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Geothermal: The bank's best present to us

post #1 of 7
Thread Starter 
Geothermal Heating and Cooling System
First-year Cost Analysis
October 11, 2006 (rev June 18, 2007)
Jeff & Lynne
            The intent of this document is to make clear all of the costs associated with the installation of a “typical” residential Geothermal heating and cooling system and the savings observed after one calendar year. 
            Ahead of signing on the dotted line for our first home, my wife (Lynne) and I hired a house inspector for the routine checks and peace-of-mind. The house was nine years old at the time and the oil furnace was likely included in the original build. The inspector was careful to have our full attention when he told us that the furnace was “unpredictable” based on age and obvious neglect. Still, carrying our first mortgage left us with little money for upgrades to the home and we went through the first winter with the oil furnace and the oil hot water tank (a rental).
            As first-time homeowners we had little equity in the home and the interest rate on our mortgage reflected what the banks typically offer in this situation. We made a choice to pay an extra $100 per month against the mortgage so we could get into a better rate in a shorter time.
            At the end of the first year (October 2004 to September 2005) we totaled the receipts and realized that we’d spent $1,707.79 for oil to heat our home and water, and hot water tank rental fees. With attention to various low-cost energy efficient upgrades to the home (CF bulbs, water-saving faucets) and careful attention to electricity use (elimination of phantom loads, etc.) we kept our cost of electricity for the year to $688.82 for a total of $2,396.61 in utilities. All figures include all taxes and represent the out-of-pocket total expense for the year. The cost of oil for the year was far better than our previous rental property and we were pleased by this though we already had plans for a far more efficient system to look after climate and hot water in our home. After sheer luck prevented catastrophe in multiple cases of furnace failure during the winter, we felt we needed to replace the oil furnace right away and would need to borrow the money to do it.
            To install a typical oil combustion system, we would have been looking at the following costs:
  • High-efficiency oil furnace: $3,600
  • Oil hot water tank, 60 gal: $2,350
  • Indoor oil tank: $1,600
  • Central Air: $3,000
All figures include taxes and installation[1]. The oil tank is included because our house insurance requires that we change the tank after ~10 years and it was due. Air conditioning would have been an upgrade to our home and it is included for reference.
            The installation of all of the above components would have improved our oil consumption bills because of the increased efficiency of the new furnace and hot water tank, though the cost of the system as estimated above works out to $10,550. A nice figure for comparison, but not something Lynne and I ever considered.
            Our choice was a “Geothermal” heating and cooling system for our home. This system uses the ground temperature to heat our home in the winter, cool it in the summer and looks after much of our hot water. The technology is known by other names: Geo-Exchange, Ground-source heat pump (GSHP). It represents the single most energy-efficient method of heating and cooling a home.
An important consideration for space heating/cooling is energy efficiency. The most efficient combustion furnaces on the market are quite good at 94% efficient (~94% of the energy generated in the furnace is captured to warm the space). A Geothermal system is considered 250% to 350% efficient (for the electricity used to power the heat pump, 2.5 to 3.5 times that energy is captured for space heating, extracted from the ground). Although electricity is required for the Geothermal system, it is only used to move heat, not to create heat.
The system as selected was quoted at $21,105 installed and included increasing the size of our ducts to accommodate the extra air flow needed for these systems. An additional cost was required to hire an operator and equipment to dig a trench 5-6 feet deep, 2 feet wide and 750 feet long to accommodate 1500 feet of tubing (750 feet out from the house, 750 feet return). We had a logging trail on our property and chose to bury the loop under this trail. We were told to budget $2,000 though the final cost in the end was $1971.48 for a total installed cost of $23,076.48.
            The cost of the Geothermal system was projected at $12,526.48 more than the oil system capable of looking after all of the same climate and hot water needs for our home. So why choose the Geothermal system over the oil system? There were other factors to consider beyond the initial cost of the system:
  • Lifetime costs – the Geothermal system is projected to have a much longer life than any combustion furnace.
  • Energy costs – the high efficiency of the Geothermal system was projected to provide as much heat as our old furnace for the home at $600/year, air conditioning all summer for $39 (no typo) and hot water for $300/year. Quick math shows this well below the $1700+ spent in oil without the benefit of air conditioning in the summer.
  • Home value – the Geothermal system, according to the bank, made a dollar-for-dollar ($23,000) increase in the value of our home resulting in…
  • A better mortgage rate – due to the bank’s incentives, we were offered their best mortgage rate if we installed the Geothermal system. This could potentially see our mortgage-free date arrive almost two years earlier, depending on how prime rate changes.
  • Greenhouse gas emissions – a Geothermal system is enough for a family of 4 to meet the one-tonne-challenge, or equivalent to taking 1.5 cars off of the road.
  • Renewable energy heating system – heat can be taken from the ground in the winter months and the sun will warm it again the following summer.
This report summarizes the financial aspects of switching from an oil system to a Geothermal system after just one year.
Summary of Results:
  • The total cost in oil for the preceding 12 months was $1,707.79. The total increase in our electrical bills after the installation of the Geothermal system was $915.64. This gives a net savings on utility payments of $792.15 for the year (46%).  Note that at time of writing I was comparing to a heating oil cost of $0.72/L - this price is now ~$1.06/L and projection this year is for ~60% savings.
  • While the installed cost for the system was $23,076.48, we received a GST rebate of $692.29 and a grant under the Energuide for Houses program of $957.00 for a total installed cost of $21,427.19.  People considering retrofits in Ontario are now eligible for up to $7,000 in rebates.
  • If we were to build a new house we would definitely equip it with a Geothermal system instead of a conventional combustion system (oil, gas, etc.). It is important to note that builders of new homes should not be trying to justify the purchase by saving $25,000 in utility bill savings, the cost of these systems. Rather the difference between this system and a conventional system (in our case $21,427.19 minus $10,550 = $10,877.19) is the appropriate target. Energy savings alone, at today’s rates, would see this paid back in ~10 years, but this ignores lifetime and maintenance costs which offer further savings with the Geothermal system.  Furthermore, for those building or renovating a house with intention to sell, the question to ask is whether or not the home value will be improved by more than the extra investment. The bank considers our home worth much more, but market conditions are the ultimate driver for this analysis.
  • The 10kW electric heater was only observed once in the last Kemptville winter. It happened when we tried to increase the temperature indoors while it was -28oC outside. It only operated for seconds at a time and the home was up to desired temperature minutes later. The heat pump kept us comfortable throughout the winter.
  • The indoor temperature selected on the Geothermal system was 21oC and was not turned down at night to avoid using the 10kW heater in the mornings (i.e. this system is more energy efficient if it is not turned down at night, unlike combustion furnaces which save money when used with programmable thermostats). The oil consumption from the previous year benefited from a programmable thermostat with lower temperatures at night (16oC) and while away during the day (15oC).
            The Geothermal system was an excellent investment. The increased value to our home is not something we focused on because we intend to keep this house for many years, though it is comforting to know we could make this investment back. The utility savings are in-line with the model predictions from Atel Air and amounted to a 46% improvement in the first year. The extra we put towards our mortgage each month is offset by these utility savings.  If the prime rate stays low enough, the interest rate reduction from the bank will more than pay for the system over the amortization period.
            A Geothermal system is a worthwhile consideration for anybody upgrading their old furnace, building a new home, or renovating a home for resale purposes. All factors considered, it was the most economical choice we could have made. 

