Geothermal Heat Pumps, 

of the Leading Energy Utility Marketing Programs Report Series

Introduction 

Summary of Utility Programs

Summary of Partner Offerings

About The Author

Utility Profiles: 

Partner Profiles: Architecture and Engineering

Partner Profiles: Trade Associations

Partner Profiles: Manufacturers

Introduction

Geothermal heat pumps are turning up in all kinds of installations from President George W. Bush’s ranch in Crawford, Texas to retrofit installations in 20 year-old manufactured homes in rural California. Although this technology has been around since the 1940s, it has still not achieved its potential in the heating and cooling market place.

This report describes the reasons why geothermal technology appeals to both electric utilities and end users, and also explains why this appeal has not been enough to sustain a national market. This report will help readers to:

·         Understand the benefits that geothermal heat pumps offer customers and electric utility providers

·         Describe the market potential and appeal of geothermal heat pumps

·         Document the tactics and strategies that some electric utilities have used to develop sustainable and effective geothermal programs

Thirteen (13) utilities were selected to be included in this report describing successful geothermal heat pump installations. These are not all the utilities currently offering geothermal programs. Nor, are they some of the geothermal “pioneers” that first established utility programs. Rather, these are the utilities still committed to selling and promoting this technology. They still believe the possibilities that geothermal systems offer. The utilities selected have found the right alchemy of program elements to create innovative and successful geothermal programs, and so they are featured in this report.

This report also features sixteen (16) profiles of trade allies that have been active in the geothermal industry. These trade allies or strategic partners include geothermal heat pump manufacturers, architects, engineers, and non-profit associations dedicated to promoting this technology. This is not designed to be a comprehensive list, but rather an indication of the types of companies that have committed resources to promoting this technology.

One of the biggest challenges facing the geothermal industry is the multitude of names by which this technology is referred. Geothermal heat pumps (GHPs) are also called ground source heat pumps, earth source/earth coupled heat pumps, geothermal heating and cooling systems, direct exchange, and “geo” among others. Developing a common name and identify was an early mission of the Geothermal Heat Pump Consortium (GHPC), a non-profit industry association based in Washington, D.C. Their efforts led to creating a national “brand” or identity for this technology, and so they now refer to this technology as “GeoExchange.” To avoid confusion, this report will refer to geothermal heat pumps or GHPs.

While the name may change, the technology is essentially the same. Every geothermal system consists of three major elements: a geothermal heat pump to move heat between the building and the fluid in the earth connection, an earth connection for transferring heat between its fluid and the earth, and a distribution subsystem for delivering heating or cooling to the building. To heat a building, the heat is extracted from the fluid in the earth connection by the geothermal heat pump and distributed through a system of air ducts. Cooler air from the building is returned to the geothermal heat pump, where it cools the fluid flowing to the earth connection. The fluid is warmed again as it flows through the earth connection. The process is reversed to cool the building. 

The ground loop may be installed either directly in the ground or through a well.  The fluid could be either water or a refrigerant. Geothermal heat pumps can provide heating, cooling, and even hot water, at a significantly lower cost compared to conventional systems. However, geothermal systems installations usually cost two to three times more compared to conventional systems. These costs are higher because geothermal installations requiring working with three different kinds of specialists:

Three types of configurations are used in installing a geothermal heat pump system. The type selected depends upon a number of factors including soil type, availability of a water source, and the size of the installation, and the amount of land available. Loops may be installed horizontally or vertically in the ground, or submersed in a body of water. The type of loop configurations include:

Geothermal systems offer a great deal of flexibility and have been installed in all types of buildings. According to the Geothermal Heat Pump Consortium (GHPC), these systems have been installed in more than 80 commercial applications from guard shacks to high-rise office buildings, not to mention in thousands of houses and schools across the United States.

