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Making Geothermal a Successful Portion of Your Product Mix

As many of you in the distribution chain have come to learn, “geothermal” is rapidly finding itself at the forefront of the green energy movement. Please do not get me wrong on this; I adamantly support solar, photovoltaic and wind energy systems. But when you come right down to the numbers, a geothermal heat pump provides the fastest return on investment in nearly every situation. The mere fact that a classic “closed loop” geothermal system obtains 70 percent to 80 percent of its energy for free from a simple heat transfer process with the Earth has placed geothermal at the top of the list for obtaining LEED® points in both residential and commercial construction. As architects and engineers discover the dramatic energy savings potential of geothermal, we find an ever-increasing number of new development and retrofit projects designed with geothermal.

Many say the recent escalation in fossil fuel prices has created the “perfect storm” for geothermal. The real storm has not yet hit, but when it does, the results may well be devastating for those using natural gas, propane and oil as their primary heating fuel.

A simple analysis of residential gas prices in central Ohio from 2000 to 2008 shows the natural gas residential price has increased more than 240 percent over the past eight years. This increase is the result of an average increase of less than 15 percent compounded annually. At the time of this writing, the federal prediction for natural gas this winter is in the range of 25 percent to 35 percent. Last year, Great Britain found itself strapped with 35 percent increases in natural gas because gas production from the North Sea was declining and imports from Russia came at substantially higher cost. The impact was severe and widespread but largely ignored by those of us in the United States. Our own Gulf Coast sources of natural gas have the same potential for price instability. Regardless of how much we drill, we are still working with a finite resource that has taken hundreds of millions of years to create and which will be nearly depleted within two centuries.

What does this mean for the geothermal market? Well, the numbers are staggering. The classic question from prospective customers has been “What's my payback?” Thank goodness for Web-interactive software, with which many of you have recently become familiar. With the new software, it is now possible to pull equipment selections directly from the AHRI directory and run operation simulations with anticipated energy cost escalation factors. Using this software and allowing for a conservative 10 percent per year for natural gas and 5 percent per year for electric, I modeled a simple 2,800-square-foot home in Columbus, OH, with a 4-ton geothermal versus a 90 percent to 95 percent gas furnace and a 13 SEER AC system. With the fuel cost increases, the model shows a potential geothermal savings in excess of $100,000 over a 20-year period and a net return on investment of 20 percent to 23 percent per year. With savings like this, you may anticipate a growing number of customers changing that classic “What's my payback?” question to “How soon can you install it?” After all, in layman's terms, the economy of operating a geothermal system versus a natural gas furnace is very similar to the comparison of gas mileage between a Hummer and a Prius. Better yet, a complete 4-ton geothermal installation, priced from $18,000 to $23,000, costs less than a base-price Prius.

With gas prices poised to increase by double-digit values, distributors who choose to work with geothermal equipment will see their geothermal sales volume increase by 100 percent to 300 percent each year.

To meet this dramatic increase in demand, I need to revert to a saying the real estate people use. Remember the saying? It's “location, location, location.” Well, with geothermal the phrase is education! education! education! I use the exclamation marks because this component of geothermal training must not be overlooked.

To emphasize the need for education, I attribute over 9,000 of my geothermal business service accounts to the work of other contractors who seemingly ignored the need for education. The ability to diagnose and service after the installation is paramount to maintaining good customer referrals. Without trained service and installation technicians, many early geothermal contractors simply abandon their problem projects.

As with the realtor's phrase, there are three levels of education:

  1. Product-specific from the manufacturer.

  2. Closed-loop design.

  3. Field installation training.

Product-specific education starts at the manufacturing level. Some manufacturers prefer to manage all dealer training directly from the factory. Others entrust this function to the distributors or provide a manufacturer's representative to assist with the distributor training programs. This training is crucial to the proper application of a given geothermal product. Never presume that training from one manufacturer will suffice for others. From personal experience with more than 43 different geothermal manufacturers and a multitude of models for each manufacturer, I could never say that all systems are alike. Each machine has its own control system and capabilities. The only systems that bear resemblance to each other are those made under private-label agreements with a few of the larger geothermal manufacturers. Even with my 30-plus years of experience, I still jump at the chance to attend a training update class to stay abreast of changes in product lines.

