GEOTHERMAL SYSTEMS INSTALLED IN MAINE

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1 GEOTHERMAL SYSTEMS INSTALLED IN MAINE Executive Summary FACTS RELATIVE TO GEOTHERMAL SYSTEMS IN MAINE: 1) Geothermal heat pumps provide a true & tried cost-effective heating solution, which has been used in Maine for both residential and commercial applications since the 1970's. 2) Geothermal systems are cost-effective for residences of all sizes, NOT just for high end homes. There are now probably more than 500 residential geothermal homes in Maine. 3) With electricity at $0.15 per kwhr, geothermal heat pumps provide heat at the equivalent cost of oil at $0.93 per gallon or propane at $0.67 per gallon. 4) When oil prices rose above $4.00 per gallon in 2008, the demand for residential geothermal retrofits in Maine rose by some 400%, showing oil costs to be a prime motivator of behavior. 5) As in the past, however, the drop in the cost of oil in 2009 caused people to revert to their previous comfort level of dependence on foreign oil. This same pattern occurred in the 70 s, the 80 s, and the 90 s, but with the correct incentives this time round geothermal installations can be sustained. 6) The federal 30% tax rebate has been a good incentive for new construction residences in Maine. It has had less impact on retrofit activity. 7) Low income people need additional support to save heating costs with geothermal retrofits. The new PACE initiative from the Maine Home Performance Fund may provide an added incentive. 8) Financing geothermal installation and retrofits provides POSITIVE CASH FLOW FROM DAY ONE, compared to fossil fuel heating. NEVER PAY for geothermal installations with an up-front lump sum payment. This is a very important concept to understand, particularly for low income housing. 9) With the relatively "clean" electricity in Maine, geothermal heating produces (at the generating station) less than 1/5th. of the CO2 produced by oil heat. Hence geothermal heat is very "green"! 10) With 80% of heating in Maine being provided by oil, the geothermal retrofit market provides a huge potential to reduce Maine's dependence on foreign oil. Providing publicity on the costeffectiveness of geothermal retrofits, and incentives to retrofit should be an important focus for the Maine Legislature to substantially reduce Maine s dependence on foreign oil. John Logan, B.Sc., Ph.D. Regional Director, Maine, Water Energy Distributors, Inc., 15 Wawenock Road, Raymond, Maine 04071

2 GEOTHERMAL SYSTEMS INSTALLED IN MAINE BACKGROUND INFORMATION: Geothermal heat pump installations in Maine date back to the 1970's, at a time when Bangor Hydro was actively supporting the introduction of geothermal technology into the State. Unfortunately, every time the cost of oil dropped back to lower levels, the blip in heat pump installation activity decreased. This happened in the 70's, the 80's, the 90's, and again in the 2000's. This is unfortunate. We could have saved a lot of imported oil in Maine by now if people had the vision to look ahead. One difference this time, however, is that there seems to be no blip. This could be the beginning of an exponential growth in geothermal system installations. RECENT HISTORY WITH GEOTHERMAL SYSTEM INSTALLATIONS: In the case of the company which I represent in Maine, "Water Energy Distributors, Inc". ( the year 2008 saw our residential heat pump sales in Maine increase to about 380% of our 2007 sales level. The driving force in 2008 was the peaking of oil above $4.00 per gallon. In 2009, when the price of oil dropped into the $2.50 range, we saw our Maine sales drop back to 78% of our 2008 sales level. This 2009 number is still better than 2007 sales, and the sustaining power during 2009 was the provision of the federal 30% tax rebate. However the major driving force to modify the heating behavior of residential owners in Maine is clearly driven primarily by the cost of oil. Apparently the desire for environmental improvement or the reduction of the demand for foreign oil is less of a motivator. This pocket-book fact of life is the reason that geothermal system incentives of some sort are essential at this time to keep up the energy saving momentum as the cost of oil fluctuates and confuses people.