Geothermal heat pumps also offer significant benefits to customers willing to pay the higher upfront installation costs. These benefits include:


Definition of Terms and Abbreviations

GHPs — Geothermal heat pumps also known as:
  • ground source heat pumps,

  • earth source/earth coupled heat pumps,

  • geothermal heating and cooling systems,

  • direct exchange

  • GeoExchange

  • “geo” among others.

ARI —   Air-conditioning and Refrigeration Institute
ASHRAE — American Society of Heating, Refrigeration, and Air Conditioning Engineers
Chauffage — a European financing concept of guaranteeing heating bills
ESCo —   Energy Service Companies 
GHPC —  Geothermal Heat Pump Consortium
HVAC —  Heating, ventilation and air conditioning

IGSHPA —   International Ground Source Heat Pump Association  

General Market Information  

Before discussing the various players in the geothermal heat pump market, it may be helpful to have a general understanding about current market conditions.

The geothermal heat pump market is a very small part of the larger heating and air conditioning market. The heating, air conditioning, and ventilation (HVAC) market is estimated to have sold 6 billion units last year, according to most manufacturers. Of this huge market, geothermal units account for less than one half of one percent in the United States and less than 1 percent of all units sold in Canada.

This pie chart displays the estimated total global market share of the leading HVAC firms.

As Figure 1 illustrates, the HVAC market is extremely fragmented and no one firm controls more that 4%. 

The geothermal heat pump market is no different. It is comprised of an array of diverse manufacturers. Although there are several leading geothermal manufacturing firms, these firms’ total revenues pale in comparison to the revenues generated by the global HVAC firms such as York and Carrier.

The Geothermal Heat Pump Consortium (GHPC) worked with manufacturers for many years to try to get accurate industry counts of actual geothermal sales. They estimated that the total market was 40,000 units annually, and the residential market was approximately 20,000 and 25,000 units annually.


Average Geothermal Installation Costs

Another critical element to understanding the geothermal heat pump market is to understand the costs of the various components required to install and operate a geothermal heat pump. Geothermal heat pumps are comprised of three separate elements:

The DOE commissioned the Oregon Geo-Heat Center to estimate these average costs for a residential geothermal heat pump installation. The results are summarized below.

 These costs are based on the differences in installation costs for air source heat pumps (ASHP), gas with air conditioning (gas with AC), ground water (GW), or geothermal installations with either horizontal, vertical, or “Slinky” loops. Traditionally, a horizontal installation, that is laying the pipe horizontally, is less expensive compared to drilling and installing the loop vertically. The “Slinky” configuration involves drilling a relatively shallow trench and coiling the loop over itself, like the children’s toy Slinkyâ.

The Comparison of Installed Costs for 3-Ton GHP Systems chart is especially helpful since it compares the cost of a typical residential air source heat pump (ASHP) gas furnace with air conditioning.  As Figure 6 shows, the cost of the geothermal heat pump depends upon the installation configuration. Ground water (gw) or water-to-water installations are the least expensive, while vertical, horizontal and the horizontal “slinky” loops are the most expensive installations. In general, geothermal heat pump installations cost at least $2,000 more compared to “standard” installations. 

The reasons for these increased costs are driven by the cost of the unit itself, the ground loop, and the ductwork. In fact, if ductwork is needed then the price to install a geothermal heat pump rises $6,000 to $8,000 depending upon the size of the installed system, as illustrated in Inside Installation costs chart.

So a customer considering purchasing a geothermal heat pump for his home must not only pay a $4,000 to $6,000 premium for the equipment, but he could also pay another $6,000 to $8,000 premium for the duct work. 

[1] Rafferty, K. “An Information Survival Kit for the Prospective Geothermal Heat Pump Owner,” Geo-Heat Center, Oregon Institute of Technology, Klamath Falls, OR prepared for the US Department of Energy, Office of Geothermal Technologies, Washington, D.C. Feb. 2001.

