The Colder the Climate, the Easier it is to Sell Heat Pumps

We often hear the claim that heat pumps do not work in cold conditions. However, if you look at the statistics, the situation seems quite the opposite. Europe’s coldest countries – Finland, Sweden and Norway – sell by far the most heat pumps per capita or in proportion to the number of households. In 2023, for example, 6 heat pumps were sold per 1,000 households in Germany compared to 70 in Finland. In Europe’s coldest country, Finland, 1.5 million heat pumps were sold to a population of just over 5 million, and already 8 billion euro has been invested in heat pumps. Heat pumps already provide almost 20% of heating of buildings. Similar type and level of figures are found in the neighbouring countries, Sweden and Norway.

Does the success story of Finland’s heat pumps owe its existence to cold living conditions? Yes and no. Finland is territorially about the same size as Germany but has only one-fifteenth of its population. Very fortunately, building a comprehensive gas network has not been economically feasible. The solution has instead been to build a strong electricity network and district heating networks in urban areas and, to a reasonable extent, the use of oil heating. Electricity production moved to the right direction: to cost-efficient and CO2-free hydro, nuclear and bio power. Electrification of heat first began in Finland as early as the 80s. This led to the building of approximately 0.8 million electrically heated houses in the country. Consequently, strong electricity networks were constructed. Only just over 200,000 houses had oil heating installed.

In the 90s, the situation was perfect for the launch of the heat pump success story. The technology started to be there for both air and ground source heat pumps. Heat pumps made it possible to save electricity not only in electrically heated houses but also by replacing oil heating with heat pumps and by installing heat pumps in at least new single-family houses, and why not in bigger buildings, too? As the production of district heating moved from low-cost fossil production to more expensive biobased production, some of it started to be transferred to heat pumps at either end of district heating pipelines: either producing district heating centrally with heat pumps or by decentralised building-specific heat pumps at the other end of the pipeline. Progress has been made in all sectors and is still continuing at lightning speed. In 2022, 200,000 heat pumps were sold in Finland, and more than a billion euro was invested in them.

Supply chains and business models had to follow market development. It should be borne in mind that the heat pump itself only makes up 20–30% of the investment. Therefore, the company’s profit margins, errors and successes rely on the heat pump system’s delivery expertise. Heat pump investments in the Nordic countries are so profitable that state aid has not played an important role. Lessons have been learned, of course, from subsidy-related market failures, such as stopgo situations while waiting for aid and as they end and subsidies trickle into prices.

As a special Nordic feature, one might mention heat pump market sectors, which are missing completely from many countries. The amount of electricity used for heating is reduced by replacing electric heating with environmental energy captured by heat pumps. Combustion-based district heating production is replaced with heat pumps at each end of the district heating pipeline. In the Nordics, the heat pump market started already in the 90s. Approximately 5 million heat pumps have already been installed, and consequently, the third market replacement for heat pumps is quite significant.

As the technology and operation of heat pumps in cold Scandinavian conditions have not proved to be a barrier – nor much of a challenge – to their use, heating is becoming more and more heat pump-sourced, and therefore, many sequels will be written to this heat pump success story.