Congress Needs to Act Fast to Prevent Tax Increase on Geothermal Heat Pumps

21 Oct 2016

One of our most promising sources of renewable energy—geothermal heat pumps (GHPs)—is rapidly approaching a crossroads.  This pending watershed moment is not technical in nature, nor is it environmental. The technology is ramping up exactly as hoped, and represents one of the most energy efficient and environmentally friendly options for heating and cooling our homes and businesses.

The challenge facing geothermal today relates directly to Congress: time is running out on the renewable energy tax credits for commercial and residential GHPs, which expire at the end of this year, before the technology has achieved the scale to fly on its own. This was not supposed to happen.

Under last year’s so-called “omnibus” legislative package, Congress negotiated, in exchange for lifting the oil export ban, an extension of existing energy tax credits—but solely for wind and solar technologies.  A range of other technologies that currently qualify for energy tax credits under Sections 45, 48, and 25D of the tax code were excluded from a five-year extension of the credit with a phase-down period. 

These “orphan” technologies collectively form the backbone of an all-of-the-above approach to energy production. Yet after 2016, hydropower, geothermal steam power, combined heat and power, closed- and open-loop biomass, municipal solid waste power, GHPs, fuel cells, microturbines and so-called “small wind” will all cease to benefit from tax credits that are viewed as essential to their continued roll-out and eventual adoption on a commercially viable scale.  Unless, that is, Congress decides to provide the same benefits to orphan technologies as it afforded wind and solar.

As bad as the hit is to these fledgling technologies, the loss for GHPs is even worse. Losing the renewable tax credits starts a domino effect of losing tax incentives. If GHPs lose the renew-able tax credit, they will also lose its accelerated depreciation. If GHPs lose accelerated depreciation, they will also lose bonus depreciation. 

Energy-efficient homeowners will lose too if Congress does not act to address this “Catch 22.” The existing tax credit that goes directly to the taxpaying homeowner who installs a GHP also expires at the end of this year. According to the U.S. Department of Energy, “Although the purchase and installation cost of a residential GHP system is often higher than that of other heating and cooling systems, properly sized and installed GHPs deliver more energy per unit consumed than conventional systems.” It doesn’t make sense to provide a tax credit to businesses that invest in GHPs without incentivizing individual homeowners when practicable, especially when it was provided for solar panels. The GHP industry presence in the residential sector is just as important as it is for the commercial sector.

It is uncertain whether Congress intended to exclude GHPs from the extension of the wind and solar tax credits given the intense and hurried activity surrounding the culmination of the omnibus package. However, it is almost certain that Congress inadvertently deprived this renewable technology of an accelerated depreciation and bonus depreciation option that is provided to almost all other renewable technologies. Making things worse, energy-efficient homeowners are going to see a tax increase. All of these benefits would be reinstated for GHPs if Congress acts to extend the renewable tax credits afforded to wind and solar to all of the orphan technologies. Until then, the domino effect is set to start.

So what can be done? Congress needs to hear from its constituents about how important the tax incentives are for the geothermal heat pump industry—and they need to hear now. A simple phone call or letter will show Members of Congress (see instructions next page) that this an important issue to GHP manufacturers, installers, and contractors in their respective districts. The louder the drum beat, the more Congress will be persuaded to provide the same treatment to geothermal heat pumps as it pro-vided to wind and solar. Geothermal technology deserves to take off, but our voices need to be heard loud and clear to make sure it gets its chance. (GEO)
GEO—the Geothermal Exchange Organization |