Furthermore, the cost of the ground loop will also vary depending upon the size of the unit and the soil conditions. The Installed Cost-Ground Loop chart summarizes the costs for the ground loops for geothermal heat pump units based on an average installed cost/ton.

As the chart shows, the ground water systems are still the most cost-competitive, while the geothermal vertical installations are the most expensive. It is important to remember that these are average costs, and they depend upon a number of factors including soil conditions and the region of the country. In some locations, where drillers are relatively easy to find, the installation costs have been reduced. In fact, negotiating with drillers for a set fee for a job and promising volume work has been one of the most successful strategies utilities have used to lower some of these costs.

According to both the DOE and the GHPC, the total cost for installing a geothermal heat pump ranges from $15,000 to $19,000 depending upon the cost of the loop, the size of the system, and the need for duct work. Table 1 illustrates these costs from a study funded by the GHPC, and also demonstrates the value that utility rebates play in moving this market forward.


Table 1: Average Capital and Operating Costs for Geothermal Heat Pumps in 1996 Dollars

Distribution Strategy for GHPs

In the traditional HVAC market, three separate groups are involved in moving the merchandise from the manufacturer to the customer. Traditionally, these groups are:

In the geothermal heat pump market, installers play the most critical role. Figure 5 illustrates that most geothermal heat pumps are sent directly to installers (58%), while distributors (28%) handle another quarter of the market.  

Summary of Utility Programs

Reasons for Selecting These Utilities

All of these thirteen (13) utilities agreed to participate in our report by offering telephone interviews and most internally reviewed my manuscript draft about their program.  Other utilities were approached to participate, but declined for various reasons.  Still other utilities were considered for participation, but were later excluded because their experiences largely mirrored the case studies presented here. 

Common and Best Practices Program Characteristics

This report identifies four critical program characteristics that are essential to developing a sustainable and successful geothermal heat pump program. These characteristics are displayed in the Table 1. 

Table 1: Utilities By Best Practices Characteristics

Utility

Contractor

Experience

Patience

Vision

Total

TVA

1

1

1

1

4

Plumas- Sierra

1

1

1

1

4

Otter Tail

1

1

1

1

4

Northeast Utilities

1

1

1

1

4

Moon Lake

1

1

1

1

4

Gulf

1

1

1

1

4

Delta-Montrose

1

1

1

1

4

Yellowstone Valley

1

1

1

 

3

Palmetto Electric

1

1

1

 

3

LIPA

 

1

1

1

3

KCPL

1

1

1

 

3

First Energy

1

1

1

 

3

CSU

1

 

 

 

1

 

 



Strong Contractor Relationship

This is the first essential element to program success. It means the ability to identify, encourage, train, and support the drillers, dealers, and installers that actually deliver geothermal heat pumps to the end users. Utilities that have been able to foster these relationships are able to develop a competitive marketplace that result a more favorable pricing structure, a more knowledgeable infrastructure, and a truly competitive market. As the following table and graph illustrates, Gulf Power has clearly been among the most successful utilities to develop a successful contractor relationship.

Experience In Geothermal Installations

This is another critical element to program success. Given the complexity of geothermal heat pump installations, this is not a program to embark some experience in technically challenging installations. While some utilities are relatively new to geothermal programs, such as Long Island Power Authority (LIPA), it was able to rely on advice and guidance from geothermal experts, such as Bertram Drillers, and those within the design community.  However, the most successful geothermal programs have been those that have gained experience and then leveraged this experience to further build the market.  Otter Tail Power, with its strong word-of-mouth and customer references, illustrates the benefits that gaining and building experience offers.

Patience To Develop A Market

Patience is a virtue, especially in this market. It takes time to develop a contractor infrastructure, to identify the best applications for geothermal, and certainly to actually install the units. Patience is also necessary on the part of the customers, since the paybacks for geothermal heat pumps can be longer compared to conventional systems. However, as the customers soon learn, patience can be rewarding. Utilities, such as Long Island Power Authority, that have demonstrated the patience necessary to foster a geothermal heat pump program, despite occasional setbacks, also benefit from an enhanced load profile, and satisfied customers.

