The Heat is On

20 May 2015

By Douglas A. Dougherty

Geothermal heat pump industry seeks recognition
 
With “geoexchange” piping firmly planted in the earth, geothermal heat pumps (GHPs) efficiently use circulating water to transfer energy to and from the ground near buildings for heating and cooling. Yet, unlike renewables such as solar and wind, the earth also hides GHP technology from public view. Out of sight, out of mind.
 
Conventional equipment commands the heating, ventilation, and air-conditioning (HVAC) market, leaving GHPs with a paltry 1-2% share. For too long, the GHP industry has been absent from the public policy table, left out of vital decisions on renewable energy, efficiency, and the value of thermal energy. As the nation pays increasing attention to opportunities for a greener, healthier environment, this industry has rallied its stakeholders across the country. 
 
Slowly Recovering Market
With the onset of the Great Recession, the bottom fell out of construction starts, especially for new homes. Offsetting that market loss was widespread GHP adoption by business, schools, and other institutions. The commercial market for GHPs during 2009-2013 was relatively strong and continues to gather strength.  
 
Though stalled by the extreme winter cold of the polar vortex that caused a 30% loss of sales during the first quarter of 2014, there are now some “green shoots” in residential GHP markets. The industry entered the first quarter of 2015 with renewed hope for the market and a significant uptick in residential GHP sales.
 
Obstacles as Opportunities
A traditional obstacle to greater GHP market adoption is the upfront cost compared to conventional HVAC competition. That challenge has led to continuing improvements in equipment efficiency that are making GHPs more cost effective by reducing the time that energy savings pay back an owner for system cost. 
 
The biggest challenge is to persuade more utilities to promote GHPs for ratepayer energy savings, offsets for power plant pollution, and reduction of peak summer loads. Progressive utilities, municipal power providers, and cooperatives are doing just that with ratepayer rebate programs and “on-bill” financing. 
 
Some utilities are installing ground loop heat exchangers and leasing them to homeowners. Several electric cooperatives and municipal utilities are now analyzing the benefits of GHP loop ownership. And land developers are recognizing that by installing GHP heat exchangers as they develop subdivisions, they can earn continuing revenue by leasing geothermal energy to home buyers. 
 
State Policies Key to Growth
The industry’s work for government policies that favor of GHPs runs the gamut from Congress to the states. National groups, such as the Geothermal Exchange Organization (GEO), work closely with state GHP associations, looking for opportunities in three arenas:
  • Tax incentives to change consumer behavior in favor of GHPs;
  • Amending Renewable Portfolio Standards (RPS) to include GHPs as a compliance option for renewable energy purchases by electric utilities; and,
  • Adding GHPs to energy efficiency incentive programs.  
In Massachusetts, there is a coalition of biomass, solar, and GHP advocates that successfully amended the state RPS to include thermal energy sources, including GHPs. Stakeholders in New Hampshire and Vermont have won similar successes, while in Michigan, a push to amend the state’s RPS has now shifted to include GHP technology under its energy efficiency law. 
 
Given the strength of the Illinois Energy Efficiency Portfolio Fund, plus the willingness of local utilities, GEO worked with the Geothermal Alliance of Illinois to amend state energy efficiency law to include GHPs and make rebates available for consumers through utilities. Commonwealth Edison will start a residential GHP incentive program this summer.
 
Fast-paced political opportunities require nimble action. Western Farmers Electric Cooperative recently led the charge to include GHPs in New Mexico’s RPS. That legislation was signed into law in April. 
 
Changes to state laws demand continuing diligence. GEO is now involved in agency and docketed proceedings in Massachusetts, Vermont, and New York to ensure that GHPs are given their due in utility renewable energy credits and state-supported rebate programs.  
 
What’s in a Definition?
In our nation’s capital, GEO is pushing for official recognition of GHPs as clean and renewable. Legislatively, the goal is to include this definition as an amendment to a suitable bill like the Portman-Shaheen Energy Savings and Industrial Competitiveness Act, or a comprehensive energy efficiency bill promised by Senate Energy and Natural Resources Committee Chair Sen. Lisa Murkowski (R-AK).
 
Meetings on carbon emission reduction strategies with the White House Council on Environmental Quality, Office of Management and Budget, U.S. Environmental Protection Agency (EPA), and the Department of Energy bore unexpected fruit in March. The administration’s Executive Order on Sustainability defined GHPs as clean and renewable, adding them to technologies that agencies can use to meet federal renewable energy purchase requirements. 
 
Even with that success, work for a legislated definition of renewable energy that includes GHPs continues and as a result, a greater adoption of GHPs in federal buildings should be forthcoming. But more importantly, the new definition will be an invaluable argument for greater inclusion of GHPs in state public policies.  
 
Give Our Tax Credits a Chance
Among other tax issues, perhaps the biggest industry concern is federal GHP financial incentives, including a 30% tax credit for residential, and 10% for commercial installations. Both will expire at the end of 2016. Congress has been asked for an extension through 2020. 
 
Unlike production tax credits for wind that go to developers, this tax credit accrues to taxpayers who buy GHPs. And because of the severe recession that coincided with the start of those credits in 2008, much of their promise of jump-starting GHP sales was lost. With four more years of tax credits, and a growing economy, that benefit may finally be realized. 
 
Looking Ahead
The GHP industry has rejoined the public policy debate. As cost, security, and environmental issues drive today’s energy markets, the pace of green energy adoption is heating up. With an improving economy, extension of federal tax credits to 2020, and official recognition of GHPs’ renewable and energy efficiency advantages, the GHP industry looks forward to a bigger share of the HVAC market and economies of scale that will make them the logical first choice for heating and cooling homes and buildings. 
 
 
Doug Dougherty is the president and CEO of the Geothermal Exchange Organization
 
GEO | http://www.geoexchange.org
 
 

Author: Douglas A. Dougherty
Volume: May/June 2015