We can use simple, effective, and proven policies that have been
used to supercharge the New England solar PV industry to
incentivize renewable thermal technologies and eliminate oil use
for single family homes. Here's the best part, the policies will
be cheaper than solar PV, they will create more local jobs per kW
installed and displace more expensive fuel.
At Renewable Energy Vermont 2012, I delivered a
presentation on how a production-based incentive for renewable
thermal technologies, like the $29/MWh incentive in New Hampshire, would be
cheaper than the current solar PV incentive in Vermont and could
have a larger impact. The current incentive for solar PV in
Vermont is $271/MWh for 25 years, but we could eliminate oil use
for single family homes with a policy
for renewable thermal technologies of $100/MWh
guaranteed for five years. This policy would be much cheaper than
the solar PV incentive and would drastically increase the adoption
of biomass, air source heat pumps and ground source heat pumps. It
would put a huge dent in oil consumption for single family homes,
save money and create local jobs. If you're new or curious about
thermal incentives, Renewable Energy World has done some great
reporting on it.
As I started to run the numbers when I was creating the
presentation, I was blown away by how much energy renewable
thermal technologies produced, and how valuable that energy is
when displacing oil, propane and electricity. Many attendees at
the talk had never seen the numbers broken out in a way that
easily compares apples to apples. However, as any engineer knows,
converting kWs to tons to BTUs is relatively simple. When we
compare these technologies in the same terms, it starts to provide
a very clear picture of the results that can be achieved by
investing in proven renewable energy thermal technologies. These
technologies include solar thermal systems, geothermal/ground
source heat pumps, air source heat pumps, and biomass.
For the purpose of this article, I'm going to compare solar
thermal and ground source heat pumps to a standard solar PV
project in a baseline home. I'm using these technologies because
I'm the most familiar with them. However, further analysis should
absolutely include air source heat pumps and biomass technology.
Background: Why look at renewable thermal technologies?
We waste a lot of money on oil for space heating. Yes, oil
industry, my goal is to put you out of business. But don't worry,
we'll train you to install these new technologies. In addition to
building and retrofitting buildings to have tighter
shells, there are only three technologies, yes three, that can
eliminate on-site fossil fuel use: biomass (pellets and cord
wood), air source heat pumps, and ground source heat pumps. Here
are a few pieces of data on why a focus on oil usage is so
important for New England.
The EIA separates the US into five
The Northeast uses the most oil for
space heating, which also happens to be an extremely expensive
fuel source. Six million homes use oil for heat, and the average
home uses 800 gallons of oil per year, which equals roughly 4.8
billion gallons per year.
If we assume that the average
residential price is $4 per gallon or slightly higher, home
oil-heat spending is roughly $20 billion dollars per year.
These are huge industry trends, so let's break the data down into
something more tangible. U.S. census data reveals the number of
single family homes in each specific state, this is the "total
homes" column. I then broke down the heating fuel mix for each
state, provided by the EIA, and found the number of single
family homes in each state that use a high-cost fuel (oil,
propane). You can see that the numbers are sizable. I then took
the total number of homes and divided it by the number of homes
using an expensive fuel source, which you can see on the far
right. This means that nine out of 10 homes in Maine are
using a very expensive fuel source. In Massachusetts, 54 percent,
or five in 10 homes, use these sources. However,
Massachusetts-specific data reveals that some communities use
natural gas (that's green). However, there are a large number of
communities where 60+ percent of single family homes use an
expensive fuel source.
Solar PV is a great investment but doesn't address oil
use — how can we address this problem?
The goal of this post is to show how we can use policies and
incentives that have already been successfully implemented in the
solar PV industry to address fossil fuel use for space heating in
New England. I'll provide a basic comparison of how solar pv and
renewable thermal technologies compare when looking at fuel
savings for property owners, direct job creation, and the cost of
With that said, let me be clear: solar PV is a great investment.
The purpose of this post is to be a "yes...AND"conversation. Solar
PV will do nothing to address direct fossil fuel use.
Additionally, the solar PV industry is large enough to be a great
comparison tool because many people are familiar with the
economics of solar PV. Thus, using solar pv as a baseline will
make it easier to communicate the value of other technologies.
I'm also looking to address a question I recieve often: If
geothermal heat pumps are so great, why aren't more people using
How do we look at renewable energy policies?
When trying to understand renewable thermal
technologies and the impact of different policies, a small number
of variables seem to be critical for policy makers.
