The parties of the traffic-light coalition have agreed that single-family homes will be able to claim subsidies on up to €30,000 of the total cost of the upgrade, according to reports in German media outlets.
That means that a family who purchases a new heat pump for €35,000, for example, could claim for €30,000 of that expense and receive up to €21,000 in government subsidies.
The rest of the cost could then be covered with a low-interest state loan.
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For apartment buildings, meanwhile, the coalition also foresees a cap of €30,000 - but only for the first residential unit.
An additional allowance would then be added for each additional unit in the building.
The distinction between houses and apartments has to do with the fact that the vast majority of apartment buildings use a central heating system as opposed to individual solutions for each flat.
That means that costs are often shared by members of the home owners' association as opposed to being borne solely by a single household or family.
Preventing price gouging
The introduction of a cap on subsidies is partly intended to prevent price gouging on the part of heating systems vendors and contractors.
The government is concerned that, without a cap on how much of the bill they will subsidise, heating contractors would possibly hike their prices knowing that consumers could pass these costs onto the state.
Though not all details of the subsidy system has been finalised, it is believed that households can claim back up to 70 percent of the total cost of exchanging their heating systems.
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This would include a 30 percent general subsidy, a 20 percent subsidy for exchanging before the deadline and 30 percent for low-income households - capped at a total of 70 percent.
The government has pledged to present a detailed concept on the subsidy system by the end of September this year.
The Building Energy Act - which has been nicknamed the Heating Bill - is set to be passed in the Bundestag on Friday alongside the additional motion on subsidies.
The law stipulates that from next year, newly installed heating systems must be powered by at least 65 percent renewable energy, though after months of push-back numerous exceptions were recently introduced.
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