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Economic Analysis of Ground Source Heat Pumps in North Carolina.

INTRODUCTION

Harvesting energy stored underground provides a huge opportunity to address the nation's energy demand by reducing electricity consumption for heating and cooling purposes. Finite resources for fossil fuels make geothermal energy a favorable alternative for a building sector's heating and cooling load. The building sector consumes 39% of the nation's energy and 36% of the electricity consumption is attributed to commercial building. According to the most recent "Residential Energy Consumption Survey (RECS)", 48% of 10.18 quadrillion Btus were for heating and cooling purposes. Geothermal energy can be used as an alternative for heating and cooling loads in commercial and residential buildings to decrease overall electricity consumption and natural gas if the technology is economically viable.

This paper compares heating and cooling system energy use intensity (EUI) and energy cost intensity (ECI) between ground source heat pumps (GSHPs), conventional natural gas furnaces and air conditioners (NGFs & A/Cs), and air source heat pumps (ASHPs) in light commercial and residential building types located in North Carolina. In order to compare GSHPs to conventional technologies, various financing scenarios were developed and energy consumption and savings, itemized cost, average installed cost, simple payback period, net present value, and cost of saved energy (CSE) were calculated.

OVERVIEW OF GROUNDSOURCE HEATPUMPS

Geothermal heat pumps, also known as GSHPs, deploy inherent geothermal energy to meet indoor heating and cooling loads during summer and winter demands. GSHPs operate based on the principle that ground temperature approximately 20 feet below the surface is relatively constant and can vary seasonally depending on ambient air temperature and solar radiation. As the depth from the surface increases, the variation of the ground temperature becomes negligible. Therefore, in the summer, the ground acts as the heat sink and during the winter, as a heat source for a GSHP. A GSHP consists of three main components: a heat pump, ground connections, and a heating and cooling distribution system. The heat pump is the main component of the system since it transfers heat between ground source and indoor building space. The ground connections (also known as loops) exchange heat with the heat sink through a working fluid. After the heat is transferred to or from the working fluid, the heating and cooling distribution system uses the fluid to provide heat to or remove heat from the building. Compared to GSHPs, conventional ASHPs through a heat pump refrigeration process extract heat from the outdoor air in the winter for heating and from the indoor air in the summer for cooling. NGF A/C systems circulate air over the outside surfaces of the heat exchanger or cooling coil, through a vent, and then through of system of ductwork to heat and cool the building space.

METHODOLOGY

1. North Carolina Consumer Survey

The GSHP data was collected from a North Carolina consumer survey issued in 2012. The consumer survey was sent to 1,023 North Carolina consumers who installed GSHP based on data from the Groundwater Protection Unit at N.C. Department of Environment and Natural Resources. The survey assessed system location, installed cost, itemized cost, maintenance cost, installation date, and square footage of heated and cooled space. The survey received 453 responses from 1,023 geothermal system (GSHP) owners in North Carolina. Among the surveyed responses, 28% of the systems were installed between 2009 and 2010 and 72% were installed between 2011 and 2012. The geothermal systems surveyed were all vertical loop and 91% of the vertical loop systems were closed loop.

The surveyed responses were categorized into two building types, residential and light commercial. The categories were defined by area and installed cost. Building types between 1175 [ft.sup.2] (162.58 [m.sup.2]) and 4,000 [ft.sup.2] (371.61 [m.sup.2]) with an installed cost of $10.82 per square foot ($116.47 per square meter) were considered residential and building types between 4,000 [ft.sup.2] (371.61 [m.sup.2]) and 5,500 [ft.sup.2] (510.9667 [m.sup.2]) with an installed cost of $12.56 per square foot ($135.20 per square meter) were considered light commercial. The average heating and cooling capacity for both types was 1 ton (3.517 kWh) per 550 [ft.sup.2] (51.0967 [m.sup.2]) of conditioned space.

