Between the onset of the pandemic, supply chain delays, and situations of unrest overseas, a crucial resource has been compromised: foreign energy. One of the answers to this problem is electrification, and with new legislation on rebates, tax credits, and other incentives, HVAC contractors have been given the opportunity to push alternative methods of energy production, like heat pumps, to their customers.

Since President Joe Biden invoked the Defense Production Act back in June 2022, HVAC-related energy efficiency incentives, such as those outlined in the federal Inflation Reduction Act (IRA), have made their way into the spotlight.

In November, a few months after the announcement of the DPA order, the U.S. Department of Energy (DOE) and the Office of Manufacturing and Energy Supply Chains (MESC) jointly issued a Notice of Intent and Request for Information in support of the domestic manufacturing of electric heat pumps. In the document, DOE stated that it is “seeking opportunities to maximize the use of the resources provided by the IRA to strengthen the supply chain for electric heat pumps needed to meet anticipated growing demand.”

Many of those who work in the geothermal industry, such as Ryan Dougherty, president of Geothermal Exchange Organization, noted that they had been “waiting for this day” for decades.

“It never got the recognition that they felt it deserved,” he said, pointing out the efficiencies that can be achieved using geothermal heat pump technology, “and so what's happening now is a multifaceted range of factors that are all aligning to push geothermal to the forefront.”

He noted that these factors, ranging from climate change to electrification and even IAQ concerns, have all caused a swift increase in the demand for geothermal heat pumps. Improving the quality of air within indoor spaces has been the goal of many during the pandemic; geothermal systems operate without indoor combustion, ruling out the potential for carbon monoxide.

Although geothermal is gaining popularity across the industry, Dougherty said there has been an “explosion” on the commercial side. He added that he has seen a lot of commercial entities looking to make themselves more efficient so they can do their part to help combat climate change and meet ESG (environmental, social, governance) goals.

Accelerated Payback

According to Dougherty, the introduction of the IRA has “turbocharged” the industry because now even nonprofit and tax-exempt commercial organizations can get significant incentives from the federal government in the form of credits and deductions.

“It makes so much financial sense. The paybacks are very, very accelerated,” he noted. “We're also going to see a big jump in residential adoption and I think a big driver of that is going to be new construction.”

Given the current climate goals, Dougherty predicted that most new construction would be “off of natural gas” within the next two decades, which leaves geothermal as a favorable alternative.

Even though traditional geothermal is often water-source, Bill Buschur, president of Total Green Manufacturing, suggested the industry start investing more in direct-exchange. He explained that while water-source is beneficial in commercial applications, direct-exchange can be a more affordable option on the residential side because less loop needs to be installed into the ground.

“[With] a product that has copper buried in the ground … we can start a ground loop and there's less drilling costs, there's less grout, and less overall cost of getting that loop built in the ground,” said Buschur.

He added that with the IRA, geothermal has been introduced to commercial applications that have never considered using the technology before. Suddenly, commercial facilities are going to be saving somewhere between 30-40% of initial installation costs and will be able to write it off as an expense, said Buschur.

The IRA might not be enough motivation for some, but he noted that between state incentives, federal incentives, rebates, and tax credits, it’s a “no-brainer” that these offerings will definitely make an impact on the industry.

Looking to the Future

As the industry slowly shifts toward electrification and decarbonization, Buschur said it’s critical for the Biden administration to realize that fossil fuels might never be completely replaced by other sources.

“Our infrastructure is still reliant on fossil fuels, and whether we like it or not, so is the supply chain. If there's not fuel for our truckers, it's going to affect the supply chain and we're all going to start to see the impact of that,” he noted.

But the industry can still turn to electrification, when possible, to reduce long-term costs and promote sustainability. John Thomas, CEO of WaterFurnace, said that by using electricity to move heat from an area that’s not critical to an area that needs it, heat pumps can provide a low marginal cost to users.

“Independent of weather conditions, the temperature within the earth only fluctuates about 10-20% from winter to summer. Ground-source heat pumps utilize this stable temperature energy source to pull heat from the ground into buildings, and in the summertime, we're pushing heat into the ground to cool the building,” he explained.

Although it can be a sustainable and reliable option in the long run, one of the reasons why customers might be hesitant to invest in geothermal is the initial installation cost. Thomas said he believes the IRA will go a long way in terms of offsetting the upfront costs of ground-source heat exchange, which should motivate more home and building owners to make the switch.

Another challenge, however, is finding qualified contractors to install these technologies. Thomas said that given the labor shortage, skilled workers have been harder to come by. He added that contractors are a key element in the development and installation of geothermal systems.

“I'm estimating personally that our contractors, when you add in the ground source heat exchange portion of the installation, contribute 50-75% of value on all projects with high-skilled local jobs across the country,” he explained.

Thomas said given the industry’s struggle with recruiting workers, he hopes future additions to the DPA would support skilled trade workforce development. He noted that this would not only help contractors meet market demand, but would also foster growth in this renewable energy source going forward.