Slash Geothermal Costs With Free Money

Couple inherent energy cost savings with incentive dollars to make a huge dent in the cost of a geothermal system.

Jay Egg, Egg Geothermal

Jay Egg, Egg Geothermal

The economics of purchasing and operating a geothermal HVAC system are not solely reliant on paying notable upfront costs and then counting on energy-cost savings to recoup those costs in the first few years of operation. In fact, much of the upfront costs can be quickly offset by taking advantage of a variety of available incentives.

To start the discussion, let’s simply list the various incentives that are available to residential and commercial consumers. Residential options are included for comparison purposes. Here is a list of the most readily available options:
Residential:

  • 30% Federal tax credit, uncapped.

Commercial:

  • 10% Federal tax credit, uncapped
  • Maximum Accelerated Cost Recovery System (MACRS)–benefit as high as 38%, uncapped.

Commercial and residential:

  • Property Assessed Clean Energy (PACE) funding funds entire geothermal HVAC projects for property taxpayers
  • State and local government incentives (varies by region)
  • Utility incentives and funding (On-Bill financing)
  • Geothermal utility services (ORCA Energy).

Many of the incentives/benefits cover the entire cost of a new geothermal HVAC system or retrofit/improvements to an HVAC system. These improvements can include the following:

  • Geothermal source (ground loop/pond loop/Class V well system or standing column well
  • Geothermal (water sourced) chiller/heat pump equipment
  • Ductwork, distribution piping, and specialties
  • 100% fresh-air equipment (geothermal water sourced)
  • Controls and indoor air quality (IAQ) items
  • Electrical service connections
  • Excavation & recovery costs
  • Engineering drawings, permits, and fees.

Federal incentives for geothermal HVAC systems that are currently in effect through the year 2016 include different criteria for commercial and residential.

If the project is residential, all that is required is that the client be a taxpayer and fill out IRS form 5695. The customer will realize 30% of the entire cost of the geothermal HVAC system in direct tax credits. The credits can be rolled over from year-to-year until the full incentive is earned. For example, a $30,000 HVAC system, purchased in 2014, will generate a $9,000 tax credit on the very next tax filing, through 2016.

The reason I included residential is for comparison. If the customer is a commercial entity who owns the commercial property, that entity receives a 10% Federal tax credit. That doesn’t appear to be favorable until the rest of the story is considered. When MACRS is applied, the geothermal HVAC system is depreciated in an accelerated manner from 27 yr. down to an abbreviated 5 yr. A 50% bonus depreciation is also applied to the first year. This 50% bonus has been extended and modified several times since 2008, most recently in January 2013 by the American Taxpayer Relief Act of 2012.

By taking advantage of the commercial/corporate geothermal HVAC tax credits and incentives, an expenditure of $1 million for a geothermal HVAC system will net tax incentives amounting to $480,000 over 5 yr. under current program guidelines. A 48% tax incentive for corporate clients is clearly favorable to the 30% tax credit for residential clients.

PACE is a Federal program, currently available in 31 states, designed for residential and commercial consumers. The program works best for commercial customers in participating areas. PACE is arranged by local government and pays for 100% of the project’s costs. Payback is accomplished through property-tax assessments. Though PACE is also available for the residential sector, the housing market reverses in 2010 brought that funding to a halt. Commercial PACE programs have accelerated and, as of February 2013, 16 commercial PACE programs in seven states are accepting applications to fund geothermal HVAC and other energy-efficient projects.

On-Bill financing provides a way for consumers to repay the capital costs of retrofit geothermal HVAC systems as part of their monthly electric bill.

Electrical service providers have made energy-efficiency retrofits available to consumers for years. The utility companies use their reserves or third-party capital providers to cover the cost of the efficiency upgrade projects. Consumers/businesses are then obliged to pay the costs back over a period of 20 yr. on their electric utility invoice. These programs seem to be gaining favor and continue to grow, as shown by House Bill 1428, MD., “Public Utilities-Geothermal Heating and Cooling On-Bill Financing-Pilot Program,” initiated in February, 2013.

Third-party capital providers have emerged with programs such as “In-Electric Rate Funding,” introduced in January 2013 by Constellation Energy.

Geothermal Utility Services are a promising program that has been party to a market penetration of almost 40% of heating system replacements in Canada in 2011 according to the Canadian GeoExchange Coalition. Geothermal Utility Services, such as Canadian based GeoTility, and its US sister company, OrcaEnergy, cover the cost of the exterior geothermal ground heat exchanger/well system. The consumer then pays a one-time connection fee and a predetermined monthly utility charge to the geothermal utility. The consumer is then only concerned with the cost of the geothermal heat pump/chiller upgrade and is still eligible for many of the other programs mentioned, including the federal tax incentives (U.S.).

But, how much more do geothermal HVAC systems cost than standard HVAC systems? That subject is covered in the Commercial Conversation podcast, “Breaking New Ground With Geothermal.”

Briefly, standard HVAC systems may cost about $3,000/ton, compared with geothermal HVAC systems that may cost $5,000 to $6,000/ton at the lower range tonnage (less than 500 tons). As the tonnage goes up, the cost per ton goes down until, in many cases, a geothermal HVAC system can have a competitive first cost comparable to a standard HVAC system.

In other words, when a commercial entity takes advantage of federal incentives for geothermal HVAC systems, they are realizing essentially a 48% cost reduction benefit on the entire mechanical system. One can be reasonably assured that the resultant first cost of the system can actually end up being substantially less than the first cost of a standard HVAC system.

