This chapter considers the economics of heat pumps versus gas boilers and biomass stoves. It explores the role of grants and subsidies and how these affect the lifetime cost of owning a heat pump compared to other heating technologies. Different policy options are then discussed, including potential avenues for multi-lateral policy support at both national and local levels.

As previously mentioned, a main barrier to heat pump adoption is the high upfront cost relative to prevailing heating technologies. Governments can help to lower this hurdle through mechanisms such as upfront subsidies or grants and low-interest loans. Another way to offset high upfront costs is to reduce the running costs, thereby shortening the payback time. This will also be explored as part of the total cost of ownership analysis. 

Governments can reduce the initial cost burden of heat pumps by providing subsidies, sometimes also referred to as “grants.” Upfront subsidies can take different forms: a flat-rate subsidy disperses a pre-defined lump sum, while a percentage-based subsidy reimburses a defined share of the total cost of the heat pump and its installation.

The Boiler Upgrade Scheme in the United Kingdom is an example of the former. The programme offers GBP 7 500 to any homeowner who replaces their fossil fuel heating system with a heat pump1. Germany has taken the latter approach, with a subsidy that covers up to 70% of the heat pump installation costs.

Flat-rate subsidies also can be based on household income. This is the case in France, where a grant programme, MaPrimeRénov, subsidises low-income households significantly more than the highest earners. This has the advantage of prioritising funding for those with the least means to afford a heat pump. The disadvantage is that such schemes can be complex and expensive to administer, as well as difficult for citizens to understand and access.

Subsidies also are often provided in the form of tax credits. When this approach is chosen, it is important to consider when the subsidy is available. Tax credits may work well for corporations, small businesses or wealthier citizens with sufficient capital to make an upfront investment in a heat pump in anticipation of a tax break. But for households unable to afford the upfront payment, this presents a challenge.

One solution is to provide point-of-sale rebates, where the tax credit is deducted immediately from the sales price. The United States Inflation Reduction Act offers this. Another is to provide zero-interest bridge loans – from a development bank or local municipality, for example – to cover the anticipated tax credit.

Energy companies can also provide subsidies through energy efficiency obligation (EEO) programmes. Under these schemes, energy companies are legally required to deliver a specified amount of energy savings to their customers. This can be achieved through heat pumps, since they help save energy. In France, clean heating activities benefit from a bonus in the EEO scheme. This creates an incentive for energy companies to pursue this activity, resulting in more clean heating installations. In practice, French energy companies – sometimes operating through third-party intermediaries such as installers – offer a subsidy of EUR 2 500 that can be combined with government support.

In April 2024, Moldova’s Residential Energy Efficiency Fund (REEF) started providing percentage-based subsidies for energy efficiency measures in residential buildings. These cover up to 70% of the upfront cost of a heat pump in multi-family buildings and up to 50% for single-family homes. The same support is also provided for biomass boilers. There are no upfront subsidies available for gas boilers, a decision that is in line with the European Union’s Energy Performance in Buildings Directive, which mandates the phase-out of subsidies for fossil-fuel heating devices as of 1 January 2025.

The grants provided by REEF also support the installation of household space and water heating systems with horizontal distribution. These typically replace existing vertical distribution systems linked to district heating, enabling households to have individual meters and improving overall energy efficiency.

Governments also can provide loans that reduce the upfront cost of a heat pump, or at least help customers defer the cost while they set up a payment plan. Many governments fund programmes that provide low-interest loans to home renovations, including heat pump installations. These loans also can be bundled into mortgages.

Financial institutions in Moldova have been able to access various lines of credit via the Green Economy Financing Facility (GEFF) supported by the European Bank for Reconstruction and Development (EBRD). These included USD 7 million earmarked for households, USD 42 million for companies that is already fully drawn as well as an active USD 20 million credit line for households and businesses. In 2024, the European Union announced that it would contribute EUR 9.5 million to the GEFF. This will include loans to banks that support energy efficiency measures such as heat pumps and provide cashback and other incentives to lower the cost of efficiency improvements.

