NATIONAL REPORT—Energy consumption officially has become the defining global issue of our time, and everyone from politicians to developers and homeowners is taking notice. But while technology companies and auto makers like Tesla and Ford scramble to make the first mainstream electric vehicle, there’s actually a bigger player in the energy arms race: buildings.
According to the United States Department of Energy (DOE), the nation’s buildings account for 43 percent of U.S. carbon emissions and 39 percent of primary energy consumption. Compare those numbers with the transportation industry, which comes in a distant second at 32 percent and 28 percent, respectively. What’s more is that the DOE reports 40 percent of the total energy used in those buildings is for air-conditioning and heat, as well as hot water heating.
That’s why a growing number of developers 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. This technology both lowers utility costs over time and reduces greenhouse gas emissions by as much as 40 percent more than traditional HVAC systems, according to the United States Environmental Protection Agency (EPA). Often overlooked is the water savings potential of geothermal heat pumps. By replacing cooling towers with heat pumps, building 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. Water, sewer and energy costs are significantly lowered—reducing the overall operating cost of the building
Galt House an Early Adopter
While the most recent global analysis by Navigant Research predicts the geothermal market will grow by more than 150 percent by 2020, eco-friendly geothermal technology is nothing new. In fact, the Galt House Hotel in Louisville, Ky., widely known as one of the most successful geothermal installations in a hotel application in America, completed its new Galt House East Tower in 1984, outfitting it with a 1,700-ton geothermal system. The installation saved the hotel approximately $25,000 per month in energy costs, according to the DOE, and freed up approximately 25,000 square feet of commercial space traditionally used for an HVAC equipment room. The same DOE analysis indicates the installation cost only $1,500 per ton to install; comparatively, a conventional system costs anywhere from $2,000 and $3,000 per ton.
But if geothermal heat pump systems are so successful, as demonstrated by the Galt House Hotel, why aren’t more hoteliers, commercial developers and homeowners using the technology? It comes down to upfront costs: The massive 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 geothermal system.
Installing the ground loop heat exchanger can represent as much as 60 percent of the total cost of the system, making it a difficult check to write. For example, if the Galt House Hotel installed its 1,700-ton geothermal heat pump system at $1,500 per ton, it would require more than a $2.5 million investment. Considering half of that is spent on installing the web of pipes alone, it’s easy to see why the initial cost barrier holds some developers back.
To eliminate this barrier, three new kinds of partnerships have emerged that give developers more options for widespread adoption of geothermal technology. Developers can now partner with utility providers, third-party ownership models or a creative mix of both, meaning geothermal systems may soon transition from novelty to normality.
These evolving ground loop service provider concepts open the door for the most energy-efficient, environmentally sensitive and cost-effective heating and cooling system on the market.
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 eco-friendly 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.
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.
There are several examples of this model at work in the market today, such as 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 provides the end user with predictable energy costs over time without having to pay for the upfront cost of installing a ground loop. EcoSmart Solutions (ESS), another example, works in a similar fashion with large-scale real estate projects, locking in lower costs for geothermal and solar energy.
Third-Party-Owned Loops with Utility Participation
This hybrid partnership is similar to both the utility and third-party-owned models, but in this instance, the utility collects the energy payment rather than the third party, like Orca or ESS. The utility takes a small percentage of the profits from the third party and gives the end user some added security.
In all three of these partnership scenarios, a geothermal unit has two main benefits. First, the renewable energy aspect allows the utility or third party to use Business Investment Tax Credits and other federal incentives, further driving down the cost of installation. Second, because the technology is more energy-efficient, end users can expect a much lower utility bill.
While industry leaders, research organizations and even hoteliers like those at the Galt House Hotel have recognized the ecological and economic importance of installing geothermal systems, the upfront investment continues to be daunting. However, employing a third-party ownership model could be the key to overcoming the cost of entry, allowing for the technology’s success in the United States.
Mark Stimson is the Business Development Manager at Bosch Thermotechnology Corp. Bosch Thermotechnology is a leading source of high quality cooling and heating systems, including tankless, point-of-use and electric water heaters, floor-standing and wall-hung boilers, Bosch and FHP geothermal heat pump systems as well as controls and accessories for every product line.