3 ECONOMIC CONSIDERATIONS: 1) OPERATING COST COMPARISONS: The "efficiency" of today's heat pumps is such that with electricity at $0.15 per kwhr, the break-even cost for fossil fuels to provide the same quantity of heat at the same cost as geothermal would require oil to cost $0.93 per gallon, or propane to cost $0.67 per gallon. With oil currently at $2.77 per gallon, operating cost to heat with oil is about 3 times the cost for geothermal. With propane at $2.81 per gallon, the operating cost to heat with propane is more than 4 times the cost of geothermal heat. 2) INSTALLATION COST COMPARISONS To compare geothermal installation cost with the installation costs of conventional oil heating systems, the best metric for an equitable comparison of the total geothermal picture is NOT payback period. Rather, by financing the geothermal installation, the relevant metric is homeowner cash flow and the concept of POSITIVE CASH FLOW FROM DAY ONE. Until year 2016, the Stimulus bill now provides a 30% tax rebate for residential geothermal system installations. While each geothermal new construction or retrofit project is unique, it can be shown that an average sized 2,000 sq. ft. Maine home, with the heating system installation included in the mortgage, will have ZERO cash flow difference between an oil fired home and an equivalent geothermal heated home, for oil at a certain cost threshold. For oil costs above that threshold, the cash flow to the homeowner is POSITIVE. The spreadsheet attached to the end of this report shows a typical worked example for two identical homes with 5.5% mortgages, one with oil heat and the other with geothermal heat. The threshold cost of oil for zero cash flow in this case is shown to be oil at $1.47 per gallon. What this means is that, for oil at any cost above $1.47 per gallon, the geothermal homeowner will be paying much less per month to the bank than they would be paying to the oil man, if they had used oil heat. The homeowner will have positive cash flow from day one, in the amounts shown at the right hand column of the spreadsheet.

4 ROLE OF INCENTIVES TO ENCOURAGE FUEL SWITCHING IN MAINE Clearly, from both an installation cost and operating cost perspective, the geothermal homeowner is way ahead compared with oil heat. The same is true for propane heat and, in fact, any other fossil fuel at today s cost points. Equally, geothermal retrofits can be analyzed in the same way. The 30% federal tax rebate for geothermal system installations works well for people who have taxes to rebate. Low income families, by contrast, are unable to avail themselves of this option to reduce their annual heating bill. Therefore, in the interests of fairness, a means has to be found to allow low income families to heat their homes at the equivalent cost of oil at around $0.93 per gallon, instead of the prevailing cost at the time (consider ~ $4 per gallon oil!) The issue to make this work for low income people is that there must be an AVAILABLE SOURCE FOR LOW INTEREST LOANS, with no excessive hurdles in procuring such a loan. The fact of significant red tape has been a problem in the past, I am told, for people trying to get loans from Maine Housing. Apparently, potential borrowers simply gave up in disgust. Opportunities for cutting back on imported fossil fuel were thereby lost. I feel that it is unfair to the lower income families in Maine, that they don t have access to this low cost heating technology which is 1/3 to ¼ the cost of equivalent oil or propane heat. They need support, in some form or other, to access the geothermal lower heating cost option. ENVIRONMENTAL CONSIDERATIONS: Geothermal heating in Maine, in terms of CO2 production (from the electricity used), is 5 times cleaner than the combustion of oil or propane, to provide the same quantities of heat. If one considers the life cycle pollution, to include the processing and distribution for the fossil fuels, geothermal is about 10 times cleaner than the CO2 pollution from delivered oil or propane. Note, however, that people who use "green" electricity in Maine have zero CO2 emitted with a geothermal system, and consequently have zero carbon foot print from their geothermal heating

5 VISION FOR THE FUTURE OF HEATING IN MAINE: Dr Habib Dagher, former Governor King, and others envision a long term future for Maine where wind energy will be a dominant source for electricity in the State. This view would synergize beautifully with geothermal heat pumps for heating (and cooling) as the lowest cost, cleanest, reduced dependence on foreign oil, and security improvement solution that I can think of. It would also retain heating revenue within the State of Maine rather than funding foreign suppliers of oil. Now is the time to start planning to make this vision become a reality in Maine. IN CONCLUSION: It is my understanding that: * 80% of residences in Maine heat by oil - hence a HUGE potential geothermal retrofit market - and an opportunity to reduce use of foreign oil in Maine. * 70% of residences are owner occupied - hence a substantial motivation to invest in geothermal retrofits (low interest loans or other incentives would help here!). * 50% of residences in Maine already have their own domestic water well - hence they may already have available ground coupling, and so a substantial part of the system cost is already paid for and in place. There are no technical or financial reasons to prevent the large scale adoption of geothermal heating systems for both residential and commercial buildings in Maine. What is needed is a publicity initiative by the State Leadership to emphasize the desirability of geothermal heating, for all the reasons given in this text. In summary, with geothermal heat pumps, Maine has a huge potential to substantially reduce its dependence on foreign oil, keep the heating cost $$$ in State via the electrical utilities, and reduce the funding of potential terrorists in other parts of the world. Note that this view will actually increase the demand for electricity in the state. It will probably also provide peak electrical loads at night in the cold winter months, a very good feature for level loading the lower demand periods for the electrical utilities.

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