However, the federal incentives and energy efficiency of a geothermal HVAC system, though compelling, are secondary to some of the other tangible benefits of going geothermal. Consider the following advantages that can be attained only with geothermal:

  • Elimination of outdoor equipment
  • Storm proofing (geothermal equipment is sheltered from storm events)
  • Longevity of system (a result of all indoor equipment)
  • Elimination of fresh water consumption (from commercial cooling towers)
  • Elimination of fossil-fuel consumption (on-site)
  • Superior comfort in heating and cooling modes (more on this in future columns)
  • Enabling thermal load sharing (swimming pools, domestic hot water, HVAC re-heat)
  • System efficiency, as high as 40 EER.

You can see that we are in a favorable market with the many incentives for the implementation of commercial geothermal HVAC technologies. It does take a little legwork on the part of the contractor, engineer, and consumer. Construction professionals that up-sell to geothermal HVAC have all of these resources available to them.

Jay Egg is a geothermal consultant, writer, and the owner of EggGeothermal, Kissimmee, FL. He has co-authored two textbooks on geothermal HVAC systems published by McGraw-Hill Professional. He can be reached at jayegg.geo@gmail.com.

Geothermal a leader in the second green movement?

Jay Egg, Egg Geothermal

Jay Egg, Egg Geothermal

What’s the real essence of “going green?” What are we really trying to do? Is it for the environment? How about saving money? Is it to create jobs? Help the economy? Is it about looking “Green”? Or is it about just wanting to “do the right thing”?

If you remember the energy crisis of the 70s, you’ll likely remember the 50-mpg Volkswagen Rabbit diesel. When gasoline was abundant and cheap again, we entered the age of mammoth SUVs, because supply went up and prices stayed down. Now look at us.

With natural gas prices recently at an all-time low ($2.75/million Btu), heating and related costs for commercial buildings has reached an all-time low. Geothermal HVAC systems used to be clearly cost effective against natural gas—and they still are against other fuel sources.

But history has shown us that we should not be fooled by artificially low energy prices. In a 2012 article, Sustainable Plant reports, “Low natural gas prices won’t last, because way too many folks are making far too many plans to cash in.” When energy prices do increase, many of us will have no choice but to pay the increased costs until we can afford to upgrade to a better standard.

In a report that came out from the Energy Information Administration (EIA), a division of the U.S. Department of Energy (DOE), Washington on Dec. 10, 2013, the Short-Term Energy Outlook is that the “EIA expects that the Henry Hub natural gas spot price, which averaged $2.75 per million British thermal units (MMBtu) in 2012, will average $3.68 per MMBtu in 2013 and $3.84 per MMBtu in 2014.” That’s a 34% increase between 2012 and 2013 followed by an additional 4% increase between 2013 and 2014.

Green movement number two is on the way, and for more reasons than just increasing energy costs.

Solar photovoltaic (PV) systems continue to appear everywhere. Electrical production through wind generators is becoming a more common sight in certain areas. Hydropower has been used for generations. Geothermal “hot rock” power generation is growing.

Geothermal HVAC systems don’t get much press. You can’t see them, because equipment is all inside. You can’t hear them; the classic “out of sight –out of mind” scenario. Maybe that’s why we don’t hear much about the technology.

Geothermal HVAC systems remove as much as four times the energy consumption from the electrical grid per dollar spent than photovoltaic systems can add to the electrical grid per dollar spent.* Businesses desiring the elusive “net zero” status come closer to making that a reality by first implementing geothermal HVAC technologies. When considering a reduction in energy consumption costs, geothermal needs to be the first choice. The real hero in net-zero applications is summed up by the statement, “Giant arrays of solar panels produce power, while tankless hot water and geothermal air conditioning reduce demand.” from the news report, “Downtown St. Pete boasts new, ‘net-zero’ building.” You’ll find that the majority of buildings boasting a “net zero” energy goal are employing geothermal HVAC systems.

The number one reason for going green might be reduction of energy consumption of any type. The more peak load we can take off of the electrical grid, the fewer power plants we need. But are people buying into it? According to a new McGraw-Hill Construction study released on November 13, 2013 at the International Summit at the Green Build Conference and Expo, San Francisco, “Green building has become a long-term business opportunity with 51% of study firms planning more than 60% of their work to be green by 2015, up from 28% of firms in 2012.”

Another point in the study is that in 2008, the motivating factor of green building was “…doing the right thing (42%)”. Now the top reasons for doing green construction are “…client demand (35%) and market demand (33%)—two key business drivers of strategic planning.” With green building projected to double between years 2012 and 2015, there can be no doubt that “green movement number two” is underway. The question is, what green/sustainable technologies are going to be increasingly employed?

On November 11, 2013, a press release by Carrier (a subsidiary of United Technologies, and the largest manufacturer of HVAC products in the world) in the Wall Street Journal said, “Carrier Plans Joint Venture with Bosch to Strengthen Geothermal and Water-Source Heat Pump Offerings.” By all appearances, Bosch and Carrier see geothermal HVAC as the next big thing in “green.”

Let me know your plans – are you planning geothermal HVAC projects in the future? Why or why not? I’ll be sure to address your comments in future columns.

The Author
Jay Egg is a geothermal consultant, writer, and the owner of EggGeothermal. He has co-authored two textbooks on geothermal HVAC systems, published by McGraw-Hill Professional. He can be reached at jayegg.geo@gmail.com.

*Based on installed cost of $5.90/Watt from the report “Tracking the Sun VI, An Historical Summary of Installed Price of Photovoltaics, July 2013 Lawrence Berkeley National Laboratory” when compared with the installed cost of electrically powered geothermal heating and cooling ($6,000/ton) with a coefficient of performance of 4.0.