Geothermal Moves on Without Tax Credits
Contractors shift their focus to the technology’s long-term efficiency, cost benefits
The 30 percent residential and 10 percent commercial federal tax credits for geothermal heat pump (GHP) systems expired Dec. 31, 2016.
Since the tax credits went into effect in 2008, many contractors have experienced a significant boost in their geothermal businesses. And, now that the geothermal tax credits have lapsed, contractors and manufacturers are prepared to continue forward without them.
However, there is still a glimmer of hope regarding a renewal of the credits. Legislation proposed by Reps. Tom Reed, R-N.Y., Mike Thompson, D-Calif., and 18 cosponsors, is pushing to reinstitute and extend these tax credits through 2021. (For more information, turn to Page 8).
The Geothermal Exchange Organization (GEO) is one of the groups fighting to reintroduce those credits, but Doug Dougherty, president and CEO of GEO, realizes contractors need to continue forward, even if the credits fail to reappear.
“The sense from contractors is that the tax credits will not be extended, and they are moving on without them,” said Dougherty. “From a business perspective, that makes sense, but from a policy perspective and for us as a trade association, that doesn’t make sense. We continue to fight on behalf of the industry, but we understand that contractors have to move forward.”
So, how do contractors, especially those in the residential marketplace, move forward without such an enticing benefit to tout to homeowners?
PRESENT THE BENEFITS
For most contractors, it seems the best way forward with geothermal is to showcase the features and benefits that make the technology stand out.
“You have to really sell your stuff, and sell the long-term savings of geothermal,” said Kevin Harbin, vice president, Harbin Heating & Air Conditioning, Jackson, Tennessee. “With the tax credit now expired, contractors have to go back to old-school savings and old-school thinking. The overall picture is still there. The tax credit was just a small piece of the pie to get contractors over the hurdle.”
Jay Egg, geothermal consultant, writer, and owner of EggGeothermal, Port Richey, Florida, said there are distinct advantages to selling geothermal heat pump (GHP) systems when there is no tax incentive available.
“Because GHP systems have premium benefits that are exclusive, they have the curb appeal that a premium product should have,” he said. “As a former mechanical contractor that was successful in selling GHP systems from 1990-2010, I found GHPs were an easy sell for all customers, not just the wealthy.”
For Steve DiBeradine, president of Strategic Energy Solutions Inc., Berkley, Michigan, the tax credits were a nice bonus, but his company is moving full steam ahead without them.
“While it’s true that the industry and economy were in a tough spot when the credit was introduced, and budgets were tight at the time, this industry needs to be able to stand alone,” he said. “If someone comes in and the first question about a geothermal installation is, ‘How soon will I receive a payback?’ then geothermal might not be a great fit for them. I don’t know if I can prove the value of geothermal on payback alone, but life cycle cost is where geothermal really shines.”
Manufacturers also believe that highlighting the benefits of geothermal products will help contractors overcome the hurdle that an expired tax credit presents.
“Energy efficiency is the number one thing that will continue to drive people to use geothermal,” said Lyndal Moore, geothermal national sales manager at Bosch Thermotechnology. “Also, I see people who use it as insurance against future utility and energy spikes. It’s a great long-term investment, especially if customers think they’re going to be in the same house for several years. The second advantage is how quiet it is. Geothermal technology is whisper-quiet, and that is far more important to people than I ever imagined when I got into the business. When you have 20-30 homes in close proximity and each air conditioner is kicking on adding additional noise, it can be frustrating. Lastly, geothermal is not as susceptible to damage from extreme weather, as all of the major components are inside the building and underground.”
Also, as Jesse Robbennolt, P.E., product manager, Modine Mfg. Co., points out, the economics of geothermal can still be there without the federal tax credit and still work out in many cases.
“The contractors or distributors that are educating customers on what options are out there must be willing to explain to them what the economic benefits truly are,” said Robbennolt. “It all comes back to time and money. If contractors can show homeowners it is worth it, then that will absolutely seal the deal, even without a tax credit.”
By and large, contractors appear committed to geothermal for the long haul, no matter what new challenges are thrown their way.
