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Why Electric Utilities Pay You to Install Geothermal

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  • August 17, 2015

When it comes time to think about replacing the heating and cooling system in homes and commercial properties, more and more property owners are beginning to understand that geothermal heat pump systems are the smart, 21st century comfort solution. There are many valuable benefits that come with upgrading to geothermal HVAC, but the huge utility cost savings every month is the primary reason that so many people are choosing geothermal.

But isn’t it too expensive?

That’s the question we hear almost everyday. On the surface, the answer seems to be yes – the upfront cost of installing a well-designed geothermal system will usually be higher than installing even a “high-efficiency” (according to the manufacturer) conventional heating and cooling system, but that is where the comparison ends.

To install a conventional system, an HVAC contractor essentially needs to simply deliver the furnace or AC units to your building, set them in place, tie in to duct work, connect refrigerant and gas lines, connect thermostat and start it up. The process of installing geothermal is similar, except for the installation of the “ground loop,” the underground heat exchanger we construct outside the building, that allows the geothermal system to move heat from the earth into, or out of, your building. This critical extra step is very labor intensive, so the cost of geothermal is often driven higher than traditional systems, but the ground loop is also what makes typical efficiency gains 50-70% possible.

Because of the much greater efficiencies, people around the world are incentivized to upgrade their comfort systems to geothermal in one way or another. In most of the United States, the incentives come in the way of Federal and State tax credits, electric utility rebates, and, of course, much lower monthly utility bills.

So, this brings us back to the original question – Why do so many utilities pay their customers to switch to electricity-saving geothermal heat pump systems? It seems counter intuitive. Electric utilities are in the business of selling electricity, so why would they pay customers to use less of their product? Well, most utilities have other responsibilities beyond just selling and distributing electrons. Incentivizing rate payers to use less electricity at key times of the year allows utilities to meet other important goals, including avoiding summer brownouts and blackouts, reducing pollution and emissions, and actually selling more electricity.

1.  Avoiding Summer Brownouts

Many people take for granted that their lights will always turn on, and that their refrigerators, air conditioners and other appliances will always run at the exact time that utility customers want them to run. Electric utilities go to greater lengths than many people realize to ensure that rate payers experience nearly 100% reliable electric service. Many utilities are required to provide reliable service by governments that often grant the utilities a near-monopoly on electric service within a given territory. But with rapidly growing electricity consumption, providing reliable service is becoming exponentially more challenging for utilities.

The challenge of providing reliable service is most evident in the summer cooling season, when most, if not every, building within a given utility’s service territory is running their air conditioning from about 2pm – 7pm in July and August. This is known as “peak demand,” and almost all of an electric utility’s resources go to building and maintaining power plant and grid infrastructure that will be able to reliably meet the summer’s 6-8 weeks of peak demand. Unfortunately, from a resource planning perspective, this is a very inefficient use of resources, because most of the grid will be greatly underutilized for the other 44-46 weeks of a typical year – often utilizing less than 50% of overall generation and transmission capacity. And all of this to support space cooling within buildings.

Utilities are beginning to recognize that, because geothermal heat pumps cool buildings with minimal electrical input compared to conventional air conditioning systems, it can be much less expensive to pay their customers to upgrade to geothermal than to build new power plants and grid infrastructure.

2.  Reducing Pollution and Emissions

It is no longer a secret that America’s aging power plants are the #1 source of greenhouse gas (GHG) emissions that cause global climate change. This is especially true of coal-fired power plants, but natural gas electricity generators, even though they burn cleaner, still contribute significant levels fo CO2 pollution, as well as methane pollution at many natural gas production sites across the country. Fossil fuel burning power plants also contribute other types of direct, and indirect, air, land and water pollution, which has far-reaching health effects that doctors and medical experts are only beginning to fully understand. Additionally, fossil-fuel burning on-site furnaces and boilers also pose risks for other types of indoor air pollution, especially carbon monoxide poisoning.

As more of America’s fleet of aging coal plants go offline due to new clean power rules, smart utilities are realizing that it can be much more profitable to reduce electricity demand by incentivizing energy efficient geothermal heating and cooling systems, rather than build new power plants to replace those being taken off-line.

3.  Selling More Electricity

Yes, you read that right. Ok, so how does the utility sell more electricity by incentivizing the installation of electricity-sipping geothermal heat pumps?

First, you have to understand that geothermal heat pumps do not burn natural gas or other fuels to create heat in the winter in the same way that a traditional furnace does. Geothermal systems use electricity to pump water into the home or commercial building that brings with it BTUs that have been stored outside underground. The electricity used to pump the water and compress the heat replaces energy that the building owner would have bought from the gas utility, or propane or fuel oil distributor. Some new geothermal owners are surprised to see their electricity bill actually rise in the winter heating months, but the new electricity costs are much lower than the fossil fuel bill it is replacing. The exceptional efficiency of ground source heat pumps creates 4-5 units of heat output for every 1 equivalent unit of electricity used – an operating efficiency of 400-500%. Considering the most efficient fossil fuel furnace is only about 95% efficient (when brand new), the potential cost savings are obvious.  Additional winter electricity sales from geothermal HVAC systems makes incentivizing their installation a smart business decision for utilities.

We have installed several geothermal systems that end up actually costing less than conventional systems after Federal tax credits and utility rebates. Not all of our customers understand exactly how this works out, but they are sure glad it does! Please feel free to contact us anytime for more information on utility rebates for geothermal.

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