- Reduction in utility bills for property owners
and reduction in fossil fuel use that is imported
- Local job creation
- Amount that said incentive costs for the state or utility
- Water quality and air quality issues
I could be missing something here, so let me know if I
Let's create a baseline home for comparison purposes.
This is the home we'll be dealing with. If you're not into the
technical part of things, please feel free to skim over this, I
just want to be extremely clear with my methodology and
calculations. If anything is unclear, please let me know; I'll be
happy to address any questions.
- 2,000 square feet
- 180 degrees
- 10 pitch roof (40 degrees) — enough space for a 5-kW system.
- Requires 63MM BTU for heating (read average shell)
- Existing heating system is oil furnace with AC that must be
replaced within two years. Replacing the existing oil furnace
and AC unit with the same technology will cost $10,000.
- Electric rate is $.17kWh inflating at 3 percent per year
- Oil prices are at $4.00/gallon inflating at 5 percent per year
Let's create a baseline with diferent technologies based on
current installed costs, incentives and energy costs for an
1. Solar PV
- $5.50 per watt times 5 kW = $27,500
- For those of you who think this is high. Think again. Read
more on residential prices in Massachusetts at The
Open PV project and the MA CEC's website. Also, I have no
reason to make solar PV seem high, I love the technology am a
huge supporter of it.
- Produces 1,000 kWh per kW installed = 5,000 kWh or 5 MWh
- Value of energy is $850
- Local jobs created: 15 man hours per kW installed --> 75
man hours (does not include sales, support and supply chain
jobs, just direct construction jobs)
- Percent of year installed costs driven by rebates: 44 percent
- Gross installed costs to value of energy: $32
- Net installed cost to value of energy: $19
- 20 Year IRR, not considering equipment lifetime or O+M: 9
2. Solar Thermal
- $110 per square foot gross installed costs
- 80 square foot system (2 modules @ 40 square feet per module)
- Gross installed costs = $8,800
- Net energy production per year: 4,100 kWh (140 therms)
- Value of energy production displacing #2 heating oil = $443
(140 therms is approximately 110 gallons of fuel oil)
- Local Jobs Created: 20 man hours per module (this is based on
anecdotalle experience not an industry study, because they don't
exist) = 40 man hours.
- Incentives in Massachusetts: ITC, Personal Tax Credit, MA CEC
- Percent of year one installed costs driven by rebates: 62
- Gross Installed Costs to value of energy: $20
- Net installed costs to value of energy: $7.50
- 20 Year IRR: 12 percent
- Oil and AC replacement costs = $10,000
- Geothermal costs = $9,000 per ton X 4 tons = $36,000
- 4 ton = 14-kW system
- Geothermal premium = $26,000
- Oil heating costs = $3,000
- Geothermal heat costs = $1,000
- Geothermal Fuel Savings = $2,000
- Net geothermal energy production from the ground loop = 13,500
- Incentives: 30 percent ITC from $36,000 = $10,800
- 90 man hours per ton = 360 man hours for the job (25 percent
of installed costs is labor: $36,000 X .25 = $9,000, and $1,000
is a week's wage for 40 hours, so nine weeks work * 40 hours =
360 man hours / 4 tons)
- Percent of year 1 installed costs driven by rebates: 41
- Gross installed costs / value of energy: $13
- Net installed costs / value of energy: $7.6
- 20 Year IRR: 14 percent
For those of you that love tables, I've put the data on a table
There's a lot of information in the above graph, so I made a few
simple graphs that display and answer some specific questions.
Installed Cost per Watt
Geothermal costs roughly $2.57 per watt, while solar thermal
costs $3.96 and solar PV is around $5.50. Yes, a lot of
residential solar pv projects still cost $5.50 per watt. You may
be able to reduce this to $4.00 per watt on new construction, but
this trend is decreasing.
Energy Production per Installed kW
Solar PV generally produces 1 kWh per year for every 1 kW
installed. A geothermal system will produce 13,500 kWh net energy
from the ground loop, backing out the electric use for the pumps
and compressor. A 4-ton system is 14 kW, so it produces slightly
less then 1 kWh of net energy for every 1 kW installed. The solar
thermal system is only a 2.22-kW system, but will produce 4,100
kWh of energy in one year.
Gross Invested Cost per Dollar of Energy Output
This metric is simple. Without considering any incentives (using
just gross installed costs), how many dollars need to be invested
to get $1 in fuel savings? Geothermal and solar thermal are
clearly the winner here when displacing fuel oil. If they were
displacing propane or electric they would be higher.
