renovation costs.

Energy consumption in older residential buildings can be significantly reduced with relatively inexpensive and simple measures. Simply replacing old windows or doors can reduce annual energy consumption by up to 30 percent. Further measures, such as renovating the façade and fitting thermal insulation, can also have a positive impact on the energy footprint. The use of solar energy is another possibility: a photovoltaic system can reduce the electricity costs of a single-family house by more than two thirds.

What is more, the ancillary costs are less dependent on energy prices. A photovoltaic system is doubly worthwhile in combination with a heat pump, as the self-generated electricity is then also used to operate the heat pump. However, the actual economic calculation depends on the individual case and on cantonal subsidies.

Most cantons provide subsidies for carrying out energy-efficient renovation projects and replacing old heating systems. However, policies and funding programs vary greatly from canton to canton. Owners can hope to receive an average lump sum of around CHF 10,000 for the installation of a brine-to-water or a water-to-water heat pumps, which is considered to be particularly sustainable. Cantons such as Basel-Stadt and Zug are especially generous. Owners can obtain information from the relevant specialist offices in each canton.

You can benefit from considerable additional tax breaks depending on your income or marginal tax rate. The costs of converting to a renewable heating system can generally be deducted in full from your income tax, regardless of whether the measure is taken as part of a building maintenance project or as a value-enhancing investment.

Through higher sales prices, because a state-of-the-art property usually achieves a higher resale value than an unrenovated one.