Geothermal Heat Pumps / HVAC Commercial Market

Commercial Geothermal Equipped for Growth

Higher Margins Help HVAC Contractors Earn More

September 30, 2013
Trans

For commercial HVAC contractors looking to expand their horizons, geothermal work could pay big dividends — especially for those who took the risk and jumped in as early adopters. But, even though geothermal technology has been around a while, there’s still an opportunity for contractors to profit on the potential.

“Commercial geothermal is in the beginning stages of growth, though it has been around for quite a while,” said Lyndal Moore, national geothermal sales manager, Bosch Thermotechnology Corp. “Due to increased utility costs around the country, geothermal is poised to be adopted as the commercial technology of choice. Its immediate and substantial energy savings offers advantages for both new construction and retrofit applications.”

Smart Start

Highly energy efficient, geothermal installations will likely play a major role in the continued development of smart cities and further implementation of smart grid energy distribution.

Alan Niles, western region commercial sales manager, WaterFurnace Intl. Inc., said these types of initiatives are really pushing the use of geothermal in commercial settings.

“Reducing the carbon footprint of buildings and trying to reach net-zero energy use is a significant driving force in the commercial renovation and new construction market,” Niles said. “The use of commercial ground-loop systems, in particular the low first-cost hybrid systems, has been growing steadily.”

John Bailey Jr., senior vice president of sales, Climatemaster Inc., said the future of geothermal in the commercial marketplace is very bright.

“Commercial building owners and operators are attuned to making long-term financial investments,” he said. “Geothermal is an investment. While some of the bonus depreciation advantages expire at the end of 2013, geothermal still has a very attractive return on investment.”

Contractor Take

Bob Major, vice president, Major Geothermal, Wheat Ridge, Colo., said his company has installed geothermal units in various applications and especially encourages long-term owners in settings such as educational institutions or big-box stores to consider geothermal solutions.

“Depending on the project, up-front costs and maintenance are fairly close to a four-pipe chiller hot water system, depending on where you’re at in the country and the drilling conditions, obviously. Maintenance and energy costs will also likely be lower.”

Additionally, a multitude of incentives help contractors pitch big projects to customers. Jim Strandlund, owner, Strandlund Refrigeration, Heating & Cooling, Mora, Minn., noted an energy company in Minnesota offers zero percent financing for larger commercial projects to all their member co-ops. These incentives are helping geothermal work gain popularity, he said.

“It helps greatly,” Strandlund said. “With the federal tax credits and the incentives from the local power company, it definitely makes it more attractive. We’re all consumers, and the less money we can spend on something, the better we feel.”

For contractors, the big thing is finding the right customer, Strandlund said. He currently just signed a deal to retrofit a church built in the 1930s with a 35-ton geothermal project. Finding customers who aren’t afraid of the price tag attached to a large project is crucial, he said.

“When you find the right customer that has the cash flow and you can produce and show them the significant energy savings, it’s great,” Strandlund said. “The church I’m working on, they’re spending more than $15,000 a year on fuel oil costs to heat their church. The geothermal system will probably be somewhere around $4,000 per year, plus it’s also going to give them the benefit of air conditioning, which they didn’t have previously.”

Major insists there will be continued and increased interest in commercial geothermal work, but that growth is dependent on consumer education, above all else.

“A lot of building owners, school districts, and churches, they’re not educated enough about the technology, and we find ourselves doing seminars and presentations to these facilities and organizations to inform them so they can make an educated decision on their system,” Major said. “I think the more people that become educated, and the more the word gets out, the more it’s going to help grow the industry.”

Contractor Incentives

While customers can be swayed through incentives, tax breaks, and the like with commercial geothermal projects, contractors should consider geothermal projects due to the potential profit based solely on the scope of the work.

Earning more money at a higher margin is the No. 1 reason Niles said contractors should consider adding geothermal offerings.

“A simple and dependable, yet highly energy-efficient, system that requires little maintenance after startup, should attract the contractor,” Niles said. “And it makes sense to sell your locally available resources, like your own labor, to install a ground loop than to try to sell an imported product that everyone else can sell.”

Moore said there is no other time-tested technology that can offer an owner the long-term return on investment that geothermal can.

“As a whole today, the geo industry is less than 5 percent compared to standard HVAC installations,” Moore said. “But because of the similarities of the technologies, the transition to geothermal is fairly easy and the growth potential is enormous. Geothermal is fast becoming the technology of choice for LEED [Leadership in Energy and Environmental Design] and high-performance commercial buildings, especially for net-zero energy buildings.”

Using geothermal in a commercial setting is an easy way to solve a customer’s problems, Bailey added. He said if a contractor specializes in geothermal applications, they will be rewarded with a very satisfied customer base.

“Geothermal is much less of a commodity than, say, conventional air-source rooftops,” Bailey said. “It moves the contractor into a much more custom or higher-end marketplace. It then becomes more about solving a customer’s problems than just bidding equipment. The contractor ends up with a happier customer and a very active referral base. Most of our contractors claim that once they do geothermal, they report higher margins and more repeat business.”

When it comes down to it, Strandlund sees geothermal continuing to grow, especially in areas that rely on fossil fuels for heating, because those prices will continue to rise.

“Electricity is still a stable commodity in our region and a lot of regions, and I think that will be a big luring factor to get people into geothermal,” he said.

But if you’re a contractor thinking about getting into geothermal, whether it is commercial or residential, having the proper equipment and knowledge is crucial, Major said.

“The biggest thing with geo is it’s an extremely simple process, but you have to make sure you follow the proper steps or else you can have a train wreck,” Major said. “Geo is extremely simple, but if you cut any of the steps out of the middle, it’s extremely difficult to fix after the fact, so you want to make sure you do it right the first time. Get the proper design team in place, and use qualified contractors and installers to make sure you have a sound system.”

Publication date: 9/30/2013 

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