Geothermal: The Role of Government Incentives
Industry experts foresee installations for geothermal energy systems in the North American market to remain stable for the next two to three years based on existing factors such as cost, government grants, and tax incentives to people and businesses looking for ways to tap into long-term energy sources.
Geothermal allows people to secure heating and energy from underground sources by drilling shafts or digging trenches to connect pipes with the equipment that converts the Earth’s heat into energy.
Joe Parsons, chief operating officer of Lakeland, Florida-based EarthLinked Technologies Inc., a major manufacturer of direct-exchange (DX) geothermal renewable energy systems, stressed that increased growth depends upon government legislation and support for the industry.
“Let’s consider a scenario where the federal Investment Tax Credit is extended in the upcoming lame duck session of Congress,” Parsons said. “With the extension of both the section 48 (commercial) and 25D (residential), the number of geothermal installations in the U.S. should remain relatively stable in 2017. If they are allowed to expire, sales will suffer initially, but should rebound over 2017.
“The Canadian market is showing great potential for the future with government initiatives playing a major role in the growth of the geothermal heat pump (GHP) market,” he said. “The province of Ontario is taking the lead with a focus on renewables. Historically, the sale of GHPs has been stronger in areas with higher heating loads and where electricity rates or the cost of fossil fuels are high.”
Asked if geothermal installation is going down in price, Parsons replied: “That’s a difficult question, because as a manufacturer, we have little impact on the overall cost of the installation. One area where we have helped drive down the cost is the continued effort to develop Earth loops that are easier to install, thereby creating an opportunity to offer more competitive pricing.”
Residential applications account for nearly 85 percent of EarthLinked equipment, with the balance in light commercial projects focused on hydronic and pool conditioning. Installations can be expensive, but they also provide reliable heating and cooling for up to 30 years, and because of the initial cost, cooperating for installations is a growing trend.
“There are loop leasing programs where the loop ownership is retained by an electric cooperative,” said Parsons. “Our more successful installers have vertically integrated their operation to include drilling/loop installation capability, thereby better controlling the installed cost of the loop, resulting in the ability to adjust their margins to remain competitive.”
Founded in 1980, EarthLinked has been involved in the market from the start.
“We spent the first decade in the pursuit of research and development,” said Parsons. “During that time frame, the market was almost nonexistent, and the focus was on proving and improving the technology via electric utility-and academia-sponsored installations. In the early 1990s, we began to build the product and sales infrastructure in response to consumer demand for energy-saving systems.
“We are consistently developing better methods of Earth connection, developing and incorporating higher efficiency internal components, and creating and implementing remote monitoring capability to capture real-time operating efficiency and system diagnostics that make service technicians more effective,” he added.
Lagrangeville, New York-based Geothermal Energy Options (GEO) focuses completely on residential geothermal installations and is ready to service the commercial market.
“I see strength in new construction and residential homes for the highest growth potential,” said Christopher Ryan, Geothermal’s managing partner. “New construction is a no-brainer. The cost for a geothermal installation in a new construction project is very similar a conventional system because of the federal tax credit, with a higher reward for everyone, especially homeowners.
“The new construction market is about our strong relationships with builders and architects,” he said. “Once we get a builder on board with the EarthLinked geothermal system, they stop pushing conventional and believe in geothermal. After they see the cost savings and how they can separate themselves by having a green advantage, builders almost require geothermal for the homeowner benefit. The real benefit is full circle because it gives the builder a competitive edge and the homeowner a system that will save them money for years.”
Ryan said referrals and bringing residential developers to areas where geothermal systems are in place are deciding factors.
“The net-zero market is something we are expanding into to better serve our market,” he said. “The goal is to get the house to be able to generate the energy that it uses, and the only way to truly do this is by installing geothermal. We offer spray foam, solar, and EarthLinked geothermal as a net-zero solution all in the same place. These net-zero solutions, in conjunction with each other, help the consumer to reduce their load size of the geo system and require less solar panels because of the spray foam insulation.”
GEO has experienced consistent growth in its business for the past few years, with many customers waiting patiently for installations.
