Advocates for geothermal technology have been working hard to advance and promote the adoption of geothermal heat pumps (GHPs) across the country. As a result, more homeowners are learning about the energy savings that can be achieved through the use of GHPs and choosing to install these systems in their new or existing houses.
That being said, the industry still has a long way to go before GHPs will be considered mainstream technology, as market penetration is still in the low single digits. But, optimism remains high that the federal government will extend existing tax credits beyond 2016, and local utilities and state governments will start (or continue) offering incentives to encourage homeowners to invest in GHPs.
Surviving and Thriving
The good news about the residential geothermal market is that it survived the recession, and no major manufacturer went out of business, said Doug Dougherty, president and CEO, GeoExchange Organization (GEO), a nonprofit trade group that advocates the economic, energy security, and environmental benefits of GHPs. “We had about 2-3 percent of the residential new home market going into the recession, and coming out, we’re about the same — although it took a while to get back to that point, given the lack of new homes being constructed.”
There was even optimism last year that market share could reach 4-5 percent in 2014, as installations of GHPs were robust in the third and fourth quarters of 2013. Then came the first quarter of 2014, with the worst winter in years, causing new home sales to grind to a halt.
“We had a very poor first quarter, and a lot of our units didn’t go in because nothing was being constructed,” said Dougherty. “However, I have talked with some of our larger driller members about how many jobs they lost as a result of the weather, and all of them said the jobs were just postponed, not canceled. Everything ground to a halt because they couldn’t get their drilling rigs in. We believe there is going to be some catch up this spring and summer, and the second and third quarters of this year are going to be very good.”
One major issue currently driving interest in GHPs is the desire of some homeowners to move away from heating equipment utilizing fossil fuels. “This was highlighted by the harsh winter, which resulted in high costs and/or propane shortages,” said Patrick Hughes, director, Buildings Program and Building Technologies Research & Integration Center (BTRIC), Oak Ridge National Laboratory (ORNL), which facilitates scientific discoveries and technical breakthroughs that accelerate the development and deployment of solutions in building energy efficiency.
In fact, the desire to move away from propane is expected to be a major driver in the GHP retrofit market this year, as those sky-high bills from last winter are still on the minds of many homeowners. Some in the geothermal industry are advertising aggressively to these homeowners, coining the term “pro-pain,” in order to encourage them to switch to GHPs.
Propane users should seriously consider switching to a GHP because the shortage of propane and the resulting price hikes will occur again, with more frequency, said Dougherty. “The price volatility of propane is going to be out there because of the demand for natural gas. Propane is a derivative of natural gas. As coal-fired plants come under more regulation, we’re going to see more natural gas used to generate electricity. That’s going to drive up the cost of propane again, so we think the retrofit market for propane furnaces is pretty ripe for us and that we’re going to see a lot of retrofits before next winter.”
Death and Taxes
The federal tax credits are also driving the market, along with the states, utilities, and cooperatives offering incentives for geothermal installations, said Bob Ingersoll, director, International Ground Source Heat Pump Association (IGSHPA), a nonprofit organization that advances GHP technology on local, state, national, and international levels. “With the interest from local energy providers, homeowners are inquiring about incentives for installing these energy-efficient systems, which have shown a payback period of five to seven years.”
These incentives are still necessary, as the high first cost is the primary barrier to GHPs becoming more mainstream, said Hughes. “Also, in many geographic areas, the installation and after-sales service infrastructure is weak or lacking. In these areas, it is not easy to source a system, and one-off pricing can make it difficult for even a motivated customer to justify the high cost.”
That is why GEO is working diligently to make sure the federal tax credits are extended, as well as introducing legislation to include GHPs in the federal definition of clean energy. “If we can change the federal definition, we can use that to help us change states’ definitions, creating a new path for utilities to earn renewable credits with GHPs,” said Dougherty.
The incentives for utilities are significant, noted Ingersoll, as geothermal units reduce the peak load on their grids. “Research has shown that every ton of installed GHP results in more than 0.5 kW in demand reduction. The industry needs to help bring awareness about the technology by reaching out to state and central agencies’ decision makers regarding tax incentives.”
Some utilities are embracing GHPs, such as Western Farmers Electric Cooperative, Anadarko, Oklahoma, which is spearheading a unique program to help bring awareness about GHPs in Oklahoma and parts of New Mexico, Kansas, and Texas, said Ingersoll. “The GoGoGeo Challenge has a goal of showing 25,000 homeowners the potential savings that can be achieved through the use of a ground-source heat pump. We are looking to help expand programs like the GoGoGeo Challenge to include other entities where we can group retrofits and promote thermal service agreements to help alleviate the first-cost issue of ground-source heat pumps.”
But, overall, utilities continue to underestimate the value of GHPs, said Dougherty, and if they fail to recognize its benefits, others will step in and take away that opportunity from them. “There are progressive developers out there right now who have figured out they can make money off the geothermal exchange in the ground. In one new subdivision, the developer is installing a common loop field and GHPs for 7,500 homes and then charging the homeowners a monthly tariff for energy service. That type of arrangement is really going to move the market.”
That being said, the barriers to the widespread adoption of GHPs remain the same as they have for the last 30 years, said Dougherty.
“Lack of consumer awareness, lack of builder adoption, and lack of utility support. Although we have a much better infrastructure of distributors and dealers, we still don’t have a level of business infrastructure to promote the technology. But, I am an eternal optimist, and I believe the higher cost of energy will move people toward GHPs. In the retrofit and new home construction markets, we’re going to see a fairly significant increase in market penetration over the next three to five years.”
Publication date: 7/28/2014