As the market demand increases, distributors will need to take an ever-increasing role in product training. One-on-one manufacturer training may well be a thing of the past with webinars and webcast meetings used as a means to reach more contractors in less time.

Distributors who will excel with geothermal will have at least two employees who are well-versed on troubleshooting issues. These individuals need to be available for contractor questions 24/7. Contractors will want to have their questions answered quickly and not several hours later from a voice mail box. These same individuals must also function as the distributors' field representatives to provide quality control for the new contractors during their first few installations.

The second level of education involves the design of the closed loop. Perhaps one of the best sources for geothermal training is through an organization called International Ground Source Heat Pump Association (IGSHPA, www.igshpa.okstate.edu). IGSHPA training provides the necessary introductory background training for geothermal equipment and focuses on the ground loop aspect of system installation. With 70 percent to 80 percent of the system's energy dependent on this loop, the loop design can “make or break” an otherwise stellar installation. Loop school training is essential to familiarize the contractor with issues involving site access, underground utilities, soil type and composition, moisture content, bedrock conditions and water table. These are all factors that can affect the performance and design of a closed-loop system.

IGSHPA classes are often booked months in advance, so when an opportunity presents itself, it is best to register early. Due to the increased demand for classes, IGSHPA has certified a nationwide network of class instructors who work through ACCA, geothermal heat pump manufacturers and large distributors to provide IGSHPA certification at the local level.

The third level of education involves in-field experience. First-time contractors need “hand-holding” for their first three geothermal installations. Assistance from the distributor is crucial at this stage to assure that appropriate assistance is provided for the system sale, permitting, design, loop installation, machine installation, loop flush and fill, and project pricing.

Personally, I find myself allowing for at least eight man-hours for the sales call, site assessment, customer education and sales presentation. With deposit in hand, there remains an allowance for assigning and marking out the project site for an IGSHPA-certified drilling or loop contractor, equipment and materials orders, plus an allowance of up to 60 man-hours for removal of the old system and installation of the new, ductwork changes, geothermal interior piping, pipe insulation, domestic hot water piping (to accommodate the hot water feature on residential geothermal units), electrical wiring and disconnects, permits and inspections, site travel for each service truck and the skills needed for each member of the installation crew. Then there is overhead for the anticipated time the project will run from start to finish and payment arrangements with the customer (Will I be able to take advantage of my 2%/10 equipment terms with the distributor, or will the customer choose to pay by credit card and I lose a significant portion of my profits due to the card percentage?). The details and time allotment for installing geothermal may be vastly different from the traditional one-day furnace replacements that many contractors are accustomed to.

This need not seem overwhelming, it simply requires the dedication to establish a process and a checklist to remind office and field crews to keep all functions in order.

When working with the customer, I make every effort to emphasize this point: “Knowledge (through education and certification) has value far beyond the installed cost of a geothermal system.” On occasion, I lose a sale to a new contractor who may quote as much as $4,000 below my estimate. Does it hurt? Yes, but I've learned to say, “Let's keep this proposal file for reference; we may be gaining another service account in the near future.” From a distributor's standpoint, this lost sale story has a second meaning. I simply cannot begin to count the number of contractors I've known who have filed for bankruptcy due to poor pricing practices and left their distributors holding the debt. I know we are all hungry for increased sales, but don't sell the farm for the notion of a short-term gain. Follow the educate! educate! educate! process to assure that:

  1. You profit.

  2. Your dealer profits.

  3. The customer profits and is happy to refer more sales.

It's the perfect win-win-win for all involved.

Prepublication Note on Tax Incentives: The recent Economic Stability Legislation passed by Congress and the President provides for a 30 percent residential geothermal heat pump credit with a maximum limitation of $2,000. Commercial tax incentives are limited to 10 percent and a 5-year depreciation. To determine if additional state or local incentives apply, check the website www.dsireusa.org.


Jeff Persons is president of Geo Source One Inc. near Plain City, Ohio (Columbus area). Contact Jeff at 614/873-1140, [email protected] or visit www.geosourceone.com.

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