Virginia Passes Geothermal Bill With Major Financial Incentives

Recently the state of Virginia passed a bill that will allow geothermal heat pump owners to sell Renewable Energy Certificates (REC) to utility companies. As a result, this will significantly reduce the cost of a geothermal installation by providing huge financial incentives to homeowners. It’s also anticipated to create more jobs and inspire more contractors to tap into the geothermal market, since now, it’s easier to sell because it costs so much less.

“It’s exciting stuff,” said Kylie Draucker, president of Delta Temp Geothermal Heating and Cooling, located in central Virginia. “It’s making it more accessible for people, even low-income housing; it’s reducing operating costs, and these incentives are going to spread the market to more individuals … It’s a long-term plan, and it’s truly going to make a long-term impact.”

There’s been a geothermal tax credit for the last 14 years that Richard Lay, owner of North American Geothermal (servicing areas of both Virginia and Maryland) and past president of Virginia GFL Environmental, has been working in the geothermal sector.

Federally, homeowners are already eligible for a 30% tax credit under the Inflation Reduction Act (IRA) Residential Energy Efficient Property Credit (Section 25D) for Energy Star-rated geothermal heat pump systems that are in service by Jan. 1, 2033.

However, there’s been a battle regarding whether or not the technology is worth the installation and the cost, as the installation of a geothermal system has multiple disciplines and includes a significant upfront cost.

“If it really does so much good for everybody — including utility companies, the government, homeowners, the industry — how do you help them get to the point where it’s installed?” Lay said. “And so there’s been this struggle over the last decade and a half over how bad do we want it as a country? How much are we willing to help? Because if it costs $40-45,000 to put into a regular small house, how does a normal person afford that?”

The Bill in Action

What the geothermal industry was after, and successfully found through its new bill, was a way to make the installation of a geothermal system more affordable.

“It also just sets some clear guidelines and expectations as far as focus and targets for timelines for electric companies and utilities to have expectations met, and how we’re going to meet those, and how geothermal is going to be part of that,” Draucker said.

Virginia is just one example of geothermal legislation being handled on a state-by-state basis. In fact, the state’s bill is a copy of the one previously passed in Maryland, which has seen great success in its programs.

“We just look at, from our manufacturer: the sales difference in the residential market and how significant they are, people reaching out and learning more about geothermal all the way down to the sales and installation, and the impact that that has on the electric grid,” Draucker said. “If we electrify our communities … we obviously have to reduce that load, and so what Maryland has done has really been forthcoming in where we should be going in the direction of renewable resources on a general scale across residential and commercial.”

Regionally, Maryland has been outperforming the other states in regard to what they offer their citizens. Their offerings are very progressive and, according to Lay, the state is years ahead of Virginia — so much so that Lay just opened a new office there.

“Maryland has a state rebate of $3,000 for their citizens,” Lay said. “Maryland’s utility companies … have just doubled their rebates, so the lowest rebate you can now get anywhere in Maryland (because every single utility company in Maryland is a part of their plan) is another $3,000 back per each residential installation from the utility companies, and some of them are paying back as much as $6,000 per unit.”

Say the geothermal system costs $45,000 to install. A Maryland citizen (and, soon, Virginia citizens) has that $3,000 rebate from the utility company to bring the cost down to $42,000. The $3,000 they get back from the state brings it down to $39,000. Deduct from that the 30% the government gives back, and the price is brought down to $27,300.

Now, that’s still a lot of money. So what Maryland did in 2012 was pass, fund, and sign into law a bill that established geothermal heating and cooling systems as part of its Renewable Portfolio Standard (RPS). Enacted in 2004, this standard requires all electricity suppliers (all utility suppliers and competitive retail suppliers) in the state to procure a minimum portion of their electric retail sales by one of the eligible renewable resources: solar, wind, and ocean, to name a few.

The bill not only has huge financial incentives that allow for more people to consider installing a geothermal system, but also validates the technology.

“Obviously, geothermal technology has been applied a lot, even by the federal government,” Draucker said. “They have it a lot on their bases and in their own facilities, but it hasn’t been as widespread for the residential market. And geothermal is the more accessible of the green energy industry … Almost every home can have geothermal; it cannot have solar or wind. And the ROI makes more sense for most residential homeowners.”

An aggregator, like Clear Path Renewables, does all the required paperwork, Lay said.

“They file everything for you, collect all the REC credits, sell them into the marketplace, and then give your money in quarterly cash payments deposited into your checking account,” Lay said. “So this customer is now getting over two grand a year into perpetuity, and her ROI really shrinks because her energy costs are cut in half, she gets a better system.”

That extra couple grand a year could even increase, as the value of REC credits will go up and down over time.

The bill allows for the certificates given to stay the same and with the house, meaning when the owners decide the sell the house, the credits go to the new owners.

“So we’re having this wonderful experience of calling back to our hundreds of Maryland customers … and telling them that they qualified for enough REC credits and are getting two, three, $4,000 back,” Lay said.

What’s to Come

And soon, Virginia citizens will be experiencing the same thing. Based on how long the rest of the processes took after the Maryland bill was passed and the law was in place, REC credits/certificates will likely be issued to both existing and new Virginia homeowners in a couple of years.

“It defines geothermal systems as a renewable resource … With solar and wind, geothermal has kind of always been an outlier. And so this kind of evens the playing field from a legislative point of view,” Draucker said.

How much will one REC credit be worth? It’s hard to say. When Maryland set its program up, the state guaranteed that REC credits would be funded at a minimum of $65. But they are already worth more.

“The goal of the way Maryland set the bill up is to grow the geothermal industry by 400% within the next eight years, and [Virginia] has that same goal,” Lay said. “Realistically, I think it will double.”

Lay’s reservations about just how much the geothermal industry can grow are valid. Though the bill makes possible what might never have been for many Virginia homeowners — the installation of a geothermal system — and contractors may be ready to take the plunge into the geothermal market, it will take a lot of hiring. Thousands of hires.

“That means all those contractors are hiring more and training more,” Lay said. “It’s a huge economic boost, and there is going to be huge growth. There will be growing pains with that, of course. But all in all, I think the industry is well placed to handle it.”

Last year, Maryland installed 1,500 geothermal units, which is expected to grow by 30-40%, hitting 100% in the next 10 years.

“We’re creating sustainable jobs; we’re creating an infrastructure of jobs that cannot be outsourced by something like artificial intelligence,” Draucker said. “This is a legitimate growth of jobs within our communities and our industries in a renewable resource market.”