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Geothermal-exchange energy - a price worth paying

Whether facing the looming cost of carbon taxes or being vulnerable to the ravages of climate change, carbon reduction remains critically important to many of our communities (business and social). But the economic weakness caused by the coronavirus pandemic is adding a further complication to the thorny problem of how much to pay for effective remediation.

 

NEW (YORK) INCENTIVES:

Today, consumers have several options for addressing their energy needs using low-carbon solutions and, in New York, a new incentive program from NYSERDA (The Community Thermal Energy Program – scheduled to be launched in November 2020) has been announced that will provide encouragement for consideration of a geothermal-based approach, a highly efficient but more costly solution.

 

Solar and wind power have been around for years and improvements in technology and efficiency have contributed to their prices dropping to levels that almost eliminate the need for incentives. But they have their limitations: without expensive storage capacity, neither solution can fulfill their purpose when the sun isn’t shining, or the wind isn’t blowing. And while they can produce prodigious amounts of electricity, their ability to provide thermal energy is limited to solar, usually requiring storage capacity as well.

 

THERMAL ENERGY – COURTESY OF GEOTHERMAL TECHNOLOGY:

For much of the country, the issue of thermal energy – for heating and cooling – is becoming more relevant and the search for a clean supply therefore more urgent. This brings the ground source heat pumps (GHSP)/geo-exchange system solution into sharper focus.

 

Simply put, the thermal energy supplied by a well-designed geo-exchange system is effectively inexhaustible. When there is a difference between the ground temperature and the temperature of the air above it, thermal energy can be created, to cool your environment in summer and heat it in winter. See https://www.gienergyus.com/technology-geothermal for details. It is not dependent on the whims of the weather.

 

The expense of designing and installing these systems can be relatively high: in addition to the loops of plastic piping in which the heat transfer fluid circulates (normally installed underground in a bore-field or building foundations, or in water), the system requires a heat pump to take the heat to/from the transfer fluid, and a distribution system to move the energy to and from the building via warmed or cooled air or water. The high cost is often cited as the primary reason why a GHSP system will be passed over but when we consider the dramatic reduction in carbon footprint that a geo system offers compared to a conventional, fossil-fuel fired system, it prompts us to examine the methodology used by customers to evaluate the financial viability of such a solution and challenge standard assumptions.

 

RISK, REWARD, AND RoI

Much attention is focused, appropriately, on the concept of Return on Investment (ROI). Conventionally, an ROI is calculated to reflect the yield a consumer will receive from investing its capital in a new energy system, so it can be compared with other investment opportunities and offer a yield that satisfies the lenders appetite for risk:

 

Capital outlay / savings in operating costs = % return

 

This can also be calculated as a payback period: the number of years it will take you to “recoup” your investment. The return on many solar PV systems, for example is very fast and has created a tough benchmark to beat.

 

However, is the comparison fair? What should a customer be considering when contemplating an upgrade to a low- or zero-carbon energy system? As well as capital costs, we should calculate: the output of energy per unit of investment over the life of the equipment; efficiency; reliability and resiliency; replacement cycle time; and operations and maintenance costs.

 

Solar and geothermal compare well to a natural gas-fired system, and especially when considering the looming burden of carbon taxes (Local Law 97 in New York for example will tax $268/ton over the set threshold), these “clean” systems become hard to differentiate. But when we look at the overall lifecycle of a geothermal system, it becomes much more attractive.

 

Solar PV equipment might have a useful life of 20-25 years if maintained well and the mechanical components of a geothermal system are comparable. However, the critical feature of a geo-exchange system is the bore-field, the network of vertical or horizontal pipes, installed in the ground or in water that provide access to the differential in temperature that drives its performance. This is where the higher cost of a geo system lies – an average system’s cost might break down at 35% mechanical and 65% “field” work. The life cycle of such an underground system (which has no moving parts and is not exposed to the elements) can be 75+ years. A solar panel meanwhile might expect to be decommissioned after 20 years and during that time will have seen efficiency diminish by as much as 20%.

 

If that is the case, why would a customer (and the investor funding the project) allot the same level of risk and, therefore, investment return expectations, to such different components? Simply put, the calculation or assessment of “risk” requires the investor to charge a rate of return that reflects the uncertainties inherent in the investment. They may include the risk of the equipment breaking down; the customer failing to stay in business; the system being vulnerable to weather and other exogenous shocks. The more predictable the outcomes, the lower a rate of return the investor will require. So, it is reasonable to assume that a longer system lifecycle with a reduced potential for failure will lead to a lower expected ROI from an investor. Geothermal systems meet that test.

 

The marketplace is realizing that the concentration of effort to provide clean electricity has left a gap where thermal is concerned. In addition, the simple connection between heat and climate change reminds us that the burden of finding clean thermal energy is no less urgent than the case for green electricity supply.

 

Geothermal-exchange energy more than fills that gap. We are standing on the world’s largest energy store – an inexhaustible supply of energy, available almost everywhere but out of sight, that does not need to be burnt and emits no noxious gases.

 

A change in attitude about investment returns and equipment life cycles may herald a greater acceptance of geothermal systems as the answer to our energy needs and carbon footprint concerns. For now, the NYSERDA Community Thermal Program, as a major financial incentive to this technology offers major support to those institutions seriously wanting to address the next exciting stage in true GHG remediation.

 

Please check out the NYSERDA website for program details, which when announced will be at https://www.nyserda.ny.gov/All-Programs or for technology information and project examples visit us at www.gienergyus.com.

Questions or comments? Please reach out to Cameron Best at cbest@gienergyus.com


Key Words:

Carbon footprints; geo-exchange; geothermal; GSHP; community thermal energy program; solar; wind; energy storage; return on investment; system lifecycles; carbon; bore-fields; investment risk; NYSERDA