Geothermal Proponents Champion Leasing in New Home Developments

Geothermal Proponents Champion Leasing in New Home Developments

An artist’s rendering of a home with a geothermal heat pump and loop (image courtesy Geothermal Exchange Organization).

Geothermal heat pumps are efficient and last 100 years or more, but homebuilders are hesitant to install the systems for a number of reasons. That is changing, however, as large-scale housing developments across the country and major retailers begin large geothermal projects.

Upfront costs is one of the main issues that trade groups including the Geothermal Exchange Organization (GEO), the national trade organization for the industry, are working to overcome. GEO says there is money to be made if homebuilders and developers construct heat exchanger loops and lease their use to homeowners. It’s one-time revenue from the home sale and recurring monthly revenue from the lease. 

The group has recently seen success as builders in two large residential developments in Texas and Washington state are preparing to install geothermal heat pumps in more than 7,500 homes and 1,000 multi-family units respectively. Home furnishing giant IKEA is installing geothermal heating in its newest store in Kansas City, while Walgreen’s pharmacy is installing GHP in its new store in Chicago.


Leasing and Community Geothermal

GEO is hoping that news like that gets geothermal some much needed traction.

GEO loops graphic

Douglas Dougherty, president and CEO of GEO, says the developer of the Austin, Texas, subdivision will lease the use of the heat exchanger loop to homeowners. Each home in the development, plus 2 million square feet of commercial space, will be tied into a central loop that runs through the subdivision. Fifty percent of the energy needed for each home’s heating, cooling and hot water production will come off the central district loop, the other 50 percent will come from 500-foot deep loops installed on each lot. Through the leases, the developer will continue earning money off the development for decades to come, Dougherty says. 

There are three national homebuilders involved in the project, although Dougherty says he’s on non-disclosure and not at liberty to announce their names. However, he says with each loop estimated to last 100 years, the economy of scale and rising energy prices make these large-scale projects ideal ways to make homebuilders take notice.

“I can say that these three homebuilders have not been big proponents of heat pumps, but we think this project will turn their heads,” he says.

The Washington subdivision is being developed as SouthCliffe in Kennewick, Wash. Last year the project was touted as the largest geothermal development in the United States. The Austin development will be even larger. 

ClimateMaster is manufacturing the heat pumps for the Washington development but missed out on the Texas one, according to Titian Burris, Residential Market Development Manager. 

Burris says that going after production builders is difficult because their margins are often tight, in these two cases, unless the real estate developer is willing to pay for the installation and getting the recurring monthly revenue from the leases.

While geothermal heat pumps comprise only about 2 percent of the residential HVAC market, Dougherty says he believes the industry has turned a corner.


Making a Margin on Upfront Costs

GEO installation of geothermal contributes to making a margin on upfront costs.

The number one barrier for the industry is the upfront cost. In a new home, where the system’s cost is rolled into a mortgage, he calls the system a “positive cash flow,” for homebuilders and homeowners.

“If I’m building a $200,000 home and I can add geothermal for under $10,000 and sell the house for $210,000, I’ll make a margin on that $210,000.”

Marketing the system as a “positive cash flow” to new homebuyers, means more disposable income for homeowners. Dougherty says that’s particularly important for low-income families, but just as important for middle class families.

When the cost of the heat pump and loop is rolled into a 30-year mortgage, the savings on the monthly energy bill are more than the additional cost on the monthly mortgage payment, according to data collected by GEO from manufacturer software.

“There are lots of variables that go into it. [The] price of natural gas, price of electricity, ratings of the equipment, et cetera.” Dougherty offered an example: “Let's say that you add $10,000 to the cost of the home, the increase in a 30-year fixed mortgage at 4 percent is $48 per month or $576 per year. There would be little likelihood that a GSP wouldn't provide $576 of energy savings.”

While costs are high now, Dougherty says that with larger installations in the slow-growing field, the cost could significantly drop.

“We don’t have the economies of scale right now,” Dougherty says. “Our machines could be manufactured more cheaply if we made more of them, and drilling would cost less if they could stay in one area to drill more boreholes.”

Now, rig owners move their equipment across county, or even state lines for business, drilling one small project at a time. Larger projects mean more boreholes (they are never called wells, according to Dougherty), and the ability to make money while remaining on one work site. 

GEO home with loop system graphic

About The Author

Casey Meserve is a TecHome Builder Staff Writer, creating investigative and timely articles for its eMagazine and Special Reports. She graduated from Bridgewater State University with a master’s degree in English in 2011. She began her writing career in 2005 as a reporter for Community Newspaper Company and later GateHouse Media. From 2010 to 2013, she worked as an editor at AOL Patch.

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