2. Energy Use and Cost Analysis

Measuring building energy use could provide a better overlook for energy efficiency goals. The metric for performance rating of a building is obtained by Energy Use Intensity (EUI). EUI (kBtu/[ft.sup.2]/yr) is expressed as the annual energy consumed per total floor space of the building. EUI is an indicator of a long term efficiency trend. Energy cost intensity (ECI) is a metric for the sum of energy costs per building area per year ($/[ft.sup.2]/yr). In a similar manner, energy saving intensity was defined as the sum of energy cost savings per area. The heating and cooling systems energy use intensity, energy cost intensity and energy saving intensity were calculated with the baseline of NGF A/Cs from 1983 for residential and light commercial buildings. The heating and cooling system ECI and ESI were then calculated by using EUI and natural gas rate and electricity rate charges for residential and light commercial buildings.

3. Economic Analysis

To evaluate the economics of GSHPs compared to conventional systems, three financial scenarios were developed and an average lifespan of 18 years for NGF A/Cs, 15 years for ASHPs, and 40 years for GSHPs was assumed. The three financial scenarios were present scenario, technology parity scenario, and future scenario. The availability of rebates, state tax credit, and federal tax credit were determined for each scenario, see Table 1 below. Note that, in order for a system to be eligible for rebates and tax incentives, the system must meet its minimum efficiency requirement for heating and cooling systems in the USA.

The present scenario included a $200 rebate, a personal state tax credit of 35% with an $8,400 cap, and a federal tax credit of 30% and no cap for residential and light commercial buildings. Also the other factors considered for businesses to recover investments in geothermal property through depreciation deductions were the federal Modified Accelerated Cost-Recovery System (MACRS), IRS Publication 946, and Form 4562 Depreciation and Amortization. Depreciation was calculated for both the present and future scenario for light commercial buildings according to the North Carolina Department of Revenue depreciation schedule and section 179.

In the technology parity scenario, no incentive or rebate was considered. Therefore, the results were solely based on the technology cost.

The future scenario assumed that rebates and state credit would expire and the federal investment tax credit would decrease. GSHP systems installed between 2008 and 2015 are eligible for 35% personal state tax credit with $8,400 cap and a 30% federal investment tax credit with no cap. The commercial buildings are eligible for a corporate tax credit of 35% with a maximum cap of $2,500,000. A 28% and 34% marginal tax bracket was assumed for residential and commercial buildings based on the average income of GSHP owners from the consumer survey.

For each scenario annual energy consumption and savings, itemized cost, average installed cost, simple payback period, net present value, and cost of saved energy (CSE) were calculated. The maintenance cost of each system was used to calculate net present value and CSE, see Table 2 below. The maintenance cost for GSHPs was obtained from the consumer survey data.

RESULTS OF ANALYSIS

The results for various financing scenarios are presented in the tables and figures below. An economic analysis of simple payback period, cash flow analysis, and cost of saved energy was calculated for residential and light commercial buildings.

In residential buildings, GSHPs had the lowest energy use intensity and highest energy savings intensity. Compared to the baseline, GSHPs saved 48.3% more than ASHPs and 16.7% more than NGF A/Cs per square foot, see Table 3 below.

In light commercial buildings, GSHPs had the lowest energy use and highest savings per square foot (square meter) of conditioned space. Compared to the baseline, GSHPs saved 37.0 % more than ASHPs and 46.6 % more than NGF A/Cs per square foot, see Table 4 below.

The itemized cost of ground source heat pumps is shown in Figure 1. The heat pump and drilling items were 72% of the total itemized cost; whereas, permits and annual maintenance costs were only 2%.
Figure 1 Itemized cost for GSHP in 2012 for North Carolina

Item                  Cost [$/ [ft.sup.2]]
                     Residential   Commercial

Heat Pump                          41.2%
Drilling                           30.6%
Labor                              15.2%
Duct Work                          11.0%
Building Permit                     0.8%
Annual Maintenance                  0.5%
Mechanical Permit                   0.5%
Electrical Permit                   0.2%

Note: Table made from bar graph.


The average installed cost for GSHP and conventional systems varied depending on the financial scenario, see Table 5 below.

The simple payback period for residential building systems was much longer compared to that of commercial building systems. For residential buildings, GSHPs had a 22% higher simple payback period than NGF A/Cs and 45% higher than ASHPs. For light commercial buildings, GSHPs had a 64% higher simple payback period than NGF A/Cs and 88% higher simple payback period than ASHPs, see Table 6 below.

