Fields of solar panels; giant wind turbines on high ridges; hydroelectric dams on picturesque manmade lakes. These are the images that have come to be associated with the renewable energy movement. But one of the most efficient, effective, and time-tested renewable technologies remains largely out of sight, hidden in basements, and buried under front walkways or backyards.
Geothermal energy has been used by humans for comfort and cooking for thousands of years. The modern heat pumps and ground loops that tap into the upper Earth’s consistent 55-to-70-degree temperatures have been available for decades, with electric cooperatives at the forefront of promoting their use in heating and cooling.
But now, with the advent of beneficial electrification (BE), which highlights the benefits of using electric power, geothermal is finding itself back in the conversation with its better known above-ground brethren.
“Our board is all in with our efforts to promote geothermal,” says Scott Reimer, CEO of Federated Rural Electric Association in Jackson, Minnesota. “It utilizes the principles of beneficial electrification and trying to shift to a carbon-reduced footprint.”
The time is right for a resurgence of geothermal, says Keith Dennis, NRECA’s senior director for strategic initiatives and the co-chair of the newly formed national
Beneficial Electrification League.
“Ground-source heat pumps, and even newer air-source systems, fit perfectly in the BE framework,” he says. “They’re super-efficient. They’re effective. They save members money. And they operate on electricity instead of natural gas or fuel oil. They’re an ideal example of beneficial electrification.”
The loop fee
Minnesota, with its cold, snowy winters and high heating costs, is one of the top 10 states for ground-source heat pump sales. But it can be a tough sell even there, with geothermal loop installation adding thousands of dollars above the cost of a gas furnace and air conditioner.
Federated Rural Electric works with Great River Energy, its G&T, on marketing its geothermal initiative. And Reimer says it is important to be patient, establish a trusted relationship with local dealers, help provide a dependable payback projection, and offer rebates.
There’s also a federal residential tax credit for geothermal costs. It was reduced to 26% from 30% last year and will be eliminated on January 1, 2022, unless Congress acts. H.R. 3961 and S. 2289, the Renewable Energy Extension Act of 2019, would restore the 30% credit for wind, solar, and geothermal and gradually phase it out through end of 2026.
As beneficial electrification becomes a bigger trend, geothermal heat pumps can play a critical role, says Will Lange, director of utility marketing for Waterfurnace International Inc., a ground-source heat pump retailer. While homeowners can save $1,000 or more annually, cooperatives can cut demand, increase revenue with conversions from carbon-based heating fuels, and even create a recurring revenue stream with a so-called thermal energy loop fee.
CKEnergy Cooperative in Binger, Oklahoma, is doing just that. Installing the underground closed-loop heat exchanger can cost $2,500 to $15,000. That loop is both the key advantage and the biggest hurdle for geothermal heat pumps. CKEnergy has eliminated the impediment by paying for the loop itself then leasing it back to members through its rates.
It’s not an unfamiliar concept for co-ops, which have leased security lights since the start of the cooperative movement. The key is to think of it as a 30-year asset that can easily last 100 years with little or no maintenance, says Boyd Lee, CKEnergy’s vice president of strategic planning.
To make things simple, Lee says they created a geothermal rate and recovered a $15 monthly charge within that rate. The payback for all of the co-op’s members is reduced peak demand cost.
“We are nearing 5 megawatts of peak demand reductions in the residential class,” Lee says. “We own approximately $7.7 million worth of loops that will provide geothermal heating and cooling for decades.”
Lee says the co-op provides a $1,000-per-ton rebate as well, but he says the “free” loop through the geothermal rate is a very effective marketing change. But he warns that building a marketing program for a long-term asset like geothermal requires good accounting projections, board and management support, and patience.
“Impatience is what often kills marketing programs,” he says. “I feel very fortunate to have board and management support for this kind of program. I have a spreadsheet, and I always put together a projection that’s based on real numbers so they will know what the investment does over the long haul.”
