North American Geothermal

Carolinas’ different approaches on geothermal could provide lessons for Virginia

When Congress and then-President Obama extended federal tax credits for solar and wind energy beyond 2016, among the energy technologies left behind were geothermal ground-source heat pumps.

Following this decision, North and South Carolina took very different approaches. While North Carolina scrapped its state tax credit entirely, South Carolina established its own tax credit for geothermal in response to the loss of federal support.

Advocates in Virginia, meanwhile, are also pursuing a geothermal tax credit and are trying to learn more about how the Carolina markets reacted.

Equipment manufacturers and installers in South Carolina succeeded in persuading lawmakers to add a geothermal tax credit to its array of distributed energy credits – including solar which spawned one of the fastest growing state markets in the country. Advocates there say they are beginning to see that credit do the same thing for geothermal.

In addition to the now-expired 30% federal credit, North Carolinians also enjoyed a 35% state credit, albeit only through 2015. Conservative lawmakers there defeated all state renewable credits, including for geothermal, in 2016.

Geothermal installers in Virginia have begun educating key lawmakers and forging alliances with electric cooperatives whose members want geothermal systems. The advocates hope to pass a bill not this year, but in 2018.

“That’s how [legislation is] done in Virginia. It can be a three-year process,” said Richard Lay, executive director of the Virginia Geothermal Heat Pump Association. “First lawmakers need to understand the technology; they need to grasp how it can save money for their constituents; and then what it means for jobs and the economy in the Commonwealth.”

The benefit of tax credits

A ground source heat pump does what its name implies, taking advantage of relatively constant temperatures underground for heating in the winter and air-conditioning in the summer. A properly designed system for a roughly 3,000-square-foot, home ranges in cost between $25,000 and $30,000. For that, total heating and cooling costs are projected to run between $600-$700 per year.

Because of the high up-front cost, any type of incentive can significantly boost the industry’s prospects.

Lay and the industry’s lobbyists in Richmond are making some progress with companion bills in the Senate and House. The bills propose a geothermal heat pump state tax credit for qualifying purchases by homes and businesses.

The Virginia, advocates are patterning their proposal after a similar one that prevailed in South Carolina with the help of then-Gov. Nikki Haley, a Republican.

Effective last year, what began as House bill 3874 now offers South Carolina residents a 25% tax credit of the costs incurred in purchasing and installing a geothermal energy systems. Taxpayers can claim a maximum of $3,500 or 50% of their income tax liability each year, whichever is less. Credits that exceed the maximum can be carried forward for up to 10 years.

South Carolina’s geothermal tax credit has a potential gross value of $38,500 and is not scheduled to sunset.

The Virginia Senate bill’s lead sponsor is the influential Frank Wagner, R-Virginia Beach, who chairs the Commerce & Labor Committee. In the House, the lead sponsor is Del. Tim Hugo, a Republican who represents parts of Northern Virginia. Their bills have been referred to a joint legislative committee where the economic impacts of the bills are to be studied.

In a year where Virginia faces about a $1 billion budget deficit, the prospects for both bills is bleak. But it’s a start, says Lay.

To extol the benefits of South Carolina’s tax credit, Lay said geothermal installations there jumped 42% in 2016 with the state and federal credits in place versus 2015. By contrast, Lay said, when North Carolina scrapped its 35% tax credit, installations dropped 51% in 2016 compared to 2015 due largely to the expiration of the state credit because the federal credit remained in place through 2016.

Before and after

One of the last North Carolina residents to secure its state credit, along with the federal credit, is Brad Brinegar, an advertising executive in Durham. “If it weren’t for the tax credits, we would not have done it,” he said.

“Like a lot of things in North Carolina right now, phasing out something with real benefits for the future of the state was yet another regressive move on the part of our state assembly,” he added.

A census conducted in 2015 of clean energy companies in North Carolina when both the state and tax credits were in place found companies that do geothermal work generated $143 million in revenue that year.

While the before-and-after sales data from both Carolinas helps, Lay said the most effective means of educating key Virginia lawmakers is to host visits to existing geothermal systems in their districts with the system owners chiming in with their endorsements and their cost savings.

“The team that got the South Carolina 25% credit through to law are convinced that this is what put them over the top,” Lay said. “When the legislators get to see a system in action, meet a happy constituent and meet the team that put it all together, they see the jobs that we’re losing out on,” Lay said.

A conservative estimate of the jobs that stand to be created within two years points to about 1,000 new full-time positions, Lay said.

“These are good-paying jobs with annual salaries of $40,000 and above,” Lay said. “We are talking about skilled jobs like plumbers, borers, well drillers and loop installers.”

One study states the labor-intensity of geothermal system installations boosts job creation by about 50 percent over the replacement of conventional heating and cooling systems. From an audit of 100 of his own installations, Lay said he’s needed as many as 15 workers per installation, three times the number that typically handle conventional heating and cooling system upgrades.

The bills in Virginia dictate an aggregate cap of a $10 million impact on the state budget. But Lay is telling lawmakers “we are confident that the jobs you save and the new jobs you will create with the associated state and local tax revenue will more than offset” that cap.

Mike Maher, a sales manager for Leesburg, Virginia-based REHAU, which makes pipes used for geothermal heat pumps, said, “We’re definitely behind the eight-ball compared to states in our region.” In addition to the Carolinas, Maryland and Pennsylvania are racing ahead in deployments of geothermal systems, he said.

There are several rural electric cooperatives in Virginia whose leaders are expressing interest in geothermal systems.

“This is important to us,” said Andrew Vehorn, director of government affairs for the Virginia-Maryland-Delaware Association of Electric Cooperatives. “We’re not-for-profit so if we can save our customers money and use less electricity, that’s ultimately our goal.”

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