“We’re going to play the game with our strategy, and if the tax credit comes back and gives us an extra point, we will take it,” said Harbin. “But, otherwise, we are strategizing to tighten up and work the sales process without it. As people are educated and show interest in the technology, we will educate them on what we do with the ground loop, how it all works, and run a load analysis on the ground source. This all comes down to demonstrating the immense savings to homeowners.”
“Though there are some who will inevitably choose to take an easier path, I have observed the core of HVAC contractors that offer geothermal installations are fully engaged in offering and installing geothermal systems, even without the tax credit,” said Egg. “Awareness of geothermal has been heightened. Geothermal offers solutions to many environmental and practical concerns in ways that no other HVAC solution can.”
There are also a lot of contractors who have made geothermal a core aspect of their businesses, so it would be much more difficult for this segment of the market to simply drop geothermal because there is no longer a federal incentive in place.
“A good number of contractors that we deal with are geothermal-specific, or it is a heavy focus of their business,” said Robbennolt. “Our customers are investing just as heavily as we are in the technology. That focus sets those contractors apart.”
Robbennolt added it’s not just contractors that will continue to invest in the future of geothermal.
“We introduced the GeoSync at the AHR Expo,” he said. “We see energy efficiency and sustainable technologies as mega trends in the industry. Geothermal is not just tax-credit dependent. A credit is certainly an enticement for end users, but we believe in this technology in the long run.”
Moore said, at the end of the day, it all comes down to supply and demand.
“If contractors do not have the job to put in, then they are going to find something else to do. I would say that every contractor that’s installed geothermal and had a successful experience with it becomes committed to the future of geothermal. I believe that there is a whole group of contractors that is ready to go forward whether there is a tax credit or not.”
SPAWNING A NEW INDUSTRY: THE INFLUENCE OF MEDIA
By Jay Egg For The NEWS
It started back in 1982, when Dan Ellis had a display at a local trade show showing a ground coupling of heat pumps. An employee of The NEWS saw the display and interviewed Ellis. When the article ran in March 1982, Ellis started getting calls from all across the U.S, which prompted him to start thinking on a bigger scale. One of those who read the article was Dave Hatherton, a driller from Canada. Within a short time, Ellis and Hatherton became close friends. The duo soon became the exclusive residential distributor for Command Aire in Waco, Texas, which led to the formation of WaterFurnace Intl. Inc.
This was the beginning of an industry that, while still somewhat unknown to many, has matured incredibly throughout the world.
Both Hatherton and Ellis have continued in the industry to this day, holding prominent positions in industry and business. After helping WaterFurnace establish itself in the residential geothermal heat pump (GHP) market, Ellis went on to build ClimateMaster Inc., a large manufacturer of geothermal heating and cooling equipment. Hatherton continued his work in Ontario, Canada, running one of the largest distributors of GHPs in North America. Both have worked tirelessly in the industry toward the implementation of geothermal heating and cooling on a large scale.
This year, at the AHR Expo in Las Vegas, Ellis and Hatherton again spent some reflective time in the WaterFurnace Intl. Inc. booth, just as they did in WaterFurnace’s first 10-by-10-foot booth at the 1983 ASHRAE show in Atlantic City.
This meeting marks approximately 35 years of geothermal industry efforts. That seems like a long time. I compare that to my memories in 1970 when I was in elementary school in Barstow, California. I remember clearly my teacher, Mrs. Simms, telling us to get ready for the future. By the time we got into junior high school, everything would be metric, all the new cars would be electric, and solar panels would power the world, she said.
What happened? While not quite as quickly as some might have expected, I think we can all agree that electric cars are gaining acceptance, and solar PV is coming of age. I’m not so sure the metric system is going to be accepted in the U.S. anytime soon; however, the solar/electric effort is at least 47 years in the making.
The common thread is the great media attention. From 1982, when The NEWS saw Ellis’ display and ran that fateful article to today with this and other articles, The NEWS has been there for the HVAC industry, at large, and certainly for the geothermal heat pump industry.
Jay Egg is a geothermal consultant, writer, and the owner of EggGeothermal in Port Richey, Florida. He has co-authored two textbooks on geothermal HVAC systems published by McGraw-Hill Professional. Contact him at firstname.lastname@example.org.
Publication date: 4/3/2017