Vision

Developing a successful geothermal heat pump program also requires looking beyond the short term and envisioning a new and better market. Clearly, Delta-Montrose Electric Association is one of the most forward-thinking utilities involved in geothermal programs. While it recognizes the shortcomings in the current situation, this utility dares to dream and then sets about creating the elements necessary to make its visions a reality.

Common and Best Practices Marketing Approaches

These utility profiles also described some of the most successful marketing approaches used to make geothermal programs successful. These included strategies designed to:   

Reduce the First Cost Barrier

The utilities profiled in this report demonstrated a great deal of creativity in developing strategies to lower or eliminate the biggest barrier to geothermal installations: the higher incremental first cost, as shown in the following graph. Please note that in all charts, GPU is now known as First Energy.

While most relied on some type of incentives, at least initially, many of these successful utilities also developed alternative financing strategies. Delta-Montrose Electric Association has the most unique approach combining a loop lease with long-term guaranteed rates. Northeast Utilities (NU) also developed a strategy to completely eliminate the installation cost from the buyer’s decision process by paying this cost directly. As the profiles illustrate, these utilities did not simply rely on the standard rebate and incentive structure when it came to promoting geothermal heat pump installations.


Nurturing Contractor Development

These utility profiles also illustrate some of the more successful strategies that have been used to develop a sustainable contractor infrastructure. These strategies include investing in new tools and technologies to assist in the geothermal installation process, holding design and training sessions for architects and engineers to educate them about geothermal heat pumps, developing a contractor referral network to support the local drillers, installers, and dealers, and developing a partnership in that all parties work together to help the ultimate customer. The following graph shows these strategies grouped by utilities, highlighting the different approaches used by each utility profiled.

As this chart illustrates, Gulf Power, Plumas-Sierra, and Otter Tail have certainly had the most success in developing a strong contractor infrastructure, while other utilities such as Kansas City Power & Light (KCPL) rely more heavily on the supporting an already strong infrastructure through its contractor referral network.

Creating/Generating Enthusiasm At All Levels

Perhaps the most overlooked part of developing a successful geothermal program is creating a sense of enthusiasm for geothermal heat pumps. Yet, this is a necessary element to long-term program success. This enthusiasm is developed in several ways. For example, “Walking the walk,” that is installing geothermal installations at utility headquarters and in employees’ homes. This is a powerful testimonial that says clearly to potential buyers that the utility sincerely believes in this technology.

This strategy has been used most effectively at a number of utilities, including Plumas-Sierra, Palmetto Electric, and Gulf Power.  Each of these utilities has numerous staff members with geothermal systems installed in their homes. Moreover, Palmetto Electric and Yellowstone Valley have also installed geothermal installations at their headquarters buildings.

Another technique for creating enthusiasm for geothermal installations is to foster a “geo culture,” that is creating a sense of pride in ownership among geothermal customers. This is also a successful strategy for building word-of-mouth among potential customers. This leads to further installations and a broadening of the “geo” mindset. This strategy has been most effectively demonstrated in Delta-Montrose’s "GeoExchange Comfort Club dinners,” and through the customer tours and demonstrations offered by Otter Tail Power.

A third element necessary to creating enthusiasm for geothermal heat pumps is to showcase high profile installations in new and compelling ways. For example, FirstEnergy (GPU) often holds its dealer training seminars at Richard Stockton College, home to one of the largest geothermal installations in the world. LIPA takes a similar approach, hosting parties and events at a marine aquarium featuring a geothermal heat pump installation. This technique demonstrates the utility’s belief in the system, and reinforces the versatility and overall superiority of geothermal heat pumps to potential customers.

