The Geothermal Exchange Organization (GEO) recently reported a legislative victory for its segment of the industry. On Nov. 18, President Obama signed into law an appropriations bill which included $1 million for on-bill financing of geothermal systems for small businesses.

According to Doug Dougherty, GEO president and CEO, the new law is a “door opener” because it is intended to reduce the upfront cost of installing a geothermal system, which has been a barrier to the widespread usage of this technology. Although the law only requisitions $1 million for this purpose, Dougherty hopes that this will be enough money to launch a successful pilot program.

Background on the Bill

The geothermal financing was included in H.R. 2112, the Consolidated and Further Continuing Appropriations Act. This appropriations bill was passed by Congress and signed into law by the president in November. The amendment providing for geothermal financing was added by Sen. Bernie Sanders, I-Vt.

According to Dougherty, GEO worked closely with Sen. Sanders and his staff to develop this amendment. “The idea under Sen. Sanders was to develop a fund that would be a stop-loss fund for utility companies to offer on-bill financing to small businesses for the cost of drilling a loop for a geothermal heat pump system,” Dougherty said.

“The law basically directs existing moneys at the Economic Development Administration (EDA) at the Department of Commerce to spend a million dollars developing a program [for geothermal financing],” he continued, adding that Rep. Frank Wolf, R-Va., was instrumental in helping move the bill forward in the House.

Reducing Upfront Cost

To explain how the on-bill financing would work, Dougherty described the typical scenario of a small business owner. “Let’s say a business is going to construct a facility and the cost of installing a geothermal heat pump system is going to cost an additional $40,000 because of installing the loop (heat exchanger) in the ground. Many business owners would not spend that additional capital even though the payback in energy savings would be very short and — in some cases — immediate,” he said. “Now, under the law, that $40,000 could be financed through a utility company or a third-party financial institution.”

Dougherty continued, “Business owners could get a 15-year loan to put the loop in, and they wouldn’t have to have the money upfront. The debt service on that amount would probably be less than the energy savings — so the business would most likely have positive cash flow.”

While Dougherty noted that utility companies are reluctant to offer this type of financing “because they are scared businesses are going to fail,” the new law could reassure them in two ways. “The geothermal system improves a company’s bottom line and it creates a fund that utilities could take advantage of for any debt incurred.”

Developing a Pilot

Since only $1 million was appropriated for this purpose, Dougherty anticipates that EDA will create a pilot program and accept applications from electric utilities that are interested in participating.

“There are still a lot of details to be worked out, and we’ll be asked to chime in at some point,” he said. Overall, though, Dougherty stressed that the geothermal industry is excited by this action of the federal government. “We could have a pretty good pilot program and demonstrate the success of taking that upfront cost of a geothermal heat pump out of the equation for small businesses,” he said.

Publication date: 01/09/2012