Sense Of Urgency

Many industry experts believe that sales of geothermal equipment will increase substantially over the next few years, thanks to government incentives, noted Jason McDiarmid, vice president and founder, Geofinity Mfg. Inc. “One research firm estimated a doubling of the sales figure of 150,000 annual unit sales in 2010 to 327,000 units by 2017, whereas the DOE industry roadmap growth goal that same year set equipment sales targets for the industry of 1 million units annually by 2017. A more recent third-party study in late 2011 suggested that the GHP market could expect to see a 23 percent annual growth rate in the U.S. over the next few years.”

That being said, the expiration of the federal tax credit should concern everyone in the geo industry, said Mark Sullivan, national dealer development coordinator, Bosch. “We have all enjoyed the benefits of having the tax credits in place the last few years, and their expiration will most likely be problematic for our industry. Our strategy for dealing with this inevitability is to attempt to expand the geo market to the point that once sales are affected by the expiration of the tax credits, our sales level is still greater than it would have been at that point even if the tax credits had never been in place.”

While the tax credits have helped counteract current economic pressures, their expiration may be offset by the fact that some states are now implementing incentives of their own. Tim Litton, director of marketing communications, WaterFurnace International, pointed out that states are “starting to recognize GHPs as another tool to alleviate power constraints and are embracing the technology. Maryland, for example, is offering renewable energy credits to utilities whose customers use geothermal heat pumps. The states are acknowledging that geothermal heat pumps can provide as much benefit to Americans as the clean generation of power from solar and wind.”

As Steve Williams, president, GeoSystems LLC, noted, “The state, local, and utility incentives and rebates are really strong in some areas. I know several states are offering excellent financial incentives, and we are seeing a higher level of interest in those areas, so I would say that the programs are having a visible effect. As a renewable energy, geothermal will continue to grow and increase its presence.”

Being a renewable energy source is one of the reasons why Doug Johnson, director of sales — geothermal and unitary products, Heat Controller Inc. believes that even though the loss of tax credits may decrease the immediacy of purchase decisions, he does not expect a decline as sharp as that which occurred when the unitary system tax credits expired. “While incentive is important, it is not the main driver in purchase decisions but rather a catalyst. Keep in mind, the difference between geothermal and other sources of renewable energy is that geothermal is a stand-alone system that is effective no matter what the weather conditions. Because the geo story is so compelling and the expenditure so easily justified, this type of installation will continue to gain ground even without subsidies.”

Overcoming Obstacles

Still, a temporary drop in sales is almost inevitable once the tax credits go away, said Joe Parsons, vice president, EarthLinked Technologies Inc. “The tax incentives have kept the geothermal market afloat but the real detrimental effect has been the inability for homeowners to tap into the equity of their homes as they did in years past. Fact be known, there are few people who can afford the additional out-of-pocket expense for geothermal, so they continue down the path of inefficiency. Hopefully the economy will have rebounded by 2016, and financing programs will be more readily available.”

Besides a lack of home equity, the decline in new construction is also impacting the sales of GHPs, noted Tony Landers, director of marketing — commercial products, ClimateMaster. “We do see retrofits taking place, but lack of new home starts is really hampering the expansion of geothermal into new markets and new communities.” That may be the reason why the majority of ClimateMaster’s business is currently commercial retrofits, especially in the school market.

Initial costs, driven by the cost of well drilling, are another obstacle that keep GHPs from emerging into the mainstream, said Williams. However, GeoSystems is experimenting with several projects that may spread the cost of the well field over multiple households. “We are hopeful that the first cost will begin to come down over time and balance out with the loss of the tax credit. Of course, we won’t rely on that to be the case, and we are working with a finance partner already to offer up options to help consumers work through the expense.”

While drilling prices continue to be exceedingly high in some areas, Parsons noted that EarthLinked’s most successful installers use the small bore technology that has been proven to reduce drilling cost by 40 percent or more. “Lack of available financing is also an issue but there are signs that the green banking industry is beginning to prosper. We look forward to working with companies that can provide turnkey financing.”

