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Why is Geothermal a Good Investment?

A Geothermal heating and cooling system is a great investment for home or business owners in the greater Nashville area.

Substantial Savings on Energy Costs

Typically, homeowners can save from 50% to 70% on the cost of heating, cooling, and hot water versus a conventional system.

Protection from Rising Energy Costs

We all know the price of electricity, natural gas, and propane will continue an upward trend for the foreseeable future. Owning a geothermal system substantially reduces the impact of this trend on the family budget.

Long Product Life

Conventional heating and cooling systems have a typical lifespan of twelve to fifteen years in Middle Tennessee. Geothermal equipment will last up to twenty-five years before needing replacement. The ground loop can be expected to last in excess of fifty years.

Savings on Maintenance

Because there is no outside unit with a geothermal system, Maintenance costs are 30% to 50% less than for conventional equipment.

Federal Income Tax Credit

There is a 30% tax credit for geothermal heat pumps installed – this credit is in effect through 2016.

Geothermal Return on Investment

Geothermal manufacturers typically tout a simple payback of around 5 years for a geothermal system. This is true for certain areas of the country such as the northeast where the heating season is substantial and energy costs are much higher. In middle Tennessee, simple paybacks range from 5 to 10 years. However, the best way to evaluate a geothermal investment is to look at the return on investment calculation over the life cycle of the product.

Let’s take a look at a recent analysis for a new home installation. Mr. and Mrs. Smith are building a new 3100 square foot home. They are considering installing a conventional 80% efficient gas furnace with an air conditioner rated at 13 seer efficiency, or a Climatemaster Tranquility 27 geothermal unit with a closed loop ground heat exchanger. The installed price for the conventional system is going to be $19,035.00. The total installed price for the geothermal is $35,725.00, which is $16,690.00 more than the conventional system. The question now becomes; what will be the return on the investment of the additional $16,690.00 required to install the geothermal system?

To do this analysis, we need to know how much money will be saved over the 25 year life of the geothermal system compared to the conventional system. Based upon an engineered load calculation for this home, it is possible to predict the annual costs for heating, cooling, and hot water with each system. Using current electric and natural gas prices, a conventional system would cost $2649.00 per year to operate. The geothermal system would cost only $1,118.00, providing a first year savings of $1531.00. Additionally, the Smiths will receive a federal tax credit of $10,717.50 for installing the geothermal system. Plus, the annual preventative maintenance contract is $60 less for the geothermal. This produces a total first year savings of $12,308.50! We also need to take into account the fact that the Smiths will avoid having to replace a conventional system sometime in the future 12 to 15 years. We will conservatively assume that the cost to do this would be $9,000.00 and this event would occur 14 years after the initial investment. We will also assume that energy costs on average will rise 2% per year. So now we have a cash flow consisting of an initial investment of $16,690.00 and followed by 25 years of savings that amounts to $68,118.68, which leaves a net return on investment of $51,428.68. Looked at another way, their investment will deliver an internal rate of return of 23.02%. Because their savings are not taxed, that is equivalent to a taxable rate of return of 31.98%. It is hard to find a better investment than that in today’s market!

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