Sustainability Replacing a heating system: the 10 key questions

The revised CO2 legislation currently under discussion does not make it a legal requirement to replace an old heating system – at least not yet. Cantonal energy laws play a key role here. In the vast majority of cantons, the often cited Model Provisions of the Cantons (MuKEn) apply: Anyone wishing to replace a gas- or oil-fired heating system like for like with a fossil fuel heating system must demonstrate that 10 to 20 percent of the energy used by the building comes from renewable energy. In practice, this requirement often leads to homeowners deciding to change their system and to heat in a climate-friendly manner. The laws of certain cantons, such as Zurich or Basel-Stadt, contain more far-reaching provisions. They allow for the replacement of an old heating system with a new boiler powered by fossil fuels only in exceptional cases.

The purchase of a new condensing boiler is comparatively cheap, costing between CHF 5,000 and CHF 10,000. This investment is sufficient to continue operating the existing oil- or gas-fired heating system for the time being. A more comprehensive renovation including a new oil tank and chimney renovation will be more expensive. Switching from oil-fired heating to gas heating would cost between CHF 10,000 and CHF 20,000 (the information provided in this article always relates to a standard single-family house). In addition, there are usually costs involved in complying with cantonal guidelines – i.e., technologies such as photovoltaics.

If you want to heat ecologically in the future, you must expect to have to make a higher initial investment. Converting to a heat pump costs at least CHF 30,000 for an average single-family house. Depending on the initial situation – if, for example, expensive drilling is necessary to insert geothermal probes – a greater investment will be required. It can be assumed that increased demand for heat pumps and general supply bottlenecks will require higher investment costs, at least for the time being.

Future usage costs will largely depend on the how energy prices change. However, there are no reliable long-term price forecasts for oil, natural gas or electricity. In our calculation, we assumed an average price of CHF 115 per 100 liters of heating oil and 16 cents per kWh of natural gas. Both costs are around 20 percent higher than they were at the end of 2021, but below the current market price. We also expect higher electricity costs in the future. Assuming a long-term average of 33 cents per kWh, electricity prices will be about 50 percent higher than now. Please note that the energy prices quoted are not official UBS forecasts.

Our example calculation is based on an unrenovated single-family house with an annual energy consumption of around 18,000 kWh: The annual expenses, i.e., the usage costs of an oil-fired heating system, including the cost of oil, maintenance and carbon tax, come to around CHF 4,400. A gas heating system costs as much as CHF 4,500. Converting to renewable energy with a heat pump (powered by electricity) is significantly cheaper – despite the expected rise in electricity prices: annual usage costs including electricity consumption are only about CHF 2,000. The owner can also rest assured that their heating system is one hundred percent ecological.

Conversion is also still financially worthwhile for single-family homes whose energy consumption has already been significantly improved. With a remaining energy requirement of around 10,000 kWh per year, the cost advantage of a heat pump is still considerable – ecological heating is then around 40 percent cheaper. However, it takes longer to amortize the initial additional investment.

There are various attractive financing options in place for households. The new UBS Mortgage Energy offers particularly attractive interest rates for replacing a fossil fuel heating system with a climate-friendly one. Designed as a fixed-rate mortgage, it offers borrowers a choice of two-year or ten-year terms. It is aimed exclusively at private clients and is for a specific purpose. A discounted mortgage is granted to finance the replacement of an existing oil- or gas-fired heating system with an eco-friendly one. The minimum amount is CHF 25,000.

From a financial point of view, it is a very worthwhile investment. The mortgage is likely to pay for itself in many cases, as the savings you make through use of the new heating system pay for the interest payments and amortizations.

Our hypothetical average energy prices already assume a sharp rise in prices compared to the current price. However, unless electricity prices rise from just under 22 (the current level) to 50 cents per kWh, heat pumps should remain more cost effective in the long term than fossil fuel heating systems in renovated buildings. In the case of unrenovated buildings, electricity prices would have to rise even further to tip the balance in favor of fossil fuel heating systems.

The financial advantages are particularly apparent for older, unrenovated single-family homes with relatively high energy consumption. In most cases, replacing an oil-fired heating system should pay off after less than ten years.

The initial high investment costs for a heat pump are amortized within a short space of time thanks to lower annual usage costs. If cantonal subsidies of CHF 10,000 and tax advantages are also taken into account in the calculation, the investment costs can be amortized within three to five years. The owners also benefit from the heating system’s longer service life and from the very low service costs. By comparison, longer amortization periods can be assumed for residential buildings that have already been renovated. Once the investment costs exceed CHF 40,000, switching to a heat pump would not pay off until 20 years have passed, which may make a new fossil heating system seem more logical. In the event of lower investment costs due to subsidies, the amortization period will be reduced to less than 15 years.

Until now, the consensus has been that, for ecological and economic reasons, components should be replaced only at the end of their lifecycle. Thus heating systems and façades should be replaced only at the end of their service life, i.e., after about 15 or 20 years, depending on the item. However, recent analyses show that such an assessment is too generalized.

A study by the environmental organization WWF reached the same conclusion that replacing earlier makes sense. In their comprehensive ecological assessment, the authors consider the manufacture, operation and disposal of the respective heating system. They also took into account the fact that sustained carbon emissions are harmful to the environment. According to the authors of the study, anyone who still has an oil- or gas-fired heating system should convert to a heat pump, pellet or district heating system “as soon as possible.”

The current spike in the price of fossil fuels is another argument to do so. In addition, legal and technical requirements are also gradually becoming stricter. Thus, there is a lot to be said for replacing an oil- or gas-fired heating system as soon as possible. In addition, a future ban on such heating systems could cause capacity bottlenecks in the construction industry, making renovation costs more expensive.

Energy consumption in older residential buildings can be massively reduced with even relatively inexpensive and simple measures. Replacing windows or doors alone can reduce annual energy consumption by up to 30 percent. Further measures, such as a renovation of the façade and the thermal insulation, will also have a positive impact on the energy balance. Using solar energy is another option. A photovoltaic system can reduce the electricity costs of a single-family home by more than two thirds. What's more, ancillary costs are less dependent on energy prices. A photovoltaic system is doubly worthwhile when used with a heat pump, as it is powered by the electricity produced by the panels. However, the specific cost-effectiveness calculation will vary from case to case and also depends on cantonal subsidies.

Most cantons provide subsidies of around 10 to 15 percent for energy-efficient renovations and the replacement of old heating systems. However, the methods and the funding programs vary considerably from canton to canton. For the installation of a brine-water and water-to-water heat pump, which is considered particularly sustainable, owners can expect an average one-time payment of around CHF 10,000. Cantons such as Basel-Stadt or Zug are particularly generous. Definitive information for owners is provided by the cantonal authorities.

Depending on a person’s income and their marginal tax rate, the additional tax benefits can be considerable. In general, the costs of converting to a renewable heating system are 100 percent deductible from income tax, regardless of whether the money represents a share of building maintenance or value-adding investments. In addition, owners of energy-efficient properties will benefit from higher selling prices in the medium to long term. This is because property that complies with the very latest legislation and technology usually achieves a higher resale value than unrenovated objects.