Gross Installed Cost to Net Installed Cost: How much do
incentives drive returns?
This metric looks at how much incentives decrease installed costs
by taking the gross installed costs and dividing them by all
available incentives. What we see is that in Massachusetts, solar
thermal is the most heavily subsidized technology, followed by
solar pv and geothermal.
Net Invested Cost per Dollar of Energy Output:
After incentives are considered, we can look at the net energy
investment required to get $1 in energy savings. Solar thermal and
geothermal become more equal at $7.60 and solar PV is around $19.
This means that to replace oil with a geothermal project in
Massachusetts, you need to invest $7 to get $1 in fuel savings in
Total Man Hours Needed per Job
This is looking at the total direct construction jobs to install
a project. This is not based on any reports (because they don't
exist for solar thermal and geothermal), but anecdotal evidence. A
typical 4-ton geothermal system will require 360 direct man hours
in construction, and a solar thermal system will take 40 hours,
and a solar PV project takes around 75 hours.
Direct Jobs Created per kW Installed
When we look at direct man hours per kW installed, geothermal and
solar thermal create the most jobs, followed by solar PV. The
reason for this has to do with the type of equipment being used.
For geothermal and solar thermal technology, commodity equipment
is used and repackaged in a different way. Components for these
technologies aren't industry specific, except for the actual solar
thermal modules and geothermal heat pump, but these are easy to
manufacture and thus there are many manufacturers. For the solar
PV industry, all main components are specialized: modules,
inverters and racking. Thus, equipment costs tend to make up a
larger percentage of the installed costs. However, this is
declining as economies of scale are reached on the manufacturing
side of the business.
20-Year IRR with Current Incentives and Assumptions
This graph shows what the 20-year IRR of these different projects
is with our given assumptions. Yes, the IRR of solar PV is getting
much lower as installed costs drop and property owners see it as
low risk, but also because Massachusetts SREC prices are
declining. Geothermal is around 13 percent and solar thermal is
around 12 percent.
20-Year IRR of All Technologies Received SRECs
This graph is answering a question I frequently hear: If
geothermal is so amazing how come more people aren't doing it? My
answer is simple: If geothermal received the same REC
prices as solar PV, no one would be using oil, geothermal would
just be cheaper. So, if we assume that geothermal and solar
thermal get paid $200/MWh for 10 years based on their output,
their IRRs skyrocket to 30 percent.
Lessons earned and what implication does this have for
policy in New England?
There are a few lessons we can learn from this analysis.
First, renewable thermal technologies can provide as good or
better returns than solar PV technologies for property owners.
Second, renewable thermal technologies need more policy support,
but they do not need as much support as solar PV. As you can see,
a 30 percent IRR is too high. This is good for policy makers
because it means that the cost of deploying renewable thermal
technology will be CHEAPER than deploying solar PV. Renewable
thermal technologies are cheaper and produce more valuable energy
per kW installed, so more of the returns can come from displacing
fuel than from a subsidy.
Third, renewable thermal technologies create more construction
jobs per kW installed than solar PV.
Fourth, if we're serious about incentives for renewable thermal
technologies, we must use production-based incentives.
Production-based incentives maintain quality control throughout
the entire process: manufacturing, design and installation. A huge
lesson learned in the solar PV industry is that incentives based
on installed costs have huge flaws (installing solar PV projects
in the shade is one example). Those modules on the left in the
photo below will still receive a rebate even though they won't
produce must power.
Fifth, if any policy makers reading this happen to live in New
England, my message to you is simple: If you're bullish on
the solar PV industry and believe that it's a wise investment in
terms of job creation, reducing emissions and saving property
owners money, you should look into renewable thermal technologies
as the next area of rapid growth. If you're looking for the
next technology that is going to create a huge number of jobs in
your state and save a massive amount of money, you must look at
renewable thermal technologies.
If you want to chat, I'd be happy to. Here's my contact
information: email@example.com, 800-393-2044 ex. 33.
Chris Williams is the Chief Marketing Officer for HeatSpring
Learning Institute a national renewable energy
training company, Chairman of the Government Relations Committee
for NEGPA and
an advisor to Ground Energy Support, a provider of real
time geothermal heat pump monitoring technology.
This article was first
published on Renewable Energy World and is reprinted with