[1] Atel Air. Telephone Conversation with Jimmie Thom, October 2006.

post #2 of 7

Jeff - thank you so much for this! It's so hard to dig up real world numbers on this stuff. This will be invaluable for many other Huddlers I'm sure.

post #3 of 7

I wonder how much it would cost to put up solar panels to totally offset the consumption of electrical energy by the geothermal system? (which would mean you would have a total zero-carbon heating and cooling system beyond the initial capital cost and some relatively minor maintenance). Also, I wonder what the additional cost would have been to run the tubes into vertical boreholes (which is the typical urban installation as we here in cities don't have the table land to run the tubes horizontally as you did).

By the way, given energy in Ontario is about 11 cents/Kwh, all in, I would assume your geo-exchange system consumed about 8,300 Kwh per year or almost 700 Kwh per month and one would need solar panels that generated this amount of electricity.


As an aside, there is a more efficient geoexchange system than the plastic tube and glycol/water based system that I think you have. It is called copper-based geoexchange and is essentially the same system but with copper tubes instead of plastic tubes. Although the copper tubes are more expensive than plastic, the bore holes need not be as long, so the total cost is about the same. Also, the copper-based systems are ten to twenty percent higher efficiency than water source geothermal heat pumps using plastic pipe.

post #4 of 7
Thread Starter 

I love the solar panels idea, but my pockets are not deep enough to completely offset what I consume from the grid.  Your 700 kWh/month is accurate, so ~23 kWh/day.  Assuming ~5 hours of sunlight in the winter months (when the system really works) that's an installed capacity of >5000W of generating power for the house.  Last time I priced solar it was $10/watt but is probably better now.  Add to this the cost of an inverter capable of delivering 12+ amps at 240V plus battery storage for a few cloudy days in the winter... 


I still like the idea and my wife and I are planning a grid intertied solar PV setup, but it will not power the geothermal system - just essential loads.  We've got a woodstove for extended power outages in the winter months.


In Ontario, it is an ethanol/water blend used in the loop instead of glycol (just modestly more heat capacity & efficiency).  Glycol is common where ethanol is not permitted.  Ethanol, happens to be used where methanol is not permitted, which I believe is all of Canada now.


The direct exchange system is a nice system & probably very well adapted to urban and suburban homeowners with limited lot sizes.  A good solution.  I haven't come across anybody with a vertical loop installation, so I don't have feedback on the installation cost in that orientation.  Geothermal is available in a number of configurations, each with a different claimed coefficient of performance.   I might encourage people considering either to ask the contractors supplying the quotes to give them references of previous installs & talk to the homeowners about the contractor and about whether or not they feel they're getting the savings they were told to expect.  Be careful - in addition to the efficiency claimed for the loop configuration the chillers themselves are not all created equal - some draw more power, mine has multiple stages so it can consume less electricity when it doesn't have to work very hard while others are either on or off & working full out.

post #5 of 7

Thanks for that detailed response. I am going to investigate the copper based geoexchange systems further. Apprently, due to the use of copper they are able to eliminate two major parts that are in plastic tube based systems which helps increase the efficiency.


