There is no question the 30 percent federal tax credit for residential geothermal heat pump (GHP) systems has been a game changer for the industry. The generous tax credit, which went into effect in 2008 and is scheduled to expire at the end of 2016, significantly increased consumer awareness of these energy-efficient systems.
But, even with substantial government subsidies, geothermal has not yet become mainstream, and, with approximately 75,000 units sold annually, market penetration remains in the 1-2 percent range. Despite the numbers, manufacturers remain optimistic about the future and are focused on growing the market by introducing new products and educating the public on the many benefits of GHPs.
While the federal tax credits have undeniably helped the geothermal industry, manufacturers believe their expiration will not significantly hurt sales. “Even without credits, geothermal makes great financial sense, and interest in geothermal systems continues to grow,” said Tom Huntington, president and CEO, WaterFurnace Intl. Inc.
Successful contractors sell high-end systems, like geothermal, on value over price, he added. Educating homeowners on concepts like return on investment, cash flow, and total cost of ownership help them see beyond the up-front costs and think about the larger long-term benefits. “For example, a geothermal system may cost more initially, but switching from fossil fuels provides utility savings large enough to offset monthly payments for equipment, resulting in a positive cash flow.”
Federal tax credits have helped develop the industry and remain a driver, but, should they expire in 2016, Goncalo Costa, director of product management, Bosch Thermotechnology NA, expects to see only a slight dip in growth the following year, then an overall growth pattern in subsequent years. “A 2013 study done by the National Association of Home Builders (NAHB) indicates that tax incentives have little effect on consumers’ choice to go green or go geothermal. While we would obviously like to see the tax credits continue, we believe the geothermal market of today can stand on its own, regardless of the presence or withdrawal of tax credits or state and local rebates.”
Certainly, a lack of tax incentive will affect sales to a certain degree, as it will make geothermal cost-prohibitive for some homeowners, said Dave Garvin, product manager, Nortek Global HVAC, but the tax credit doesn’t seem to be the primary motivation for many customers. “The benefits of using a renewable energy source to reduce the carbon footprint and the long-term energy savings outweigh the initial tax reduction,” he said.
Nortek Global HVAC hopes to capitalize on the steadily growing interest in geothermal by entering the market with a new line of direct-exchange geothermal systems. “Our EarthDirEX system eliminates the refrigerant-to-water heat exchanger component and the pump, making heat exchange more efficient,” said Garvin. “Other water-source geothermal systems transfer heat from refrigerant to water to the earth and back again, but our system simply transfers heat from the refrigerant to the earth.”
Carrier Corp. is also working to enhance its product portfolio as well as build consumer awareness about the advantages of lower life cycle costs for geothermal, said Kent Kuffner, residential business manager of geothermal heat pumps, Carrier. “With increased consumer education about geothermal — along with utility programs that offer low-cost options for loop installations, upgrade options from builders, rising energy costs, and government incentives — geothermal systems will become more mainstream.”
Education is the key to ensuring greater acceptance of geothermal, said Costa, which is why Bosch has launched an industry-wide outreach campaign to raise public awareness and understanding of geothermal technology and its environmental benefits. The campaign focuses on educating the consumer, professionals, developers, parents, and educators. “We have also established relationships with geoexchange loop service providers, such as Orca Energy and EcoSmart, to provide geothermal infrastructure to new home developers.”
Under this service provider model, the utility finances the geoexchange loop for each of the homes in a new development, so they are already equipped with geothermal equipment when the homeowner moves in. The geoexchange loop service provider then maintains the ground loops and charges the homeowner a monthly utility charge.
“This is significant. It effectively removes the first cost expense to all parties: the developer, the builder, and the homebuyer,” said Costa. “This model will result in a significant increase in geothermal-equipped communities built in the U.S. and Canada in the next five years and beyond.”
Huntington also believes geothermal will eventually become mainstream, but, in order to get there, the industry must work together to raise overall awareness of the technology. “To be successful, we have to expose homeowners to the idea of geothermal through education and advertising before they ever call a contractor. We then have to continue to establish ongoing partnerships with builders and electric utilities and develop creative solutions to defray initial system costs.”
WaterFurnace also hopes to shape the geothermal market over the next decade through a commitment to its “four cornerstone” strategy, which includes variable-capacity geothermal heat pumps, integration of smart systems into home energy management platforms, the development of renewable hybrid comfort solutions, and advanced zoning systems.
“Energy efficiency is no longer just a noble concept — it’s part of the nation’s culture,” said Huntington. “Building owners are recognizing the value of lower operating and maintenance costs. Homeowners are embracing increased comfort and freedom from the increasingly volatile price of fossil fuels like natural gas, fuel oil, and propane, and electric utilities are beginning to understand the wisdom in promoting a solution that slashes peak demand, reduces the requirements for costly new infrastructure, and creates a year-round customer.”
With a combination of increased education and new product offerings, manufacturers are optimistic that interest in geothermal systems will continue to grow, even after the possible expiration of the federal tax credits at the end of next year. “Obviously, everyone in the industry wants to see the tax credits extended for another term,” added Costa. “Another extension would be a great boost for all of us, and especially for consumers. But if that doesn’t happen, we’ll be ready to stand on our own because geothermal as a renewable technology has so much going for it.”
Publication date: 7/27/2015