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Embarking on a commercial geothermal project is a significant endeavor — one that requires numerous checks and balances to ensure the project will provide an adequate return on investment for the consumer and contractor.
Once demonstrated to be environmentally sound and cost-effective, geothermal systems have the potential to offer numerous benefits not only to the buyer, seller, and installer, but also to the environment and on behalf of energy efficiency. So, as a contractor, when geothermal appears to make sense on the surface, what steps must you take to ensure a project’s validity before breaking ground?
Initial costs remain the No. 1 concern regarding commercial geothermal projects.
According to GeoElec, a geothermal project consists of two crucial financing elements: a high capital investment and an insurance scheme to cover the geological risks. GeoElec reports that project planning entails 10 percent of the overall costs, drilling represents 50-75 percent of total costs, and engineering and insurance typically round out the remainder of the bill.
Bob Franey Jr., president, R.J. Franey Mechanical Services Inc., Mashpee, Mass., said when discussing commercial geothermal work, his first question always centers on the upfront cost.
“You must develop a clear, accurate analysis of operating cost savings, accelerated depreciation benefits, utility subsidies in the area, and any other incentives. From there, you can provide a simple payback timeframe for the customer, after all of the economic benefits are applied. No matter what the design, the customer has to see an economic benefit.”
Jim Laabs, regional sales manager, Greensleeves LLC, Findlay, Ohio, agreed, stating “that the one thing we must strive for in the geothermal industry is to be able to present an accurate and complete financial analysis.”
According to Scott Harkel, author of Ten Year Update: Emissions and Economic Analysis of Geothermal Heat Pumps in Wisconsin, which was prepared and presented by the Energy Center of Wisconsin, the median cost difference between vertical ground heat exchangers and conventional systems in commercial new construction projects — while highly variable — was an estimated $3.95 per square foot.
According to Harkel’s research, a 390,000-square-foot school in Wisconsin would achieve a complete payback in nine to 10 years, a 69,000-square-foot school would recoup all costs in 10-11 years, and a 69,000-square-foot office would pay itself off in 14-15 years.
Geothermal heat pumps use the constant temperature of the earth as the exchange medium instead of the outside air temperature. This, in turn, means a contractor must carefully survey the location’s ground water temperature, especially when installing ground water and earth-coupled systems.
According to John W. Lund, research associate, Geo-Heat Center, the temperature of the ground and ground water below 100 feet is controlled by the geothermal gradient. Horizontal earth-coupled and surface pond systems are influenced by solar radiation due to their shallow placement.
“When calculating energy use, load factors are considered for the heating mode only, since this extracts heat from the earth,” wrote Lund, in his research document, Geothermal Heat Pump Utilization in the United States. “The energy saved as compared to air-source equipment is dependent upon the temperature of the ground or ground water as compared to the air, and the equivalent full load hours.”
David Neale, business development, Energy Wise Partners LLC, Rochester, N.Y., pointed out that location drives many economic geothermal metrics.
“Everyone mostly associates the ground system as the cost driver of a geothermal installation, and this varies widely based on the area of the country,” he said. “For example, considering the price per foot for vertical systems, some areas you might be talking $35 per foot; however, in other areas, such as Dallas, costs can be as low as $5.50 per foot.”
Mark Brengman, president and principal, Steen Engineering, Minneapolis, said some site testing can help identify soil composition, and accurately model and design a well field’s size. “For larger commercial projects, a conductivity test is recommended, which measures the thermal resistance of one representative bore loop, and educates the designer and installer of the actual soil conditions or geology. This type of test can be well worth the cost and can save up to 20 percent in well field size.”
While underground loops can be configured in multiple ways, a certain amount of ground space is necessary for a geothermal installation. Thus, land area is yet another obstacle contractors must consider.
“Commercial loop fields can require a fair amount of property, but it does not have to be dedicated,” said Laabs. “The loop field can be beneath a green space, parking lot, or even a structure. The geology will tell you the type of geothermal heat exchanger that is best and least costly in terms of drilling.”
“Vertical loops can be installed under parking lots or a football field for schools and, in rare cases, underneath the building itself,” said Richard Hiles, district manager, ClimateMaster Inc. “Though, horizontal loops should never go under the parking lot as moisture will go away, which affects heat transfer.”
Cody Gebhart, commercial and geothermal product manager, ACES A/C Supply, Carrollton, Texas, deemed land availability as a major factor in Texas.
