Leasing Breakthrough Could Reshape Residential Geothermal
New policy opens door to third-party ownership, modeled on success of solar
Let’s have a moment of silence for the residential geothermal tax credit. Done in by the “Big, Beautiful Bill,” Section 25D — the homeowner clean energy tax credit that the geothermal industry fought so hard to preserve — will expire on December 31, 2025.
Those who’ve been around know what happened the last time. In 2017, both the residential and commercial geo tax credits disappeared, and the industry took a major hit. Sales dropped by 50%. Out-of-work drillers left the industry for better-paying jobs. Contractors closed up shop.
So: Is it about to be 2017 all over again?
I posed that question to Ryan Dougherty of the Geothermal Exchange Organization (GEO) and Tim Litton of WaterFurnace. They’re not happy about the credit’s expiration — but they both said, “No,” this time is different.
Why? For one, the clean energy transition is further along. Data centers and commercial buildings are driving demand. The commercial tax credit remains intact. But most importantly, a change in federal tax law is opening up a new business model that could finally make geothermal affordable to the masses — just like it did for solar.
And that’s the problem geo faces: high upfront cost. Savvy homeowners might appreciate geothermal’s long-term savings, but when HVAC decisions come down to "cheapest and easiest," sticker shock wins.
That’s where leasing comes in — and fortunately, there’s a road map: solar. Solar companies routinely break down $30,000-$50,000 installs into manageable monthly payments, making it accessible to American consumers. A geothermal leasing model would do the same.
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“We're going to put these pipes in your front yard. Don’t worry about the cost,” Dougherty said, imagining a future sales pitch. “You're going to pay a small monthly lease fee, and the energy savings will more than cover it. You're cash-flow positive as soon as the system turns on.”
Until now, this wasn’t possible for geothermal. The IRS classified geo systems as “limited use” property under something called the limited-use doctrine, making third-party leasing arrangements too tricky to legally structure. Solar wasn’t subject to this limitation — but geothermal was.
That just changed.
The same legislation that ended 25D also created an exemption for geothermal. Third parties — think solar-style leasing companies — can now own and lease geo systems to homeowners. And since the systems are commercially owned, commercial tax credits can help offset residential installs.
Tim Litton, director of marketing communications at WaterFurnace, said the potential is huge. You just pay monthly, he said, “and because geothermal is so energy-efficient and lowers your utility bills so much, that's a win-win.”
Technically, to be exempt from the limited-use policy, the property in question — think solar panels or a car — can be taken back at the end of the lease and still have enough value to be resold. How will you dig up a borefield and “return it” after 25 years? No one really knows, and no one’s too worried about it — including Congress, and they’re the ones who approved the change. For now, the point is this: There’s a new model on the table. And for a post-25D world, it could be just what the industry needs.
Dougherty sees it as geothermal’s solar moment.
“Essentially, third-party solar companies were able to aggregate their projects because they had portfolios of hundreds or thousands of solar systems, and they were able to bundle them and offer it as an investment product,” he explained. “That creates this capital flow that undergirds the entire industry and helps it build on itself. That's our dream.”
He hopes the Department of Energy will step in, like it did for solar, to help standardize contracts and structure portfolios so they can attract serious capital. GRECs (Geothermal Renewable Energy Credits), like those already available in Maryland, could also help build markets in certain states.
And companies are already taking action.
“I've been talking to a number of companies that are already sorting through the particulars internally,” Dougherty said. “There’s some dialogue that’s just spinning up between some federal entities that are interested in seeing this move forward. We need to pivot quickly — the clock is ticking on 25D.”
For HVAC contractors, this could be a much-needed safety net. Litton noted that third-party companies typically handle the homeowner agreements, then subcontract the install work to local HVAC pros. If this takes off, it could create steady demand — not just for a few more months, but for years.
