Supporting building heat decarbonization with heat Pumps: Analysis of subsidy schemes in Swiss leading cantons

Heat pumps (HP) are a key solution for decarbonizing building heating systems. However, their adoption remains slow due to high upfront costs, technical challenges, and limited financial support. This study examines the impact of mandatory requirements to transition to HPs, combined with subsidy schemes, based on real-world case studies from two Swiss cantons. Two approaches of establishing the subsidy level are distinguished: i) LCOH-based subsidies, bringing down the levelized cost of renewable heating to the level of a gas boiler; and ii) Capital expenditure-based (CapEx-based) subsidies, which, in pure form, are designed to entirely repay the extra investment cost for installing the renewable heating system relative to a gas boiler. We find that current subsidy levels cover only a small portion of the additional investment costs compared to gas boilers and in most cases, they somewhat exceed the LCOH-based subsidy level. Today's subsidy levels can be considered as good compromise between the two ways studied (i and ii), while opportunities are shown for some adaptations in the studied regulatory frameworks. These findings provide practical guidance for designing effective subsidy schemes for other Swiss cantons and other countries aiming to decarbonize building heating systems.