The net present value of GSHPs was the highest in the present scenario and the lowest in the technology parity and future scenario, see Table 7 below. A high net present value illustrates that GSHPs are able to pay off the capital costs during the lifespan of the system. In the present scenario, GSHP's have a higher net positive value than conventional systems. The low negative net present value for GSHPs in the technology parity and future scenario show that in the absence of the rebates and incentives, GSHPs will not become net positive during their lifespan.

The CSE depends on capital cost, operation and maintenance cost, the lifespan of the system, and energy savings. The CSE for each financial scenario is illustrated in Table 8 below. In the each scenario, GSHPs had the lowest CSE.

CONCLUSION

Even though GSHPs reduce energy consumption, the economic analysis emphasizes the importance of rebates and tax credits for GSHPs to be economically viable compared to conventional systems.

The various financing scenarios included the availability of rebates, state tax credits, and federal tax credits. In the technology parity and future scenario, the lack of the availability of rebates and tax credits impacted GSPHs' ability to compete with conventional systems. GSHPs have a high capital cost and rely heavily on rebates and incentives to compete in the market. The respondents from the consumer survey considered the installed cost, without rebates and tax credits, to be the biggest barrier for adopting these systems. The significance of rebates and tax credits to lower the barrier of capital cost of GSHPs was emphasized by comparing the financial scenarios and evaluating simple payback period, net present value, and CSE. In the present scenario, GSHPs had the lowest cost of saved energy and the highest net present value. Without rebates or tax credits, NGF & A/Cs had the highest net present value and GSHPs had the lowest value among other systems. The future scenario indicated that for residential and light commercial buildings, GSHPs had the lowest cost of saved energy with the lowest net present value.

ACKNOWLEDGMENTS

The work was supported by a grant from the North Carolina Sustainable Energy Association (NCSEA).

NOMENCLATURE

A/C = Air Conditioner

ASHP = Air Source Heat Pump

COP = Coefficient of Performance

CSE = Cost of Saved Energy

ECI = Energy Cost Intensity

EER = Energy Efficiency Ratio

ESI = Energy Saving Intensity

EUI = Energy Use Intensity

GSHP = Ground Source Heat Pump

NGF = Natural Gas Furnace

SEER = Seasonal Energy Efficiency Ratio

REFERENCES

DOE/EERE. 2001. Air-Source Heat Pumps. Report DOE/GO-102001-1113, Energy Efficiency & Renewable Energies. www.nrel.gov/docs/fy01osti/28037.pdf.

DOE. 2012. Geothermal Heat Pumps. U.S. Department of Energy. http://energy.gov/energysaver/articles/geothermal-heat-pumps.

DOE/EERE. 2011. Guide to Geothermal Heat Pumps. Report DOE/EE-0385. Energy Efficiency & Renewable Energies. http://energy.gov/sites/prod/files/guide_to_geothermal_heat_pumps.pdf.

DSIRE. 2013. Renewable Energy Tax Credit--North Carolina. Database of State Incentives for Renewables & Efficiency. www.dsireusa.org/incentives/.

EIA. 2013. Heating and cooling no longer majority of U.S. home energy use. U.S. Energy Information Administration (EIA). http://www.eia.gov/todayinenergy/detail.cfm?id=10271.

EIA. 2012. Electric power sales, revenue, and energy efficiency Form EIA-861 detailed data files. U.S. Energy Information Administration. www.eia.gov/electricity/data/eia861.

EIA. 2013. Assumptions to the Annual Energy Outlook. Report DOE/EIA-0554. U.S. Energy Information Administration.

ENERGY STAR. 2008. ENERGY STAR[R] Program requirements for residential air source heat pump and central air conditioner equipment. ENERGY STAR. www.energystar.gov/products/specs/system/files/Central_ASHP_and_CAC_Program_Requirements%20v4_1.pdf.

ENERGY STAR. 2012. Geothermal Heat Pumps Key Product Criteria: Energy Efficiency Requirements for Geothermal Heat Pumps. ENERGY STAR. www.energystar.gov/index.cfm?c=geo_heat.pr_crit_geo_heat_pumps.

Howell R.L., Coad W.J., Sauer Jr. H.J. 2009. Principles of Heating Ventilating and Air Conditioning, 6th Ed. Chapter 8. American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc.

Hughes P.J. 2008. Geothermal (Ground Source) heat pumps: market status, barriers to adoption, and actions to overcome barriers. Report ONRL--2008/232, Oak Ridge National Laboratory.

IGSHPA. 2012. Geothermal: Commercial. International Ground Source Heat Pump Association (IGSHPA). http://www.igshpa.okstate.edu/geothermal/commercial.htm

Minnesota Department of Commerce. 2008. Performance, Emissions, Economic Analysis of Minnesota Geothermal Heat Pumps. Report MJ807AAN. MichaelsEnergy. MN. USA.

NCDC. 2013. Heating & Cooling Degree Day Data--Historical Climatological Series 5-1 & 5-2: January 2011 through December 2012. National Climatic Data Center.

Navigant Consulting, Inc., SAIC. 2007. Technology Forecast Updates--Residential and Commercial Building Technologies. U.S. Energy Information Administration. www.eia.gov/analysis/studies/buildings/equipcosts/.

Nisson, N., Wilson, A., 2008. The Virginia Energy Savers Handbook: A Guide to Saving Energy, Money, and the Environment. Virginia. 3rd Virginia Department of Mines, Minerals and Energy

North Carolina Department of Revenue Local Government Division Property Tax Section. 2013. Cost index & depreciation schedules. North Carolina Department of Revenue Local Government Division Property Tax Section. http://www.dor.state.nc.us/publications/cost_archive/13archive/2013_costindex.pdf.

NCSC. 2011. Commercial Solar Incentives. North Carolina Solar Center. http://ncsc.ncsu.edu/wp-content/uploads/Commercial-Solar-Incentives.pdf.

NREL. 2009. Advanced Commercial Buildings Research. NREL/FS-550-46440, National Renewable Energy Laboratory. www.nrel.gov/docs/fy09osti/46440.pdf.

PSNC Energy[R]. 2012. Large Volume Business Rates - Summary of Rates and Charges. www.psncenergy.com/en/large-volume-business/rates/.

RETScreen International. 2005. Ground Source Heat Pump Project Analysis Chapter; Clean Energy Decision Support Center, Minister of Natural Resources Canada

Self, S.J., Reddy, B.V., Rosen, M.A. 2013. Geothermal heat pump systems: Status review and comparing heating options. Applied Energy Journal, 101:341-348.

Wu, R. 2009. Energy efficiency technologies--air source heat pump vs. ground source heat pump. Journal of Sustainable Development, 2:14-23.

Hamed Honari

Student Member ASHRAE

Miriam Makhyoun

Vikram Sridhar

Kacey Hoover

Hamed Honari is a Mechanical Engineer, E.I.T, with a Master of Science degree from NC State University. Miriam Makhyoun is currently a Research Manager at SEPA, formerly the Manager of Market Intelligence at North Carolina Sustainable Energy Association. Vikram Sridhar is a candidate for a Master degree in Engineering Management Program from Duke University. Kacey Hoover is a Regulatory and Policy Analyst at North Carolina Sustainable Energy Association.
Table 1. Financing Scenarios for GSHPs in North Carolina

Case No.   Scenario     Rebates    State Tax Credit   Federal Tax Credit

1          Present      Included   35%                30%
2          Technology   N/A        N/A                N/A
           Parity
3          Future       Expired    Expired Dec. 2015  10% Dec 2016

Table 2. Maintenance Cost of GSHP and Conventional Systems

System Type        Baseline      NGF A/C       ASHP          GSHP
Maintenance Cost   0.06 (0.65)   0.14 (1.51)   0.14 (1.51)   0.07 (0.75)
[$/[ft.sup.2]/yr]
([$/[m.sup.2]/yr])

* Monetary units are in 2012 US dollars. ** The maintenance cost varies
based on the service, location and a variety of factors.

