Both the commercial and residential geothermal markets have felt the sting of the loss of federal tax credits for geothermal projects, but contractors on the commercial side remain reasonably upbeat about their market’s outlook. Certain building owners are able to take a long-term view of their properties that makes the return on investment offered by geothermal systems very attractive. In addition, environmental sustainability has become a corporate initiative at an increasing number of companies.
Steve DiBerardine, president, Strategic Energy Solutions Inc. (SES), a consulting engineering and geothermal contracting company in Berkley, Michigan, said the ideal customer for a geothermal project is a building owner who already has knowledge of and a strong interest in geothermal when they contact SES.
“Over the years, I’ve heard, ‘I think I like geothermal, prove it to me. Why should I be doing this?’” he said. “But, if someone needs me to prove it to them, it’s probably not going to be geo. If someone is looking for a short-term payback, it’s probably not going to be geo.”
One unforeseen challenge that has cropped up recently for the geothermal industry is low natural gas prices. The energy savings that can be gained by going geothermal aren’t what they were when natural gas was twice its current price.
“Cheap natural gas is a threat, but the people who are committed to geothermal are thinking long term,” he said. “They see it as the right thing to do. They are looking at life cycle cost not just first cost.”
Similarly, DiBerardine said the industry needs to find a way forward without relying on tax credits. He called them a “patch” rather than a long-term solution, which he sees as third-party financing of the ground loop.
“The HVAC cost inside a commercial building — the equipment, ductwork, piping, controls, and so on — is basically a wash between a geothermal system and a quality conventional system,” he noted. “The added cost is really the cost of the ground loop. If you can solve that, you can solve the first-cost hurdle.”
DiBerardine said one possible solution is on-bill financing in which the local utility company pays for the ground loop, and the building owner pays back the cost over a long period of time. Another option is property-assessed clean energy (PACE) financing.
“That’s really a perfect fit,” he said. “You can take the ground loop, and finance it over 20 years. You need that long amortization on the ground loop to make the financials attractive.”
The problem with PACE, according to DiBerardine, is that the approval process can become time-consuming, cumbersome, and expensive with fees and costs. He would prefer to see PACE financing applied just for the ground loop and to make it a simple, low-cost, administrative process.
Finally, DiBerardine noted that regardless of the environmental and energy decisions made by any administration in Washington, the industry is making its own decisions with regard to sustainability and efficiency, and they know there’s a lot of political capital to be had with a geothermal project, he said.
MAKING HAPPY CUSTOMERS
Doug Kohlman, president of D.R. Kohlman, St. Cloud, Wisconsin, said a benefit of being involved in the commercial geothermal market is the ability to create happy return customers.
D.R. Kohlman recently completed two multistory commercial geothermal projects in Appleton, Wisconsin, in which the systems tapped into the heating and cooling power of the Fox River. He noted that the systems are much more efficient than air-cooled systems, because the river temperature rarely rises above 70°-75°F while summertime outdoor ambient temperatures can be 90°-95°.
Kohlman said that although the upfront cost of a geothermal system may scare some building owners away, those who do decide to go with geothermal ultimately view it as a wise investment.
“We were contacted about the first project about three years ago, and there were some federal grants that drove the project and were instrumental in getting it to go through,” Kohlman said. “But the project worked so well that the general contractor called us last September about a similar building, and there was no question the contractor was going to choose geothermal, with our without grants. They were so impressed with the system in the first building that they just said, ‘Give us a number, and we’re doing it.’ And, now, they’re talking about additional buildings, which obviously is good news for us.”
Kohlman’s advice to other contractors in the commercial geothermal market is to heavily promote it.
“Building owners may focus on first cost, but we need to convey the full message about geothermal,” he said. “It’s a great system from an operations standpoint. It’s low maintenance, and you can’t beat the efficiency.”
LOOK TO CREATE OPPORTUNITIES
Dan Ellis, CEO of Comfortworks, Goldsby, Oklahoma, said the geothermal industry is making good strides despite the challenges it has faced — challenges he likens to an engine that’s not hitting on all of its cylinders.
According to Ellis, there are three factors that drive the commercial geothermal market: construction starts, the cost of energy, and incentives.
“We’ve never had all three of those hitting at the same time,” Ellis said. “Every time we’ve gotten two out of three, the industry has experienced powerful growth. We got the tax incentives when the economy was really struggling and construction starts were way off. Then, the economy started to pick up, but energy had become cheap because of shale gas and fracking. Immediately after Hurricane Katrina, we had a peak in construction combined with a natural gas spike, and our industry grew at the highest rate ever despite the fact that we had no tax credits at that time. Right now, we have a pretty good construction economy but no tax credits and continuing cheap energy. So, again, we’re trying to run the engine on one cylinder. If we get just one more of those cylinders going, we’ll take off again.”
Ellis lamented the loss of the tax credits, and said even if the credits were going away, they should have been phased out gradually to provide the industry with a soft landing.
“Not only is it simply not fair that the government is picking winners and losers by keeping the credits for solar and wind while removing them from geothermal, it also really hurt that we got dropped off a cliff,” Ellis told The NEWS. “We went from generous tax incentives to zero overnight.”
However, tax credit or no, Ellis noted that his company has built an installed base of nearly 70 geothermal reference projects in Oklahoma that are opening new doors for them daily. He believes excellent opportunities exist in the commercial geothermal market for contractors who have above-average drive and above-average aptitude.
“Geothermal sets your company apart,” Ellis said. “You’re not doing something that everyone else is doing. There’s an air side to geothermal, but a sound understanding of hydronics is also required, which is a key skill set that not everyone else has.”
Companies that struggle to find work in the commercial geothermal market may be making the mistake of sitting back and waiting for a job that specifies geothermal, Ellis added. He advised creating business in applications where geothermal makes the most sense.
“Two- to six-story office buildings are a sweet spot where geothermal is a very cost-effective option compared to any of the other systems you could offer to a building owner,” he said. “Find a way to explain geothermal’s benefits to the decision-makers on those projects early in the process, even if they don’t have geo in the initial specs.”
Ellis added one final reason for contractors to consider doing geothermal work, or, for those already doing it, to stick with it and pursue good opportunities: “I’ve been doing geothermal since 1978, and it has only gotten more interesting and fun.”
Publication date: 10/9/2017