How Much Will a Geothermal System Cost?

Question:

Dear Harold,

I’m interested in geothermal heating and cooling.  How much would a system cost to heat/cool a house with approximately 1300 square foot? If the minimum cost of a system is $25,000, I don't see how it would even pay for itself by the time you factor finance cost.

Maurice P., Lufkin, Texas



Expert Answer:

Dear Maurice,

You ask an excellent question that I would like to answer in two ways.

The first is purely by the numbers.  Does it financially make sense to transition to a geothermal system?  The answer is, of course, it depends.  It depends on what sort of rebate or incentives exist that you are eligible for, how much you are currently spending on heating and cooling, and how much it all costs.

Let’s take your $25,000 number and how this decision may play out.  If your geothermal system costs $25,000 you are eligible for a Federal Tax Credit equal to 30% of the cost, or $7500.  On top of that there may be utility and state tax credits that can be quite generous.  On average, this will knock off another 10% off the cost ($2,500).  So this $25,000 system now costs you $15,000.

In a number of states, there are interest free loans to install these types of systems.  It is not unusual to see a ten-year term on this loan.  In which case your $15,000 geothermal system ends up costing you $125 per month for ten years.  A pretty good buy.

Now the question becomes how much you are paying to heat and cool your home and how much would a geothermal system save you.  Assume that this system will save you between one-half and two-thirds of your current heating and cooling costs.  Even if you assume that it only saves you one-half, based on the above scenario, a geothermal system would be worth it to install as long as you pay on average more than $250 per month or $3000 per year.  If you pay significantly less than that, it probably isn’t worth it based purely on energy costs over 10 years.  However, note that your system will last for 30 to 50 years: so you will keep getting low cost heating and cooling long after you have paid for the system....and we have not factored in the price premium you get when you sell your house, let alone the value of the bragging rights for owning a very cool system.

Now let me answer your question a second way: geothermal will make the most financial sense for you, assuming that you have first done all the other energy efficiency tasks that have a higher return on investments.  Generally, these tasks would include things like air sealing and insulation.  It would NOT include things like new windows or solar panels--for the vast majority of people geothermal makes a lot more financial sense then windows or solar panels. So how do you know what to do to your home?  Start with an energy audit to prioritize all of these choices.

Harold Simansky



About Harold Simansky

Harold Simansky Harold Simansky is one of the cofounders of 360Chestnut.  Before that he was involved in the creation of Green Guild of MA, LLC, a full-service energy audit and home weatherization company that has helped over 1,000 Massachusetts home owners make their homes more energy efficient.  Earlier, Harold was the developer of one of the first green, LEED-certified residential buildings in the Boston-area.  Harold also has experience in the world of finance and as a consultant with Bain & Company.  He is a graduate of the MIT Sloan School of Management and Brandeis University.

 

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