Table 3. Annual Energy Consumption and Savings for Residential Buildings

System Type        Energy Use Intensity    Energy Cost Intensity
                   [kBtu/[ft.sup.2]/yr]    [$/[ft.sup.2]/yr]
                   ([MJ/[m.sup.2]/yr])     ([$/[m.sup.2]/yr])

NGF A/C 1983 (1)   50.10 (569.03)          0.648 (6.971)
NGF A/C (2)        31.75 (360.61)          0.418 (4.503)
ASHP (3)           15.06 (171.05)          0.467 (5.028)
GSHP (4)           12.25 (139.13)          0.380 (4.091)

System Type        Energy Saving Intensity
                   [$/[ft.sup.2]/yr]
                   ([$/[m.sup.2]/yr])

NGF A/C 1983 (1)   -
NGF A/C (2)        0.229 (2.468)
ASHP (3)           0.180 (1.942)
GSHP (4)           0.268 (2.880)

(1) Baseline: SEER = 10, AFUE = 0.60 (2) SEER = 14, AFUE = 0.96
(3) SEER = 15, COP = 2.3 (4) EER = 16, COP = 3.1

Table 4. Annual Energy Consumption and Savings for Light Commercial
Buildings

System Type    Energy Use Intensity    Energy Cost Intensity
               [kBtu/[ft.sup.2]/yr]    [$/[ft.sup.2]/yr]
               ([MJ/[m.sup.2]/yr])     ([$/[m.sup.2]/yr])

NGF A/C 1983   77.93 (885.12)          0.558 (6.006)
NGF A/C        49.39 (560.96)          0.383 (4.123)
ASHP           23.42 (266.00)          0.371 (3.993)
GSHP           19.05 (216.37)          0.301 (3.244)

System Type    Energy Saving Intensity
               [$/[ft.sup.2]/yr]
               ([$/[m.sup.2]/yr])

NGF A/C 1983   -
NGF A/C        0.175 (1.884)
ASHP           0.187 (2.013)
GSHP           0.256 (2.757)

Table 5. Average Installed Cost [$/[ft.sup.2]] ([$/[m.sup.2]]) for GSHP
and Conventional Systems

System Type                  Residential
              Present        Technology parity   Future

GSHP          5.07 (54.57)   10.82 (116.46)      10.69 (115.06)
NGF A/C (*)   3.00 (32.29)    3.00 (32.29)        3.29 (35.41)
ASHP (*)      2.80 (30.13)    2.80 (30.13)        3.07 (33.04)

System Type                  Commercial
              Present        Technology Parity   Future

GSHP          5.89 (63.40)   12.56 (135.19)      12.41 (133.58)
NGF A/C (*)   3.00 (32.29)    3.00 (32.29)        3.29 (35.41)
ASHP (*)      2.80 (30.13)    2.80 (30.13)        3.07 (33.04)

(*) Note that installed cost varies based on the location, provider,
installer and a variety of factors.

Table 6. Simple Payback Period for GSHP and Conventional Systems

System Type            Simple Payback Period [years]
              Residential Buildings           Commercial Buildings

GSHP          19                              8
NGF A/C       13                              5
ASHP          15                              4

Table 7. Net Present Value (NPV) [$/[ft.sup.2]] for GSHP and
Conventional Systems

System Type   Residential [$/[ft.sup.2]] ([$/[m.sup.2]])
              Present          Tech. parity       Future

GSHP           0.843 (9.07)    -4.902 (-52.77)    -4.195 (-45.16)
NGF A/C        0.117 (1.25)     0.117 (1.25)       0.128 (1.38)
ASHP          -0.435 (-4.68)   -0.435 (-4.68)     -0.478 (-5.14)

System Type   Commercial [$/[ft.sup.2]] ([$/[m.sup.2]])
              Present         Tech. Parity      Future

GSHP          3.339 (35.94)   -6.770 (-72.87)   -1.724 (-18.56)
NGF A/C       1.586 (17.07)    1.586 (17.07)     1.651 (17.77)
ASHP          1.663 (17.91)    1.663 (17.91)     1.742 (18.75)

Table 8. Cost of Saved Energy (CSE) [$/kWh] for GSHP and Conventional
Systems

System Type             Residential
              Present   Technology parity   Future

GSHP          0.0519    0.0649              0.0685
NGF A/C       0.1348    0.1348              0.1480
ASHP          0.0773    0.0773              0.0849

System Type                Commercial
              Present   Technology Parity   Future

GSHP          0.0389    0.0634              0.0550
NGF A/C       0.1086    0.1319              0.1203
ASHP          0.0562    0.0698              0.0623

(*) Note that in commercial buildings depreciation was included.
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Author:Honari, Hamed; Makhyoun, Miriam; Sridhar, Vikram; Hoover, Kacey
Publication:ASHRAE Conference Papers
Date:Jun 22, 2014
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