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Ground Source Heat Pumps

Economics

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Installation Costs

A GSHP will cost more to install than traditional heating and cooling appliances, such as a boiler, furnace, or air conditioner. The cost of the installation will also depend on the size of the system, as larger systems often require a more expensive appliance and a larger ground loop. As described in step 7, GSHPs are typically sized by the ton, where 1 ton is equivalent to 12,000 BTUs of heating/cooling per hour. Larger heat pumps that need to provide more space conditioning will have a higher number of tons.

The heat pump unit itself costs roughly $2,500 per ton, depending on the manufacturer and model. This price is an investment for the pump alone and does
not include the cost of installation or the ground loop. The ground loop can run from $10,000 to $30,000 depending on the type of ground loop and other site requirements. Thus, a 3-ton vertical well system could cost from $17,500 to $37,500 for the unit and ground loop. This rough estimate does not include the heat delivery system to the building. For retrofits, the delivery system will already be in place, and the price should be adjusted appropriately.

Financial Incentives

There are several incentives to help businesses, agricultural producers, and homeowners install a GSHP. The federal government offers a renewable energy tax credit of 30 percent (for residential) and 10 percent (for commercial) for the installation and equipment costs (currently in place until December 31, 2016). Some states also offer incentives. To see if your state offers incentives, visit the online Database of State Incentives for Renewables and Efficiency http://www.dsireusa.org/. Additionally, many electric utilities offer financial incentives to encourage the use of high-efficiency heat pumps.

Energy Economics

To determine if a GSHP will be cost-effective, an understanding of local energy costs, both electricity and heating fuels, is vital. For example, what is the cost per gallon of heating oil? What is your price per delivered gallon of propane? What is the electricity rate per kWh? What about natural gas price per therm? Table 2 aids in tracking this information.

Table 2

In heating mode, a GSHP uses electricity to transfer energy from the ground to a higher temperature for delivery to the interior of a building. Consider the local price of electricity and other fuels over time – are prices expected to rise or stay the same? If the cost of electricity is relatively high compared to the cost of heating oil, natural gas, or propane, a GSHP might not be the most cost-effective option.

Each energy source has a certain amount of heating content per unit that can be measured by a BTU. For instance, heating oil is typically 138,000 BTU/gallon, natural gas is typically 100,000 BTU/therm, and electricity is 3,413 BTU/kWh.

Table 3

Since each source has a different unit of measurement, look at the cost of heat in terms of dollars per 1 million BTUs of useful heat from each fuel. By “useful heat,” we mean the amount of heat delivered to a space – this depends on the heating fuel source and the efficiency of the heating appliance in utilizing the given fuel. Fuels with a higher heating content will mean more heat is delivered to a building. Also, appliances with higher efficiencies will mean more useful heat is delivered. Here are a few equations to help equate a variety of energy sources:
Heating oil
Natural gas
GSHP
Propane
The fixed coefficients (e.g., 7.25, 10.0, 293, and 11.1) are fixed constants that convert the units to BTUs. Simply insert the local price of fuel and the expected efficiency of heating appliances.

Example – Payback Calculation

When thinking about installing a GSHP, consider the simple payback on the installation cost. The simple payback indicates the number of years for the operational savings of the GSHP to equal the additional installation cost compared to the alternative. Other more advanced measures, including return on investment, levelized cost of energy, and net present value, can provide a more accurate evaluation, but the simple payback is easily understood. For example, consider a residential 3-ton heat pump that costs $25,000 for the equipment and ground loop. (This would not include the heat delivery system, but a heat delivery system would cost approximately the same regardless of what heating appliance is chosen). The residential federal tax credit rebates 30 percent of the installed cost of the heat pump. Now let’s compare that to a traditional boiler or furnace. An average boiler/furnace with air conditioner will likely cost about $9,000 installed. Since the homeowner would have to spend at least $9,000 to get a heating/cooling appliance, the value can be subtracted from the additional cost of a GSHP. Thus, the additional cost of the GSHP would be:
Heat Pump Economics Example

After federal rebates and deducting a traditional system, the actual additional cost of the GSHP, over that of getting a traditional system, is $8,500. Comparing the operational cost of four heating sources to a GSHP allows for an informed decision on economic viability. Table 4 displays general energy costs for Montana as and above a typical western U.S. example. The table assumes efficient appliances (such as a GSHP with a COP of 3.5 and a furnace/boiler with an AFUE of 85 percent). These calculations show that a GSHP has the least cost per million BTUs ($9.20); however, this cost is not that much less than natural gas ($11.06). The annual heating cost calculation (middle column in Table 4) addresses the size of a building’s heating load. This estimate assumes a heating load of 53 million BTUs for the year (for an “average” U.S. 2000 ft2 residence). The GSHP can meet the annual heating load at the lowest cost. The
savings is calculated by finding the difference between the operational costs of the GSHP and other fuels (in the third
column).

Table 4

Now, to calculate the payback, examine the operational savings compared to the added installation cost.
Payback to install a GSHP system instead of fuel oil appliance in this example:
Payback to install GSHP instead of natural gas appliance in this example:
Payback to install a GSHP instead of a propane appliance in this example:

In this example, the GSHP pays itself off after seven years when compared with an oil-fired appliance. The return is
enhanced if maintenance costs are considered (which can be about $160 a year for oil appliances). If planning to use
ranch buildings and a residence for that long, a GSHP might be a good option over fuel oil, especially if electricity prices
are predicted to remain stable at $0.115/kWh.

On the other hand, the payback over natural gas is considerably longer – longer than the life of the heating appliance. So in this scenario, a GSHP is not cost-effective to install. There may be other reasons to install a GSHP, such as environmental concerns or the volatility in natural gas prices. Still, the realtively low cost of natural gas makes the GSHP a challenging investment.

Of course, the amount of annual savings depends on several constraints, which are different for each building. Also, the higher the cost of heating fuel alternatives, including natural gas, propane, and heating oil, the more attractive a GSHP will be. To understand yearly operating costs of a GSHP in your area, repeat the calculations and compare the values to other alternative fuels.

Many installers have software that can run comparisons of different heating systems for you, so don’t hesitate to ask questions about the payback period of a GSHP.

Resources

Geiger, M., and Russell, T. (2011). Heating and cooling with renewable energy: An introduction to geothermal heat pumps. University of Wyoming Cooperative Extension Service. Retrieved Nov. 24, 2014, from http://www.wyomingrenewables.org/wp-content/uploads/2013/06/Heating_and_Cooling_with_GHPs.pdf

Rafferty, K. (2001). An information survival kit for the perspective geothermal heat pump owner. Geo-Heat Center, Oregon Institute of Technology. Retrieved Nov. 24, 2014, from http://geoheat.oit.edu/ghp/survival.pdf

Twer, M. (2014). Heating fuel comparison calculator. Montana State University, Extension Forestry. Retrieved Nov. 24, 2014, from http://www.msuextension.org/forestry/WB2E/fuelcompcalc.htm

U.S. Department of Energy (2011). Guide to Geothermal Heat Pumps. Retrieved Nov. 24, 2014, from http://energy.gov/sites/prod/files/guide_to_geothermal_heat_pumps.pdf

Alaska Energy Engineering LLC, Ground-source Heat Pump Feasibility Study: Life Cycle Cost Analysis, December 2007 from http://www.juneau.org/airport/projects/documents/GroundSourceHeatPumpFeasibilityStudy.pdf