Renewable Energy: Financing Geothermal HVAC

Facility leaders have options to install or retrofit geothermal energy systems cost-effectively to reduce operating costs.
Facility leaders have options to install or retrofit geothermal energy systems cost-effectively to reduce operating costs.

Renewable Energy: Financing Geothermal HVAC

Renewable Energy: Financing Geothermal HVAC

By Mark Stimson
From the May/June 2016 Issue

There are plenty of reasons to build green or retrofit existing facilities: According to the United States Department of Energy (DOE), the nation’s buildings account for 43% of U.S. carbon emissions and 39% of primary energy consumption. Additionally, the DOE reports 40% of the total energy used in buildings is for air conditioning and heat, as well as hot water heating. To help reduce this energy consumption, many facility owners and operators are looking more closely at geothermal heat pump systems, a technology that uses the earth’s thermal properties in conjunction with electricity as an alternative to traditional HVAC and water heating systems.

Geothermal HVAC
Shown here is a diagram of a geothermal loop for a commercial building. (Image: Bosch Thermotechnology Corp.)

Geothermal systems can save 30% to 50% in heating and cooling costs as well as reduce greenhouse gas emissions by as much as 40% more than traditional HVAC systems, according to the United States Environmental Protection Agency. Geothermal heat pumps also offer water conservation. By replacing cooling towers with heat pumps, facility owners can save potable water that is otherwise evaporated into the air during a cooling cycle or used to blow down the system to clean away mineral buildup.

Suitable to retrofit and new construction, geothermal has been used successfully since the 1970s, but it has not seen widespread use. Here’s the rub: the upfront costs. A geothermal system relies on installing a ground loop heat exchanger, a complex web of pipes that snakes hundreds of feet beneath the ground to heat and cool the water within the system. Installing the ground loop heat exchanger can represent as much as 60% of the total cost of the system—a hefty initial investment that can be difficult to justify.

To help offset some of this initial cost, three types of partnerships allow more options for implementation of geothermal technology. Facility executives can now partner with utility providers, third-party ownership models, or they can employ a creative mix of both.

Utility Owned Geothermal Loops. This type of partnership allows a third-party utility to install the loop system and lease it back to the end user. In this scenario, the geothermal contract to use the utility remains tied to the property, which is billed as a line item on the end user’s monthly bill, just as if the utility provider were billing the property for traditional heating resources like natural gas.

This is a permanent demand reduction technology that with increased use can negate or limit the need to build more generation capacity. It has benefits for both utility and end user: It is considered a “rate recoverable” long-term asset to the utility, while the user derives building comfort from a distributed energy resource.

Third-Party Owned Geothermal Loops. This partnership is similar to a power purchase agreement (PPA) with a utility provider, but instead, the third party begins a thermal power purchase agreement and enters into a long-term (20 to 25 years) contract to own and operate the geothermal system. This third-party provider forms a special purpose entity that owns the energy producing asset and essentially becomes a mini utility that sells to the end user at a specific rate.

An example of this model at work in is Orca Energy, a third-party thermal service provider that partners with developers and builders. Orca bills a monthly utility charge designed to be set at or below traditional space heating/cooling and hot water energy costs. This gives the end user predictable energy costs without having to provide for the up front cost of installing a ground loop.

Third-Party-Owned Loops With Utility Participation. This hybrid partnership is similar to both the utility and third-part owned models, but in this instance, the utility collects the energy payment rather than the third party. The utility takes a small percentage of the profits from the third party and provides the end user some added security.

In all of these partnerships, because it is a renewable energy system a geothermal unit allows the utility or third party to use business investment tax credits and other federal incentives to help drive down the cost of installation. These evolving ground loop service provider concepts could help offset the upfront investment and allow facilities to implement an energy-efficient, environmentally sensitive and cost-effective heating and cooling system.

Geothermal HVACStimson is the business development manager at Bosch Thermotechnology Corporation, a source of quality cooling and heating systems. Over the past 20 years, he has been involved in the introduction of emerging technologies in the energy, water, and telecommunications industries. Stimson is a graduate of the University of California Santa Barbara with a degree in Environmental Studies and Business Economics.

Do you have a comment or question? Please share it in the Comments section below.

You Might Like: