Geothermal: Tax Breaks and the Google Startup Bringing Earth’s Heat into Homes

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During one bitter cold winter in upstate New York, Matt VanDerlofske spent $4,000 on fuel oil to heat his drafty, two-story home for the season. That was twice what he typically paid, and he had to cancel family vacations to afford it.

“I never wanted it to happen again,” he said. His solution was an unusual choice for a homeowner in the U.S., but one that’s gaining interest: He had a hole drilled hundreds of feet into his backyard and a geothermal heat pump installed by Dandelion, a startup energy company conceived at X, Google’s innovation lab that’s now part of its parent company, Alphabet.

Underground, below the frost line, the Earth is consistently around 50 to 60 degrees Fahrenheit. Geothermal heat pumps use that temperature to keep buildings comfortable by circulating fluid through a set of pipes that runs through the earth and then connects with a heat pump. The result is much more efficient heating and cooling with clean energy than commercial air conditioning and heating systems—and much lower emissions.

Right now, a tiny percentage of U.S. homes use geothermal heat pumps, according to Xiaobing Liu, a geothermal researcher at Oak Ridge National Laboratory; about 500,000 buildings in the commercial sector use the technology.

Dandelion is trying to expand that market for geothermal heating by lowering the price, and it just got a big boost from the federal government.

On Friday, Congress voted to extend a 30 percent federal tax credit for geothermal heat pump installations. With state incentives included—a $26,000 system in New York would qualify for a $6,000 state rebate—the federal tax credit would drop the cost enough to make it more competitive with traditional heating and cooling.

Like solar power, geothermal heating cuts monthly energy costs and greenhouse gas emissions, particularly for homeowners who would otherwise rely on expensive, high-emissions fuel oil. “This is more energy efficient than any other HVAC heating and cooling technology,” with about 20 to 40 percent of energy savings compared to regular heating and cooling systems, Liu said.

“In the past, it’s been an inaccessible technology for normal homeowners,” said Kathy Hannun, a civil engineer and chief executive officer of Dandelion. “It was very expensive, the process is hard to navigate, there’s not a lot of data around system performance, and traditionally the industry has suffered from quality issues.”

“We’re trying to overcome those obstacles,” she said.

Home Geothermal: How Does It Work?

Dandelion became an independent company last summer and installed its first 20 home geothermal systems in New York in 2017. It’s running pilot projects in the state as it builds a marketplace and experiments with both backyard geothermal and systems that can serve entire communities.

At VanDerlofske’s home, installers drilled a hole 500 feet underground, then inserted a pipe called a “ground loop” that loops back up and stretches 10 feet across the yard in a shallow trench to his basement, where it hooks up to a heat pump the size of a washing machine. (Other homes have horizontal loops built in long trenches that are shallower but still buried several feet below the frost line.)

Water mixed with an antifreeze solution is pumped through the pipes, where it adjusts to the Earth’s temperature, as Dandelion explains. In the winter, that solution comes into the house at the warm, below-ground temperature. Then coils inside are heated further, using electricity, warming the air, which is pumped through ductwork as central heat. In the summer, the system transfers heat from the home back into the earth.

“It’s a lot simpler than the old system,” said VanDerlofske, whose basement had housed an old 250 gallon oil tank.  His house now stays a comfortable 69 degrees through the winter, but the heat is drier than he expected, he said.

Even with the need for electricity to run the system, VanDerlofske is paying less than half of what he paid to heat his home with oil. In November, he spent $114 on electricity compared to $240 on oil a year earlier; in December he paid $182, compared to $480 the prior year.

The Northeast and the Midwest currently have the higher rates of geothermal adoption. Government buildings in Michigan and schools in Illinois are using geothermal heating systems. Jasper County, Missouri, cut its natural gas budget from $5,400 to $800 after geothermal heating was added to the county courthouse. On the West Coast, where drilling regulations are stricter, it’s less common.

European countries have been using geothermal to heat residential and commercial buildings for decades. In Sweden, 20 percent of buildings use geothermal heat pumps. China also has a goal to replace 70 million tons of coal with geothermal heating by 2020.

The No. 1 Barrier to Adoption

Like other renewable sources as they were first being developed, the cost of geothermal has been prohibitive—which is why Dandelion is playing an important role in the U.S., said Ryan Dougherty, chief operating officer for the industry group Geothermal Exchange Organization.

“They are aggressively attacking the number one barrier to broader adoption,” he said.

Dandelion recently announced plans for a community-wide geothermal project that could further lower costs for homeowners. It would power homes and buildings in Rhinebeck, New York, with the geothermal loop running several feed below the earth’s surface beside the main road, where homeowners could connect to it, avoiding some of the drilling expense.

The tax credit extensions for residential and commercial geothermal heat pump installations should also help. Congress voted to make the credits, which lapsed last year, retroactive to the start of 2017; the credit allows homeowners to get back 30 percent of the cost if the system was installed between 2017 and 2020, then 26 percent in 2021, and 22 percent through 2022.

“This credit reinstatement gives the geothermal heat pump industry a shot in the arm and much needed parity with other renewables,” said Dougherty, whose Geothermal Exchange Organization has been intensely lobbying Congress since the temporary credits expired. “It makes geothermal that much more competitive with conventional HVAC technology.”

As more geothermal system manufacturers enter the market and more homeowners and businesses use it, the costs are expected to decline.

Geothermal has also led some homeowners to add other renewable energy sources to take the power bills down even lower. Next year, VanDerlofske plans to install new rooftop solar panels, which will shave even more money off his electricity bills.

“I’m really excited about what that will bring,” he said.