I am also wondering if you had done an analysis on adding solar water heating at all. This would reduce the electrical demand on your geothermal unit but would only make sense if the reduced cost of electricity was offset by a greater amount than the amortized cost of the solar water heating unit.


I have radiant hydronic heating (hydronic tubes embedded in concrete flors) with a gas boiler in my 3,300 sq ft home in Toronto and will be selling this place next year in order to build another house. I haven't gotten the numbers in yet but hydronic radiant is much more efficient and thus much less costly to operate than forced air gas systems. In the new house, I am planning to use geothermal heating to heat the hydronic floors and provide hot water for both the radiant floors and domestic hot water use and have a grid tied solar electric system that will supply most of the electrical needs of the house, which will be superinsulated with soy-based foam insulation. I will also recapture the heat from shower, sink and dishwasher drains with a Powerpipe and use filtered rain water to flush the toilets. In this way I am hoping to reduce my utility bills almost down to zero.


How big is your house in square feet and stories, by the way?

post #6 of 7
Thread Starter 

Ah - the mindreading must stop.


We have indeed looked into solar water heating or a tankless propane water heater.


Your assertion that it will reduce the electrical demand on the geothermal unit is not true.  The geothermal system would continue to draw as per usual.  It would reduce the overall demand on the home electricity because the existing setup is that the geothermal system warms the water, and the tank is also an ordinary electric hot water tank.  The downside is that the elements in the tank are dumb - when the water temperature falls they turn on.  Trouble is, the chiller could warm the water, but would need more time to do it.  In the coldest months of January/February we have successfully turned off the tank elements and survived on water warmed solely by the chiller.  In the spring & fall when the chiller does not need to run as much for the home, the water is mostly electrically heated.  Additionally, and your contractor may not know to tell you this, the modern environmentally friendly refrigerants have a hot gas temperature that is insufficient for heating water when you are in cooling mode & your loop is too cold.  For the early part of the AC season in the summer we're also on electrically heated water.  I have determined that electrically heated water is costing us ~$60/month during this time. 


With the current incentives, the propane tankless water heater should pay itself off in 4-5 years.  The same should be true for the solar hot water in my case.  The solar would have lower operating costs, but I have to think further on how to set this up so that I would not need the electric elements to give me hot water at an acceptable temperature all year.  Plus, I would have to do some landscaping to remove some trees & get a clear view of the sun.


The copper systems circulate the refrigerant gas through the copper tubes outside of the home instead of the antifreeze used in my plastic loop.  I would imagine that this would only eliminate the loop pump (mine draws 1A @ 240V) but would get replaced with some other electrically powered method of circulating the refrigerant gas outside the home.  I can believe that there are efficiencies gained vs the loop with antifreeze.  I might seek references before accepting 10-20% as claimed, but surely there must be some gain.


If you're looking at radiant heating with the geothermal system, you may want to consider ductwork for the AC, because you won't be able to use the hydronic to cool your home due to condensation.  I believe there are chillers on the market that do both hydronic heating and forced air cooling - be cautious of the amperage required as I was alerted to one of these systems which pulls 30A @ 240V as a single stage unit (recall that mine draws 8A or 11A when it is really working).


I don't think you can realistically expect to supply "most" of your homes electrical needs with PV if you are planning a geothermal system installation.  Then again, if you're selling a 3300 sqft home in Toronto maybe you will be able to install enough panels!  Honestly, the draw is significant and it works so hard in the months when there is so little sunlight.  For as much as I love this technology, if I were to build a net zero home it would not be something I'd consider.  If your house is to be superinsulated, and if you give attention to passive solar & thermal mass, you could probably get away with a woodstove & maybe some heat dissipators for the solar thermal system?  I don't think I know the best answer for you, but I think a geothermal system would be a big hurdle to address if you want zero net utility bills.  If you want "low" utility bills, it can't be beat. 


BTW - if you're building a new home, you won't be able to claim the $7000 rebate offered for retrofits in Ontario.  I think the only incentive now is through CMHC for new home construction with geothermal - you may or may not qualify.


We have a bungalow.  ~2200 sqft if you count the basement.

post #7 of 7
Thread Starter 

As a follow-up, I've noticed that the most recent edition of HOME POWER magazine (sailboat on the cover) has a detailed description of a couple who have built a net-zero home using a geothermal system.


The magazine indicates they've used 80 x 125W solar panels, a 10kW wind generator, 36 batteries (don't remember the VA off-hand) and 2x4kW inveters, 5 charge controllers, and more.


There were incentives for this couple for the installation of their system.  There would be very little in the way of financial incentives for us to do the same, but I can only imagine the final price tag.


Anyway, heads up if anybody wants to see a case of this having been accomplished.



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