It would be fair to say the geothermal industry is at a bit of a crossroads.
Despite being around for more than 30 years, the math says it accounts for less than 1 percent of the HVAC market. And, for the first time since 2007, geothermal contractors are out in the market selling their residential products without a 30 percent tax credit. As a cherry on top of the unfortunate sundae, the price of natural gas — which serves as the home heating source for more than 50 percent of the homes in North America — is hovering near 20-year lows.
It was with that backdrop that I traveled to Denver recently to attend the International Ground Source Heat Pump Association (IGSHPA) meeting. It has been about three years since I had attended, and I was prepared for low numbers of attendance with a sprinkling of fake optimism.
I was wrong. What I found was a resilient group of individuals who are still completely confident that geothermal is a great technology that will help contractors, homeowners, and the planet. In fact, IGSHPA had its highest attendance in seven years. Attendees were engaged and excited about the future.
“We still feel geothermal is by far the best way to heat or cool,” said Steve Smith, CEO, Enertech. “If any of us had half an hour with a homeowner to educate them —not sell them — on the benefits of a geothermal system, I know we would gain a lot of market share. But, so many contractors do not put geothermal in. In fact, they are driving people away by not offering it.”
That is a solid point and raises a chicken or the egg argument. Are more contractors not offering geothermal because the market is so small or is the market so small because contractors are not offering geothermal? I would tend to agree with the latter.
If a homeowner wants to put in a new system and invites six companies into their homes, the odds are they will say no to geothermal if only one contractor offers it and the other five say it would not work. But, what if four contractors were offering geothermal? It stands to reason the consumer would be a lot more comfortable pulling the trigger.
The geothermal industry is swimming a bit upstream these days due to factors out of its control. As I mentioned, natural gas prices are pretty cheap right now. But nobody thinks that is going to last forever. SUV sales are spiking within the auto industry, and when gas is priced at $2.50 a gallon, Prius sales decline. However, when gas hits $4.50 a gallon, the pendulum shifts. When the price of natural gas increases — as some predict it will — people will take a longer look at geothermal.
Ah, and those tax credits. Geothermal got the fuzzy end of that lollipop. First, they received them in 2007 when the economy was melting down and nobody was building. The geothermal market went from 80 percent new construction to 80 percent retrofit in a short timeframe. The industry has never had the credits when the building trades were actually building. And, now, due to either political maneuvering or government incompetence, the geothermal tax credits were not renewed while credits in the wind and solar sectors were both extended.
That needs to change, and the industry is lobbying in Washington hard. I don’t know if renewable tax credits are appropriate or not. I do know that it is not appropriate to have tax credits for some renewable technologies and not others.
This creates a non-level playing field where the government is picking winners and losers. Consumers may easily interpret wind and solar as government-sponsored renewable energy resources and may jump to the conclusion that something is wrong with geothermal since its credits were not renewed.
This does not mean the geothermal industry shouldn’t take responsibility for their market share situation. They earned that. They earned that by having too many people selling solely on tax credits for the last nine years. They earned that by marketing only to baby boomers. They earned that by selling solely on cost.
The good part is that it is a much easier fix than waiting on government legislation. Generation X and millennial consumers will soon exceed their elder baby boomer parents when it comes to HVAC purchases. Instead of cost, they may be making decisions based on the environment. Maybe they just want cost certainty. Maybe comfort is their No. 1 goal. It is up to contractors to figure out what benefit the consumer is most interested in — quickly — and adjust their sales pitches.
Geothermal manufacturers and associations need to get more contractors involved. Contractors can’t be so territorial and instead should embrace the thought that a rising tide raises all boats.
“Who is our competition? Our competition is everything that is not geothermal,” said Michael Albertson, senior vice president of sales, WaterFurnace Intl. Inc. “We need to move the needle. There is a huge market out there. We need to get off our tails and get it.”
It figures to be an interesting year for the geothermal industry.
Publication date: 4/24/2017