These utility profiles also demonstrate that not all successful utility programs have been around for two decades or more. Indeed, as following the graph shows, while Otter Tail has been promoting geothermal heat pumps for a quarter of a century, some other successful utilities have been involved in geothermal installations for just a few years. Thus, it is not the length of time that is an indicator of success, but rather it is the commitment that the utility makes to promote this technology.

Summary of Partner Offerings

Reasons for Selecting These Partners

This report also features sixteen (16) profiles of trade allies that have been active in the geothermal industry. These trade allies or strategic partners include geothermal heat pump manufacturers, architects, engineers, and non-profit associations dedicated to promoting this technology. This is not designed to be a comprehensive list, but rather an indication of the types of companies that have committed resources to promoting this technology.

Future Prospects for Programs 

Common Challenges Inhibiting Future Success

While everyone profiled in this report believes strongly in geothermal heat pumps, this technology still faces numerous challenges. These challenges include reducing first costs, raising awareness, and developing a sustainable infrastructure.

Utilities have aggressively tackled the first cost barrier, but there are still customers who are unwilling to commit the extra dollars required in the beginning to install geothermal heat pumps. This resistance is sometimes just a ruse, because some utilities, like Otter Tail Power, find all kinds of tax strategies and lending sources available to reluctant customers. However, this is still a legitimate concern and has to be continually overcome through case studies, demonstrations, analyses, and salesmanship.

Despite that the geothermal heat pumps have been around for decades, this still remains are niche market. There are “core geo junkies” that love the technology because it is “cool,” in terms of its operation. However, outside this narrow market, the technology is relatively unknown.

Some utilities, such as KCPL and FirstEnergy, report increasing levels of awareness on more average customers. But there is still a long way to go. As a Delta-Montrose employee observed, despite the high profile this technology has received, there is still only about 50% awareness.

Lastly, the largest stumbling block is developing a competitive and sustainable infrastructure among drillers, installers, and dealers. As LIPA observed, this lack of competitive infrastructure has made it difficult to break into the mid-range of commercial installations. Plumas-Sierra encountered similar difficulties until it was able to develop an effective driller network.

Most Promising Strategies to Overcome Challenges

Technological Enhancements

Despite these obstacles, the technology continues to improve. Utilities, manufacturers, and drillers are committed to exploring new ways to further drive down the cost of installations, whether it is by developing new types of drilling tools, pursing new types of geothermal systems, or installing units with improved refrigerants.  Among manufacturers, WaterFurnace, FHP, and American Geothermal DX continue to refine and broaden their product lines. These improvements include more environmentally friendly refrigerants, new types of hybrid units, or units that are even more versatile.

Several drillers are also investing in new types of drilling heads, designed for smaller yards and more urban locations, all fostered through the support of local utilities such as NU and Delta-Montrose.

Future Prospects For Technology

As one geothermal program manager wryly observed, “GeoExchange is a product of the future, and probably will always be.”  From that perspective, geothermal heat pumps continue to offer a promising future. However, it will continue to languish unless it can create enough of a market presence to get noticed by the bigger manufacturers.

One way to increase geothermal heat pumps visibility is to start substituting geothermal heat pump installations in conventional air conditional applications. This is the impetus driving Delta-Montrose to promote a new type of geothermal heat pump using direct exchange technology, and this interest has been contributing to American Geothermal’s DX’s double-digit sales growth.

Another strategy is to influence government policy makers, a technique that continues to be used by the Washington-based Geothermal Heat Pump Consortium (GHPC). This association has become more of an activist organization, promoting the benefits of geothermal heat pumps on Capital Hill.  WaterFurnace is also working closely with the Department of Energy to encourage a tighter standard on energy efficiency for air conditioning units. By driving the minimum standards up to SEER 13, geothermal heat pumps would become a competitive option that would need to be considered by builders and customers.