‘Practice what you preach’
Corn Belt Energy started a program called GeoCents in 2015 that also offsets the cost of installing the geothermal loop in exchange for a $7-per-ton monthly loop fee.
In addition to a $1,500 rebate from Wabash Valley Power Alliance, the co-op’s G&T, members receive $1,100 per ton for a vertical loop, says Justin Stuva, the co-op’s director of member services.
“The average member installs a 4-ton system, which results in a $4,400 check from Corn Belt Energy to the member,” Stuva says. “In turn, the member pays a static charge of $28 a month on their electric bill.”
“We see a lot of members who were reliant on LP gas make the switch, and they are very pleased,” he says. “Not only have they saved on their monthly budget with utility bills, but the cooperative sees additional revenue. It adds revenue in the shoulder months when there is excess capacity, and it helps shave demand during the peak times. It also leads to happier members.”
In addition to lowering the upfront cost of geothermal for their members, Corn Belt Energy also provides a discounted electric heat rate from October through April. The geothermal system is submetered for this rate, and the added benefit is new data that lets Stuva track the success of the program.
Even before starting the GeoCents program, the co-op tested geothermal by installing 10 5-ton geothermal systems at their headquarters.
“It’s good to practice what you preach,” he says. “We tracked our overall expenses and saw a 40% to 50% savings annually on our utility bills. These results hold true for the average member when tracking their annual utility expenses.”
The key to success, according to Stuva, is a tight partnership with local contractors.
“We spent a lot of time and effort maintaining relationships with our local HVAC contractors,” he says. “They are the ones most frequently sitting down at the kitchen tables with our members. The majority of our success is due to having good quality contractors throughout our service territory. If it weren’t for that network, this program would not be as successful as it is today.”
A ‘striking’ impact on margins
Two years ago,
Blue Ridge Electric Cooperative in South Carolina recognized the need to assist members with decisions about solar, electric vehicles, smart home thermostats, battery storage, and other modern energy-related choices. But the main emphasis of the new Blue Ridge Energy Services Department has been on geothermal heat pumps.
“The program was initiated primarily as a renewable alternative to solar for our members,” says Tim Mays, the co-op’s energy services consultant. “HVAC represents 49 percent of the energy use for our region. Most members considering solar are looking to lower their energy bills and are interested in the tax credits associated with solar. Geothermal provides a significant reduction in an area that is about half of the power bill and offers the same state and federal taxes as solar.”
In addition to the tax credit, Mays says members receive a $1,600-per-ton rebate along with on-bill financing at 6.5% for up to seven years.
“We arrived at this incentive through a margin impact study done by our rate consultants for different HVAC and water heating systems from a base model featuring a high-efficiency air-to-air heat pump and an electric water heater,” he says. “The margin impact when solar was added and natural gas utilized for space and water heating was striking.”
Lake Region Electric Cooperative tried a do-it-yourself approach to installing geothermal loops starting back in 2009. The co-op purchased horizontal directional drilling equipment to do loop installations and underground utility work. Members had the option of purchasing the loop field outright to take advantage of the tax credit or paying on their monthly electric bill through the co-op’s tariff program.
“The biggest concern of our board at that time was full utilization of the drilling equipment, but we kept it fully utilized with the same crew doing both geothermal and underground utility work that would have been otherwise contracted,” says Dan Husted, Lake Region’s vice president of business development. “Even though geo loop installation is capital and labor intensive, we were very price competitive with traditional vertical installers.”
After 2015, Husted says the calls started to fall off with the loss of the tax credit and low propane prices, so the co-op stopped doing the loop installs.
“We don’t consider that as a business failure,” Husted says. The co-op simply pivoted to new projects like community solar, residential solar, whole-home standby generators, and a natural gas subsidiary. And the horizontal drilling equipment is still fully utilized doing utility work.
“In my opinion, this was all built on the shoulders of the geo program,” he says. “It changed our culture and how we view service to our members and communities. It also provided us with the confidence that we can accomplish a lot.”