Vermont digs in on incentives to boost geothermal heat pumps

By David Thill, Energy News Network

Vermont this summer launched an initiative to spur a challenging but potentially crucial market in the state’s decarbonization goals: ground-source heat pumps.

But even with generous new incentives for homeowners, installation is expensive — running upward of $25,000 to $40,000 — and the market is small. Supporters say that while ground-source (also known as geothermal) technology could help New England states achieve their electrification goals, it will take some time to ramp up.

Vermont has focused largely on air-source heat pumps until now. Air-source and mini-split heat pumps, which also use outside air as their source, are typically used as a supplement to a house’s central heating system. While they can substantially decrease a home’s fossil fuel use, it generally won’t drop to zero. That’s why whole-home solutions like ground-source heat pumps will be important to cut greenhouse gas emissions.

“I’ve seen this as a process of development in terms of what Vermonters, both contractors and customers, have been ready for,” said Jake Marin, HVAC program manager at Efficiency Vermont.

Ground-source heat pumps use electricity to transfer heat from underground into the home. Air-source heat pumps move heat from outside air into the home. Both systems can be used in reverse to cool the home in warm weather. Because underground temperatures fluctuate less than outside air temperatures and remain relatively mild year-round, ground-source heat pumps tend to use less electricity than air-source, meaning they can work more efficiently and offer lower operating costs than air-source. They could be especially promising in Vermont, since they don’t have to work as hard as air-source heat pumps do in cold weather.

“In some ways, we’ve graduated to this” from the more common air-source heat pumps, Marin said. He described ground-source heat pumps as a “premium system” — “somewhat complex, but they do provide the most benefits for customers.” Given the state’s increased focus on building electrification, he said, officials at Efficiency Vermont wanted to help spur supply chains and increase uptake.

The new incentives in Vermont, offered by the state’s distribution utilities and Efficiency Vermont, give customers up to $2,100 per ton of heating capacity toward a new geothermal system, depending on where they live. Efficiency Vermont operates the statewide rebate program with participating utilities and provides $300 per ton toward projects. According to Green Mountain Power, the state’s biggest utility and one of the participants, a typical home uses a 4-ton system. A 26% federal tax credit can also help lower the cost.

Benefits won’t come cheap

Ground-source heating isn’t a new technology, and by this point it’s well-developed, Marin said. But the market is still very small compared to air-source heat pumps. The new incentives for ground-source are higher than they are for other heat pump technologies in part because higher demand for those other systems has decreased the need for rebates.

New York has a relatively mature market compared to its northeast neighbors and is often held up as an example in the region. “They’re moving, I think, wisely and also aggressively away from natural gas, and that’s helped to create an environment where geothermal makes a lot of sense,” said Michael Sachse, CEO of Dandelion Energy, a ground-source heat pump developer. Sachse said utility rebates seem to be key to opening up new markets.

Dandelion was founded in New York and also operates in Connecticut. The company this spring expanded into southern Vermont through a pilot program with Green Mountain Power and Efficiency Vermont before the statewide program launched in July. Officials at Dandelion plan to expand to the rest of the state as they find more installation contractors to partner with, and they also plan to expand to Massachusetts in the near future.

Marin estimated that until now, he’s seen perhaps 10 or 20 geothermal heat pumps installed in residential Vermont buildings each year — “a teeny tiny fraction” of the state’s housing stock, he said, but also similar to uptake of mini-split heat pumps before they took off. He said he’s received multiple calls each day from interested potential customers since the new incentives were launched. That includes residential and business customers, who can also get rebates through the new program, though at a more modest amount for bigger systems. These phone calls won’t necessarily translate into projects, but interest seems high, Marin said.

The Massachusetts Clean Energy Center, a quasi-public agency that runs incentive programs for clean energy technology, ran a ground-source heat pump incentive program from late 2014 through 2020. During that time, the program provided rebates of up to $10,000 per home for 537 projects, according to a spokesperson for the organization. The organization has also run programs for air-source heat pumps, with more than 20,000 projects completed over a similar time period.

Ground-source heat pumps typically require more work on a home than air-source. With other heat pumps, customers only have to worry about the installation of the heat pump itself and any necessary improvements to the house’s duct system. But ground-source requires installation of an underground loop, which adds cost and usually requires a separate contractor.

Estimates vary, but Marin estimated the full cost of an air-source heat pump, before incentives, could range from $4,000 for a ductless mini-split heat pump to about $10,000 for a centrally ducted one. Ground-source heat pumps could start at about $25,000, although it’s not a direct comparison since air-source systems are usually supplementary and ground-source meet all the house’s needs. Sachse said a typical ground-source installation for Dandelion might cost about $40,000.

The federal tax credit, which isn’t available for other kinds of heat pumps, could take about a quarter off that cost. State incentives could bring the cost down further, to about $20,000, at which point, Sachse said, it’s a matter of weighing fuel costs and the age of the homeowner’s current heating system. If they’re close to needing to replace their current fossil fuel system, it could be worth it to invest in a ground-source system knowing the upfront cost, in the long run, will be made up for by cutting their fuel costs.

And since heat pumps can also be used for cooling, homeowners don’t have to worry about installing a separate cooling system.

It’s ‘going to fit in somewhere’

But even after the high cost is addressed, other challenges remain with ground-source. The work can be far more disruptive for a homeowner who has to install an underground loop. And a project like this requires careful planning, so it’s not something a person is likely going to be able to do if their furnace unexpectedly breaks down in the middle of winter. This type of project is more common with new construction or substantial renovation on existing construction.

Beyond that, a lot of customers simply aren’t aware that ground-source heat pumps are an option. The Massachusetts Clean Energy Center has an outreach campaign, called Clean Energy Lives Here, that aims to educate consumers about available technology and help them secure incentives and installers. The goal is to reach customers when they’re planning a new project, rather than when they’re reacting to a problem in their home.

But industry experts said these types of barriers — high cost and a lack of awareness and contractor availability — are problems with any emerging industry. As the market grows and the technology presumably becomes more popular, the cost will likely drop and access will likely increase, as they have with other clean energy technologies.

Plus, New England states in recent years have begun pushing more aggressively toward decarbonization. Massachusetts law requires the state to reach net-zero carbon emissions by 2050. Vermont last year also put its emissions goals into law. Maine’s climate plan calls for 115,000 homes in the state to use whole-home heat pumps by 2030. These initiatives will require options like ground-source heat pumps.

Marin, in Vermont, pointed out that for many customers in the state, financial incentives went from virtually nothing to thousands of dollars between June and July. He hopes this program will help more moderate-income customers access ground-source heat pumps.

At this point, he couldn’t say what kind of role ground-source heat pumps will play in Vermont’s electrification future. Electrification will require “an all-of-the-above strategy,” he said — ground-source, air-source, mini-split and other developing technology.

Ground-source “is going to fit in somewhere, wherever it fits in well,” he said. “From Efficiency Vermont’s perspective, I think there’s a lot more opportunity than what we’ve realized thus far.”

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