Related Programs/vendors/events as future indicators

The best ways to track activities in the geothermal industry is to become involved in the numerous associations dedicated to promoting geothermal heat pumps. In addition to the GHPC, the International Ground Source Heat Pump Association (IGSHPA) provides numerous training opportunities to help strengthen the contractor and driller infrastructure. There are also regional and local geothermal heat pump associations, scattered throughout the United States. 

In Canada, the GHPC is helping to develop a Canadian Geothermal Heat Pump Association that will help develop and promote this technology throughout Canada. Internationally, geothermal heat pumps are also popular choices in several countries throughout Europe and Asia. 

The best way to keep updated with these activities is to visit the websites listed in this report. These links provide the best sources of information on the current and future prospects of this exciting technology.

About the Author and Market Development Group

 

Katherine Johnson

1033 Lindfield Drive,
Frederick, MD 21702
Phone: 301/228-3841
Email: kjohnson@marketdevelop.com

Introduction 

For the past dozen years, Katherine Johnson has provided strategic consulting and marketing research services for the electric utility industry. Ms. Johnson has worked with more than 150 electric utilities throughout North America, and also with government agencies, financial organizations, and low-income energy conservation program providers. Her areas of expertise include new product development, market planning, program development and evaluation.

Katherine earned a Masters in Business Administration (MBA) with concentrations in Marketing and Finance from Rollins College, Winter Park, Florida and a Business-Journalism Degree from Indiana University. She is currently working on a Doctorate in Business Administration, with an emphasis on 0rganizational change in the utility sector, from the University of Southern Queensland, Australia.

Katherine is the Founding Member and Principal of KJ Consulting , a woman-owned management and marketing firm headquartered in Frederick, Maryland.  The firm provides a variety of management and marketing services to organizations operating within the energy, utility, and telecommunications industries. KJ Consulting clients include Edison Electric Institute, Pepco, EnerVision, NEES, PG&E, and the City of Long Beach, CA, as well as completing numerous government agencies and industry associations.

Katherine is also a frequent guest speaker and writer at industry symposiums and conferences. She is also a co-author of one of the first white-papers addressing organizational challenges in the utility market, called “Tenets of a Turnaround” with Mark Camack.

Resume

For KJ Consulting, Katherine expanded the firm’s focus to include government agencies, industry associations, and small municipal utilities. Recent projects include:

For the Geothermal Heat Pump Consortium, Katherine was the Marketing and Finance Manager and spearheaded activities to promote this premium energy efficient technology. Her accomplishments included:

Katherine also worked as a consultant at two leading consulting firms specializing in the utility field, Barakat & Chamberlin and Aragon Consulting Group. Her responsibilities included: 

Katherine got her start in the business world by working as a bilingual tour guide at Walt Disney World in Florida. Her tour guests included the Crown Prince of Morocco and members of the International Chamber of Commerce. She keeps her French language skills current through extended boat trips on French canals during summer vacations with her family.

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About Market Development Group

Market Development Group documents and promotes leading practices and lessons learned from innovative energy utility marketing programs implemented by investor-owned utilities, municipalities and electric cooperatives.  Several utility case studies in each report candidly detail strategies, tactics, tools and structure.  In the Geo Heat Pumps Report, also profiled are manufacturers, architects and engineering firms, and trade associations who play key implementation roles. 

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Leading Energy Utility Marketing Programs, 
a Report Series published by Market Development Group 

Leading Energy Utility Marketing Programs by Market Development GroupThe Leading Energy Utility Marketing Programs Report Series candidly details the key strategies, tactics, tools and structure behind at least 10 utility-sponsored program case studies in each issue.   Each Report title in the series also offers insightful profiles on the product manufacturers and distributors, service providers, consulting firms, organizations and other allies that play key roles in program implementation.

The Report Series documents and promotes leading practices and lessons learned from innovative energy utility marketing programs.  This includes programs deployed by electric cooperatives, municipalities and investor-owned utilities.  The reports are aimed at utility marketing executives and staff who want to leverage the experience and expertise of industry leaders as they create and improve their utility service offerings. 

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