“It’s hard to stress just how much area you will need to incorporate a new construction commercial geothermal project,” he said. “Retrofitting air-source models with geothermal in most of our markets — due to land availability — is almost impossible.”
In addition to the size of the loop field, system design is a crucial aspect to constructive geothermal contracting. “Detailed energy modeling, used as a design tool by working with the owner and design team, is by far the single most important way to ensure a client can justify the feasibility of a commercial geothermal system,” said Ed Lohrenz, founder, GEOptimize Inc., Winnipeg, Manitoba, Canada. “Balancing the loads can allow a significant reduction in the cost of the geothermal heat exchanger, at the same time ensuring the system will operate efficiently over the long term without temperature degradation.”
Laabs said it’s important that contractors don’t get carried away with the notion that bigger is better. “As an industry, we need to look at lowering the cost of the loop field,” he said. “It is tempting to oversize the loop field by 25 percent to be on the safe side, but, in many cases, what that does is price geothermal out of the project. Strong analysis up front can minimize the loop field size and first cost.”
All design aspects should be considered when embarking on such a large project.
“Smaller buildings, such as those less than 15,000-square-feet in size, may be more able to consider horizontal heat exchangers for their coiled appearance. These ‘slinky’ fields are routed horizontally about 8-15 feet below grade and can be more cost-effective, especially if site excavation or regrading is required anyway,” Brengman said. “Drilling vertically is also a common application that makes efficient use of the site. Fifteen-foot bore spacing is common in the Midwest and can be drilled anywhere between 100-300 feet, which, as a general rule, requires 225-square-feet per cooling ton.”
In search of the proper return on investment, many contractors are constantly measuring to find the perfect system size.
“Commercial geothermal can have a cost crossover at around 500 tons and above — where the geothermal cost is less than fossil-based buildings,” said Carl Orio, chairman, Water Energy Distributors Inc., Hampstead, N.H. “We have been involved with many 100-250 ton geothermal jobs since the mid-1970s, which we consider the sweet spot. A vertical standing column well is generally most applicable to the urban context.”
It’s not always the size of the lot that matters as rooftop size is also worth consideration.
“I know roof space is of added benefit for IKEA, as it can fit more solar PV on its roof, which is something to think about with this type of client — especially where commercial incentives for solar PV are high,” said Joel Poppert, director of business development and marketing, Major Geothermal, Wheat Ridge, Colo. “As for the cost crossover, I have heard many in the industry say 100 tons. Major Geothermal has a large retail center in the works where the calculated ROI was instantaneous.”
Contractors must understand and be able to thoroughly explain incentives to customers.
The Department of Energy’s (DOEs) interactive Database of State Incentives for Renewables and Efficiency (DSIRE) website offers a comprehensive source of information on incentives and policies that support renewable energy investments. However, to consumers, the site may be considered overwhelming, and they may greatly benefit from a contractor liaison.
“We need to be knowledgeable about subsidies and tax incentives and be able to understand the building owner’s organizational structure to relate the incentives accurately,” said Laab. “Too often we say, ‘talk to your accountant,’ when a little homework will allow us to make the decision easier for the end user.”
Doug Dougherty, president and CEO, Geothermal Exchange Organization (GEO), said the federal government offers tax incentives of 10 percent for commercial geothermal heat pumps installations.
“Innovative programs for promotion and installation of GHPs are proving to be viable profit centers that are finding increasing success. These include on-bill financing for business owner installations, and ground-loop heat exchanger ownership by utilities that actually meter and bill the geothermal resource,” said Dougherty. “With these and other programs, building owners win, the economy wins, the environment wins, and so does society. Electric utilities also win by reducing peak load demands in summer and building demands in the winter, helping to ensure reliability while balancing their load curves.”
Gebhart said tax credits and return on investment are big determining factors. “Building and business owners are very interested to see how much of a tax break they will be receiving. Many find that the return on investment is paid in full before the tax credits ever run out based upon the accelerated depreciation table that we work out for them during the bid portion of the project. These two elements have sold projects by themselves for us in the past.”
In addition to those listed above, numerous other metrics must be considered, including length of investment, environmental concerns, maintenance, brand of unit, zoning ability, use of ductwork, and more.
While multifaceted, those who have experience with geothermal rarely speak about it negatively.
“More and more building owners are taking a longer-term approach when it comes to energy,” said Laab. “Not only are they willing to look at total operational costs over the life of the building, but they’re also considering the lesser impact on the environment. Geothermal just seems to make sense in a lot of ways.”
Publication date: 3/24/2014