Another innovative solution that can address the first cost issue comes from energy companies, several of which are opting to install loops at their own expense and then lease them back to the homeowner, said Sullivan. “This win-win proposition does two things: 1) it allows the homeowner to install a GHP without the upfront cost of the loop and enjoy the lower operating costs; and 2) the energy company now has a new revenue stream. More and more utility companies are looking into this option.”

Communicate The Benefits

Lack of communication about long-term benefits and misconceptions about the technology are some of the reasons why consumers may shy away from GHP systems. “Moving the conversation away from initial cost to other financial concepts like return on investment, cashflow, and total cost of ownership is important,” said Litton. “Also, discussing new drilling advancements, new technological advancements, and new financing options help tremendously. After decades of installations, the industry has come up with some very good solutions to address common objections. We just have to communicate them better.”

Raj Hiremath, director of marketing — residential products, ClimateMaster, agrees that poor communication is often the reason why consumers do not opt for geothermal systems. “Most of the time consumers in the market for HVAC systems are not even presented with geothermal options due to misconceptions that dealers have about geothermal and high drilling costs in some markets. With reasonable drilling costs and the tax credits, geothermal systems don’t cost that much more than high-efficiency air-source systems, and the incremental cost has a quick payback due to operating cost savings.”

An “undereducated audience” continues to provide explanation as to why geothermal systems have a significantly smaller market penetration within the HVAC industry than they deserve, said McDiarmid. “There remains a clear lack of awareness, knowledge, and general understanding of the technology and its benefits. This lack of readily available information cuts across all facets of the industry — whether to the homeowners or commercial end use energy customers — and as a result, the technology is often branded with an undue perception of risk.”

To reduce that perception of risk, contractors should learn as much as possible about the technology, then share this information with consumers in order to create greater awareness, said Johnson. “Attend a geothermal class — many HVAC wholesalers are conducting them on a regular basis. Equipment installation is no more complicated than any conventional system installed today. The more knowledgeable contractors are, the better able they are to communicate the advantages and benefits of geothermal for their customers’ specific needs.”

Sidebar: What to Watch For

Geothermal systems are becoming more popular, and manufacturers point out some of the interesting trends that are developing as a result:

Bosch: Manufacturers must meet the demand for higher efficiency products with minimal increase in cost. A high priority should also be meeting the demand for the increasing retrofit market with more installer friendly equipment and controls.

ClimateMaster: Higher efficiency and variable water flow are now available that will deliver significant savings on pumping costs. Easier and cleaner installations and a gateway system/interface will provide an unprecedented amount of useful information to help identify potential issues and resolutions.

EarthLinked: Dedicated systems, such as commercial water heating products, and hybrids capable of providing cooling and heating in the harshest environments. The ability to provide cooling even in soils with poor conductivity has created a market opportunity in itself. Expect geothermal manufacturers to take advantage of the advancements in compressor technologies and new refrigerants to create more efficient and ultimately more affordable systems.

Geofinity: Fully integrated equipment intelligence systems that offer complete operating, monitoring, control, and diagnostics capabilities. To ensure system optimization, this technology demonstrates the critical need to design and manufacture HVAC equipment that possesses remotely accessible, web-enabled intelligent controls located internally to these systems.

GeoSystems: The market has been focused on Energy Star rated performance and the 30 percent federal tax credit, but now the industry will turn to more innovative ways of providing value to the homeowner, such as 100 percent domestic hot water and climate specialization. New ways of thinking about technology applications will continue to emerge and will help to reduce the initial cost of geothermal by reducing the cost of the well field.

Heat Controller (GeoLogix): Continuing technical advancement of the product, including performance monitoring controls that automatically adapt to system requirements for optimum efficiency. In addition, open loop systems are becoming more popular in areas where a water source is plentiful or in situations of large water usage, such as agricultural markets. Eliminating a ground loop lowers initial cost and accelerates return on investment, making geothermal even more attractive.

WaterFurnace: Integrating key innovations and trends, including variable capacity geothermal heat pumps, advanced zoning systems, smart units into home energy management systems, and the development of renewable hybrid comfort solutions. These four areas work in unison to form the cornerstones of a residential strategy, in which a connected ecosystem gives homeowners detailed insight into power usage and empowers them to control it.

Publication date: 7/23/2012