“We need to make geothermal more affordable by coupling it with solar and additional options,” said Ryan. “People want to reduce their bills and pay as little as possible. We offer a long-term way to heat and cool, but sometimes that is an affordability issue. Statistics say most people can’t afford it without the tax credits. We have to make it more affordable and create customer awareness, instant gratification, and satisfaction with a geo system.
“There is a lot of uncertainty for 2017 surrounding the tax credit and we don’t know what’s going to happen,” he said. “Before the tax credit, you could just be an installer, and that was enough. If it goes away, installers will have to find ways to diversify themselves further and break into new areas.”
Ryan expects his distributors to provide quality products, information and options on systems, and competitive and affordable pricing.
“Their support has been phenomenal as they understand the nature of the market,” he said. “EarthLinked is constantly coming up with innovations and improvements to their products, and they provide me new ways to reduce costs for installations and satisfy customers.”
Florence, Kentucky-based Corken Steel Products Co. has supplied geothermal systems and parts since 2000, starting with just a few units. Today they supply more than 200 contractors, including a few that only install geothermal systems.
“We were very fortunate to pick up the ClimateMaster line of products early on,” said Jay Kaiser, Corken’s director of sales and marketing. “We have seen continuous growth over the last 16 years. Our sales are up approximately 5 percent this year over 2015. We are concerned that if the 30 percent tax credit is not renewed, it could affect our future sales by as much as 30 percent to 40 percent. The 30 percent tax credit basically covers the cost to install the ground loop.
“Geothermal is the most efficient renewable energy available to us when compared to wind and solar,” he added. “The cost to install geothermal is more efficient, and it’s frustrating that when they renewed the tax credits, solar and wind were included while geothermal was left out. We’re lobbying hard to put it back in. If the credit is retained and the economy remains healthy, growth will stay on track. Supposedly there is a bill in Congress that is already written to reinstate geothermal.”
Most of Corken’s contractor clients are in the midlevel range, who have worked hard to create a solid reputation in installations.
“It’s not a cookie-cutter product, and they have a passion for it,” said Kaiser.
The majority of loops that are installed are vertical – holes drilled between 150 and 200 feet into the ground – three loops are sufficient for the average home. The others are horizontal – a trench dug into the ground and the rarest is one that is installed in a lake, often on farms. The best place to drill vertical loops is through solid rock, which avoids drilling through mud and earth, thereby requiring the pipe to have a sleeve lining to avoid cave-ins and clogging while drilling.
Corken sells the complete line of ClimateMaster geothermal residential and commercial equipment. They also inventory a variety of accessories required in the drilling process: pipe, tools, solutions, grout, and other materials at 12 outlets in Kentucky and Ohio. The majority of the products are in residential installations.
Contractors expect dependable technical support, Kaiser said.
“We’re the geothermal experts in the Kentucky, Ohio and Indiana areas,” he said. “We have full-time people dedicated to geothermal and 24/7 tech support. Our people are very knowledgeable and can do load calculations to let homeowners know exactly how large of a unit they need. We take care of every need that contractors might have, including the delivery of the units, which can be heavy, on-site.”
As expected, Corken depends on the manufacturers to provide reliable equipment, and most of them now give the homeowner 10-year warranties on their products.
“Contractors also need support in terms of parts and pieces if there is a problem with a unit,” said Kaiser. “We carry a wide variety of parts in our inventory for repairs. Climatemaster loves what we do to help support their products. Once the contractors have two or three installations under their belt, they’re off and running and they know that they have our full support.”
In conjunction with Osborne Enterprises, Corken Steel is developing Norton Commons, the largest all-geothermal community in North America. There are roughly 1,800 homes that will be constructed over a 10-year period and will be equipped with ClimateMaster geothermal heat pump systems. To build in Norton Commons, contractors are required to install geothermal technology. The Norton Commons development is on the north side of Louisville, Kentucky, and was featured at Homearama 2016.
For the past eight years, Corken has held an event called Geofarm at a farm in Aurora, Indiana, which now attracts more than 350 contractors who spend a day learning about geothermal installations at six stations that take them through the whole process.
“We have drilling rigs, explain how to do a lake loop and install a system,” said Kaiser. “The attendees receive a continuing education for the entire year, and it’s an excellent opportunity to better understand their needs and strengthen the ties between us.”