Heat-as-a-service is an emerging business model for heat decarbonisation, whereby energy service companies deliver a heating service instead of selling a fuel. The offers vary depending on the provider, ranging from appliance leasing to temperature guarantees. Customers are typically not required to pay much upfront for the heat pump (which continues to be owned by the energy company) and instead pay a subscription fee.

There currently are no heat-as-a-service business models active in Moldova, but industry stakeholders stressed the importance of energy service companies for maintaining heat pump devices used in district heating networks.

Reducing the VAT on heat pumps is another way drive down upfront costs. In July 2024, Moldova’s Ministry of Energy proposed reducing the VAT on heat pump purchases to 8% from 16%. This is similar to efforts made elsewhere in Europe. Since 2022, the legal minimum VAT on heat pump purchases in the European Union has been 5%. As of November 2024, only five EU member states had set their VAT for heat pumps  below the rate for gas boilers.

At current subsidy levels and energy prices, the average total cost of ownership (TCO) for a residential air-to-water heat pump in Moldova is similar to that of a natural gas boiler. These costs can be broken down into “upfront costs” and “running costs.”

The average upfront cost of a heat pump is approximately MDL 100 000 (EUR 5 120), while an equivalent gas boiler costs around MDL 30 000 (EUR 1 530) and a biomass boiler MDL 57 500 (EUR 2 950)2. Applying the 50% subsidy from REEF for a single-family home, the cost of an air-to-water heat pump decreases to EUR 2 560 and the biomass boiler to EUR 1 475. In other words, the upfront cost of the heat pump is about 67% more than the gas boiler after the subsidy is applied.

Relative to the upfront cost, the cost of operating the heat pump is significant. With current electricity prices of MDL 4 920/MWh (252 EUR/MWh) and current natural gas prices of MDL 16.74/m³ (EUR 0.86/m³), the annual cost of operating the heat pump over 18 years is around six times more than its annualised upfront cost. On a yearly basis, this leads to a TCO for a heat pump that is around the same as a gas boiler, but EUR 230 more expensive than a biomass boiler.

Improving the energy performance of Moldova’s buildings can have an important impact on the TCO. By applying insulation measures that reduce the space heating demand by 25%, the yearly TCO falls to EUR 800, slightly above the TCO of a biomass boiler (at average heating demand levels).

The prices used in this simulation are those from late December and early 2025, which ANRE recently increased. Applying a sensitivity analysis to both the heat pump and the gas boiler can reveal the impact of price increases and decreases.

In a situation where electricity and gas prices (before VAT) rise by 25%, this would result in an annual TCO increase of roughly EUR 220 for heat pumps and EUR 230 for gas boilers, making them both significantly more expensive than a biomass boiler. However, electricity and gas prices do not move in lockstep; in a future where gas prices spike, it is likely that electricity prices would rise more moderately, as was the case in many European countries during the energy crisis of 2021-2023. Likewise, if energy prices were to fall by 25%, the TCO of the heat pump and the gas boiler would decrease to around that of a biomass boiler.

A notable factor is the impact of VAT on electricity (currently 20%) and gas (8%). If VAT were removed, the running costs of heat pumps would increase by EUR 182 while those of the gas boiler would rise by EUR 215. If VAT rates were swapped, heat pump running costs would increase by EUR 196 and gas boiler by EUR 258. The impact of taxation in energy prices is significant, and as recommended in the previous chapter, Moldova should consider how to rebalance these taxes to improve the affordability of heat pumps and shield this efficient heating technology from rising energy prices.

International Financial Institutions (IFIs) have played an important role in financing energy-related projects in Moldova. Notable support has been received from the World Bank, the European Investment Bank, the European Union, the European Bank for Reconstruction and Development, the United Nations Development Programme and the United States Agency for International Development.

This support includes around EUR 350 million of loans to ongoing projects to modernise Moldova’s energy infrastructure by improving electricity interconnection with Romania; upgrading central heating in Chisinau and Balti; and enhancing energy security through European market integration, renewable energy, and digitalisation. A full overview of these projects can be found in the Moldova’s NECP.

• Evaluate a flat-rate subsidy scheme to reduce administrative complexity and improve citizen responsiveness.
• Reduce VAT on heat pumps in line with the European Union’s legal minimum of 5%.