Open Forum

Geothermal tax credit was harmful to the industry.

  • 1.  Geothermal tax credit was harmful to the industry.

    Posted 09-29-2017 09:58

    Hello all.

    I work for an HVAC and Solar installation and service company in southeastern PA. We installed our first open loop geothermal in 1983. We continued installing a few more open loop systems through 1987. In 1988, we installed our first vertical closed loop system. I actually installed that system.  I have been involved in geothermal installation and service as well as everything else in HVAC and Solar for nearly 30 years. In that time, we have installed a couple thousand geothermal systems along with many more conventional HVAC systems.

    We are also experiencing very limited sales of geothermal systems this year. About an 85% decline from last year, yet our sales of conventional systems has been steady. This is primarily due to government interference in the free market. Last year our geothermal sales were "through the roof". This was due to the news that the tax credit was going to expire. Basically, we pre-sold the next 2 to 4 years' worth of geo sales in that one year. Many people prematurely replaced their old working geothermal system last year, just to get the tax credit. The tax credit also caused everyone in the geothermal chain to start charging more for their part in that chain. It wasn't long after the tax credit went into effect that equipment prices dramatically increased. Well drilling and excavation prices went up, our own installation prices went up. All well beyond the normal inflation rate. All parties were guilty. Everyone was capitalizing on how easy the tax credit made it to sell a geothermal. We lost the focus of what used to sell geothermal systems. Some lousy installers also got involved and hurt the reputation of geothermal. We are still fixing their mistakes since those installers are gone already.

    Now the tax credit is gone. I am glad. Geothermal never needed "welfare" in the past and it doesn't now. We had sold well over 1000 geothermal systems before the credit. I know it will hurt for a while, but once our industry gets back to promoting the real benefits of geothermal instead of just focusing on financial return; we will once again have a steady business instead of a roller coaster.

    So what benefits did we talk about in the past that caused people to install geothermal. Here are a few.

    1.       Longevity - Here on the east coast, the average geothermal lasts over 20 years while the average air source heat pump is currently 11-13 years.

    2.       Comfort - Discharge air temp and humidity control in summer is better when compared to a regular air source heat pump.

    3.       Everything inside - No noisy outdoor unit. No condenser coil to wash. No expensive defrost modes. No shoveling out the air heat pump or furnace vents in a snow storm. No way for anyone to "mess" with your outdoor unit.

    4.       Hot Water Generation - It can generate cheap or free hot water as a by-product of heating and cooling the home, thus saving energy and money.

    5.       10 year parts and labor warranty program - Many air source and fossil fuel systems only have 5 year parts with no labor warranties.

    6.       Safety - Nothing flammable or explosive in the home with geothermal.

    7.       Carbon Footprint - Many people say to me, "what is the difference? Use a furnace and natural gas to heat my home or use a geothermal and electricity to heat my home. Either way, we are still using gas." Yes, natural gas is used to generate electricity. There are numerous other forms of electric generation as well.  All forms are harmful to our environment in some way.  So, the less we use of them the better it is for all of us. We need to show how much less overall energy is consumed to generate the electricity that runs a geothermal when compared to heating and cooling the home with other forms of HVAC.

    8.       USA Support - Most of the geothermal units are made in the states. Many other types of HVAC are out sourced to other countries. 

    We also need to learn to think "outside the box" when it comes to loops and water supply. For example: We have numerous old homesteads in our area that have substantial springs either in their basement or in spring houses next to the main house. This makes the perfect set up for an open loop job and we have done a lot of those. Not all loops have to be expensive vertical wells. There are many alternatives and the loop is usually the big price difference between conventional systems and geothermal systems.

    To summarize: if we can educate people on the points above, lower the overall cost to the consumer a little, say 10% – 15% (This does not mean we have to make less profit, but we do need to work smarter and leaner), then geothermal system sales will once again be a steady part of our business.

    Brian Shimp. Technical & Training Director for JK Mechanical Inc.


  • 2.  RE: Geothermal tax credit was harmful to the industry.

    Posted 09-29-2017 14:54
    Let's Talk Geothermal

    Pete Prydybasz

    PSP Consulting/BJ
    Mohnton PA

  • 3.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-20-2017 11:33
    ​Brian:  Cannot agree more.  I dislike incentives for the reasons you stated.  If incentives are available, they should at least require validation to qualify for the 'welfare' that the system is working as intended.  We have way too many incompetent flakes and snake-oil bottom feeders that think they know how to design and install a GSHP system already in the industry; incentives without validation only encourages more of the same.  Terry

    [Terry] [Proffer] [Geothermal Manager, CGD]
    [Major Geothermal]
    [Wheat Ridge] [CO]

  • 4.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-21-2017 08:13
    Brian...I'm with Terry on this. You've hit the nail squarely on the head. Cash incentives are not something to build a business around. A well designed GSHP system for residential or commercial buildings will easily justify it's purchase in most areas. If it doesn't, it should be sold. We've had similar experiences in Canada with the Eco-energy program a few years back. All the incentives did was screw up the market and raise prices. The industry does not need this kind of "support".

    Ed Lohrenz
    GEOptimize, Inc.
    Winnipeg MB

  • 5.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-21-2017 11:58
    I hold a bachelors degree in political science and a graduate degree in public administration and have close to 20 years experience in running a state trade association and currently as President and CEO of GEO, a national trade association, so I am comfortable discussing public policy.  And back in the 80s I oversaw the operations of a stocking distributor of GHPs before there were any tax incentives so I know a little bit about the GHP market. I have spent most of the past two years trying to fix a gross inequity in the federal tax code.  An inequity that allows Brian to market solar panels over GHPs to homeowners.  Unless, in fact, he never mentions the existing 30 percent federal income tax credit to homeowners to whom he is selling his products and services.
    A proper use of a tax code be it state or federal is to incent people to change their behavior by either increasing it, cigarettes, or lowering it, solar. An improper use of the tax code is to use it to pick winners and losers in the same market space, in this case, renewable energy products.  And this is what Congress did in December of 2015 when residential and commercial tax incentives for solar installations were extended for five years and a number of other technologies in the same Sections of the Internal Revenue Code, 25D and 48, were not extended.  This gross inequity in the application of the tax code is bad public policy.  The optics of this misguided decision to homeowners, business owners and wall street are that our federal government has decided that solar is good and other technologies like GHPs, small wind turbines among others are bad.
    In hundreds of meetings in congressional offices over the past two years I have stated that the geothermal heat pump industry is in favor of tax reform and the elimination of all energy tax subsidies including the billions given to the fossil fuel industry.  In a TRUE free market GHPs win because of the reasons Brian points out.  But to believe the recent decisions by the state of South Carolina to offer a generous state income tax credit, or the decision by the New York State Energy Research and Development to offer rebates for GHPs, or the Canadian Provence of Ontario to offer tax incentives to install GHPs, or the country of Great Britain offering a national Renewable Heat Incentive for installing renewable technologies are examples of bad public policy, are completely misguided.  These policies made by these governmental entities are sound decisions to incent people and corporations to purchase environmental and economical beneficial products for the good of all.
    Until the U.S. federal government fixes this glaring tax application inequity, I and GEO will continue to work to eliminate it done by restoring the residential and commercial tax credits for GHPs and providing tax parity with solar.

    Doug Dougherty

    GEO - Geothermal Exchange Organization
    Springfield IL

  • 6.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-22-2017 08:58

    I agree with Doug on the inequity.   Most customers are going to make one and only one large investment in renewables.  Very few are going to do Geo and Solar.  As Geo contractors, our biggest competition in the residential market is Solar.  When you run the numbers for the customer, even without any incentives, Geo can win out over Solar.  However, because the government is "sponsoring" solar, and not Geo,  this adds credibility for Solar as a technology.  Solar vendors are seen as more mainstream, while Geo contractors are crazy scientists.  With government incentives, no one ever questions that the Solar technology will work.   During sales calls/installation, Geo technology is constantly questioned by the customers, other jobsite contractors, and even engineers.  It is about the degree of trust the customer has.  I believe Government incentives add to that trust.     


    I also agree with Ed that any government involvement creates disruption in the market.  Perhaps the approach should be to file a lawsuit against the government for promoting Solar.  The argument would be unfair trade practices since the government is picking one technology to promote over an other, equally good or better technology.  If we could stop the Solar incentives, Geo sales would increase dramatically.    



    Jim Snyder

    Snyder Manufacturing, Inc.

    dba Endeavor Tool Company

    255 Rochester Street

    Salamanca, NY 14779

    (p) 716 945 0354 x3

    (f) 716 945 0114

    (c) 716 378 0316


  • 7.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-22-2017 10:56

    It is not the tax credit per say. It is the fact that everyone depended on it instead of extolling the virtues of the heat pump. The Bribe, Welfare  or tax credit, whatever you want to call it became the motivating force for purchase. The idea of taking the burden away from the prospective building owner by subsidizing the loop install is fine. The petroleum industry has subsidies, ethanol has subsidies almost every energy source has some type of subsidy. So what's missing is a complete understanding of why geothermal is what we as a society needs to be implemented.

    The Loop or energy source is an Energy Annuity, it never stops giving. Financing and leasing are both good ways to alleviate the hardship of coming up with a large sum up front. I have not seen a product become successful without a solid path of distribution. Training to homeowners and contractors run by the distributors are the keys.



    Pete Prydybasz

    Geothermal & Applied Products

    O: 610-775-3182

    C:  215-444-6109


    B.J. Terroni Company, Inc.
    3190 Tucker Road | Bensalem, PA 19020
    Tel: 215-639-3600 

    Fax: 215-639-3710

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  • 8.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-25-2017 09:46
    ​While I can understand both sides of this debate, I must say that I support a Tax Credit for the installation of Geothermal Systems. Sure we will still sell some Geo Systems without a Tax Credit based on many of the reasons already mentioned. But if your being honest with yourself and using honest math, you will never sell a Geothermal system based on ROI without the tax credit, which is 80% of the reason most customers purchase a Geo System. Here in the south our ground loops must be sized for cooling loads resulting in much larger loops than up north. Sure you could cut your profit margins to make the numbers more favorable. Water Furnace is defiantly not cutting there pricing, just announcing a price increase starting in Feb 2018 which will make the ROI numbers even less.

    Another strike against us in the south is the Air Source manufacturers have made great strides in efficiency on the cooling side with there equipment nearly equal to Geo in cooling months. Our cooling months are usually 7 to 8 months out of the year. Which means we only have a 4 to 5 month period where Geo is superior to air source units.

    I really don't understand how anyone could say that Tax Credits were bad for our industry when It put so many more Geo units in homes that never would have installed them without an tax incentive.

    John Peebles

    Southern Geothermal, Inc.
    Evans GA


  • 9.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-27-2017 07:16
    One misunderstanding that you and many have is that the high SEER numbers of air source equipment is important.  Sure, SEER has been pushed for years, but since it represents operation efficiency with outside air at 85F and inside temps set for 80F, basically idling, it does not represent operational efficiency for air temps 95F and above.  In fact, the higher SEER numbers hid the lower 95F EER numbers for the same equipment.  As SEER goes up 95F goes down.  Why?  Because engineers are good at their job, and since SEER has become king, they design for optimum operation efficiency at SEER conditions and ignore the negative effect on 95F.
    For areas with high cooling loads and long cooling seasons, the 95F EER is much more important than SEER because the biggest problem is not annual energy use, but energy use at the few hours of absolute peak cooling that overwhelms the capacity of the electrical grid.
    For those of use with high heating loads (I live in the Hudson Valley of NY), the peak electric grid use is also currently the summer peak, but as fossil fuel use is replaced with heat pumps, the winter peak will be a much bigger problem.  Once the majority of homes are heated with heat pumps, the few hours well below design temps will create peak electric use that is several times larger than summer peak.  Since air source heat pumps have low efficiency they will be the worse at this.

    Lloyd Hamilton

    Verdae, LLC
    Rhinebeck NY

  • 10.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-22-2017 09:07
    Brian, If you really believe that the tax credits hurt the industry, what do you think should be done to prevent future harm? Are you recommending that the leadership of IGSHPA and GeoExchange immediately fly to Washington, D.C. to ask Congress to remove geothermal heat pumps from the tax extender package that will be debated in the New Year? Have you, or will you, contact your Congressional representatives to ask them to vote against any legislation that includes tax credits for geothermal heat pumps? Are you willing to put as much effort into fighting the tax credits as many of us have put into arguing that you should benefit from their re-instatement?

    Personally, I'm convinced that third-party ownership of at least loops, if not full GHP systems, would be good for customers and for everyone in the industry. If the GHP installers were able to offer "no money down, no debt, guaranteed savings," as the solar industry does, I believe we would see a tremendous acceleration of GHP installations. However, I'm also convinced that the industry will never be able to offer such deals unless there is greater parity between the tax policy for solar, etc. and for GHP. Today, investors eagerly invest in the tax equity created by the 30% solar tax credits and accelerated depreciation. The same investors refuse to consider investing in GHP since it gets no tax credits and must use 39 year, straight-line depreciation. Even if one might claim that "GHP shouldn't need tax credits," the reality is that investors take the best deals and that means that as long as solar, wind, and other technologies are preferred in the tax code, no money will flow to the GHP industry. Without the individual tax credits of 25D, some installers might be able to sell enough systems to maintain a life-style business, but we're never going to see third-party ownership spur dramatic growth in the industry until we get the section 48 commercial tax credits restored. So, please understand that opposition to tax credits means that we'll never be able to offer "no money down, no debt" to customers. Is that really what you want?

    One might argue that the way to "solve" the problem is to remove the tax credits from solar, wind, etc. while also eliminating the massive government support for the fossil fuel industry. In theory, doing so would create a truly level playing field and would dramatically remove market distortions. But, while one might make this argument, doing so would be a waste of time. It ain't gonna happen. In the real world, we have to accept that industries that compete for capital with the GHP industry receive preferential support that makes it impossible for GHP to compete for investment. Since there is no known pathway to creating a level playing field by reducing the benefits received by others, the only remaining path towards equality is to obtain for GHP the same benefits, or close to the same benefits, which are received by those that compete for same investment money that the GHP industry needs.

    It may be that the tax credits have caused some issues for the industry in the past. Personally, I'm convinced that the benefits of those tax credits have been far greater than any costs that might have resulted. Also, while reinstating the tax credits may cause further problems, there are real benefits that we simply cannot have without receiving those tax credits. You must take the bad with the good. If we focus only on the costs, we will never have the opportunity to enjoy the benefits.

    Bob Wyman

  • 11.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-22-2017 16:51

    I favor Doug's policy incentive argument because market signals by government and regulators provide guidance for capital spending by industry, business, and consumer.  That makes markets more efficient.  What kind of signal is sent when lopsided or historical subsidies continue for billion dollar businesses already established?  Fossil and nuclear industries have already flourished but are now able to "buy" their subsidy maintenance in Congress, while dirty air and terrorist radiation leak risks remain at 100 nuclear sites.  Georgia Power will now resume their nuclear construction thanks to rate hikes to customers and the contributions from us all via the U.S. Treasury.

    "…In closing remarks, [Georgia] PSC Chairman Stan Wise made a "personal appeal" to Congress to pass the nuclear PTC [production tax credit] and expressed optimism that the Senate Finance Committee has included an $800 million nuclear PTC in a tax credit extender bill…" (Posted in Utility Dive 12-21-17)

    I, too, am comfortable with the elimination of ALL energy subsidies via the tax system so that the market will beat a path to the door of the cleanest and most cost effective technology available.  Training, certification, and installation quality of heat pump systems are separate issues that will remain, tax credits or not.

    Bill Martin

    Martin Energetics
    Quincy CA

  • 12.  RE: Geothermal tax credit was harmful to the industry.

    Posted 12-27-2017 10:23
    I am enjoying the discussion and I appreciate the frankness of views and perspective.  So I'd like to pose a question to the discussion...

    Would the importance of a tax incentive be more or less, or would our overall strategy as an industry change, if we focused less on other renewable competitors and more on other HVAC products and how GHPs could better heat and cool a home?  The HVAC industry as a whole is evolving and changing, and there are a myriad of products available for various applications.  In other ways there are fewer options available each year due to increasing efficiency minimums.  How does geothermal technology fit into the changing HVAC equipment market, and are there opportunities we are missing due to the singular focus on tax incentives?  (After all we are a heat pump; so for most we are another HVAC product option) 

    I recently had a national builder ask me "what the industry was doing with Freddie and Fannie in regards to ZE home loans?"  I wasn't sure his point so he explained that "a home buyer has a true advantage by purchasing a zero energy home so shouldn't lenders consider this monthly savings when determining how much the home buyer should qualify for versus an ordinary home?"   So maybe we should be partnering with the solar industry to lobby for changes that benefit new home construction trends that would also increase GHP use with RNC.  This incentive could last for decades, if not longer, to drive widespread GHP sales and not disappear in a few years when the program ends or municipal funds run low....

    Just a thought...

    *(These are my own personal comments and may not be reflective of those of my employer.)

    Eric Senio

    Carrier Corporation
    Mount Airy MD