Geothermal Economics – Understanding and Leveraging the Inflation Reduction Act

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Mike Collignon: You know, we're nearing the end of Polar Bear Week. That wonderful yet endangered species. Now, why am I mentioning polar bears? Well, they know how to handle the cold weather. As humans, we need a little help from HVAC systems, especially as we approach the end of autumn in the beginning of winter. Thankfully, we're here to discuss geothermal and the economics of that HVAC option.

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Mike Collignon: Yes there are. Inflation Reduction Act tax credits and incentives for geothermal heat pump systems, which help to reduce cost barriers and deliver an accelerated return on investment. Now we're going to delve into the legislation and explain how to leverage tax credits that are up to 50% for the installation of geothermal systems for commercial building owners and 30% for homeowners.

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Mike Collignon: We're also going to look at how to maximize accelerated depreciation deductions and government rebates for nonprofit entities. Now joining us today for his green building media debut is Joe Parsons. Joe's expertise is in renewable and sustainable technologies, including geothermal systems, water source heat pumps and greener hydronic solutions contributing to global decarbonization as a longtime advocate of sustainable solutions.

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Mike Collignon: He has collaborated with industry experts to influence legislation at both the state and federal levels, serving as the Senior Marketing Sustainability Manager for Climate Control Group. He leads the initiative to assess and promote data driven innovations in sustainable heating and cooling, and provide educational resources to navigate rebates and legislative incentives, including the aforementioned Inflation Reduction Act. Now, before we get started, I want to tell you about our sponsors.

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Mike Collignon: The first is Climate Master. Climate master is a leading manufacturer of renewable geothermal HVAC systems with a 50 year history of innovative engineering. As a member of the Climate Control Group. They actively collaborate with legislators and regulatory agencies as advocates for efficient geothermal solutions that support decarbonization initiatives. Now our other sponsor is our good friend Power Shift by NV energy.

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Mike Collignon: It's a program that helps residential and business customers conserve energy and save money on their power bills. Power shift is a one stop resource to find energy efficient products and services. For more information, please visit in.

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Mike Collignon: Now. During the course of today's presentation, you can submit questions for our guest. Simply use the questions box on the right side of your screen and review those questions and pose those to Joe during the Q&A time that we have set aside after his presentation. All right, Joe, welcome to the webinar series.

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Joe Parsons: Hey, I'm really glad to be here. I would love to talk about this afternoon. We're talking about the Inflation Reduction Act and what that means to the the geothermal heat pump market, this industry, quite a bit to talk about. So I think I'll stop sharing my video and stop start focusing on on the presentation. I will come back and we will cover questions, as you mentioned, toward the end of the presentation.

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Joe Parsons: So please drop those in the chat and we'll try to get to everything. We do have a hard stop at an hour on the presentation. So anything that we do not discuss, we will respond to those questions to get those answered for you.

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Joe Parsons: All right. Let's get started.

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Joe Parsons: We've been working on this presentation actually, since about September of 2022, when the Inflation Reduction Act was was announced in earnest. So the legislation was signed into into law, I think it was August of 16 to 2022. So we had a full year of the impact of the Inflation Reduction Act. The thermal heat pumps have long been a sound financial decision, with relatively short back short payback, especially with commercial applications.

00:04:05:05 - 00:04:52:16
Joe Parsons: And the efficiency of these systems is improving over the years. But now, with this recent legislation, the reason to adopt a geothermal solution is even more compelling, with incentives and rebates ranging from 30 to 50% per commercial projects. So as we go through the presentation, we'll explore how geothermal solutions can help organizations achieve sustainability and decarbonization goals. We'll also share examples to real life projects and compare first cost and payback scenarios with previous dates to see how these projects would will now utilize today's incentives to reach even better results.

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Joe Parsons: The light. Take a look at some of the political drivers around why geothermal heat pumps were included in the Inflation Reduction Act. For a long time we've had tax incentives out there, but on the commercial side we were capped at 10%. It's so over the years, we have focused on lobbying efforts in Washington, D.C., to cover to make sure that our legislators understood the benefits of this unique technology.

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Joe Parsons: And this when we met with those entities. You know, this is what we talked about. Geothermal heat pumps are a proven technology. They're proven that they're because they're operating in all 50 states. So from South Florida to systems installed in Alaska, this is good technology and it works.

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Joe Parsons: There's no area really too warm or too cold to apply. Geothermal heat pump technology.

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Joe Parsons: Widely. Also, the components of these systems are domestically made. We are one of the few industries, you know, in the United States where the majority of the product, I would say 90% of the products that are installed in the United States are built here in the United States, and not just the geothermal heat pumps themselves, but the ground loops.

00:06:15:28 - 00:06:45:07
Joe Parsons: The plastic HDPE ground loops are built here. Many of the drilling rigs that are used to install vertical diagonal ground loops are built here as well. So it's certainly an area that Congress was interested in based on job creation around these new incentives. Yeah. As a solution to convert electricity to thermal energy, heat pumps are the best way to go.

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Joe Parsons: And geothermal heat pumps excel on those in those target areas. Air source heat pumps, for example, and even electric vehicles. I know there's a widespread move to corporate and electric vehicles, but these tend to stress the grid at peak demand on geothermal heat pumps. They provide maximum demand reduction when running at 100%. So yeah, there's been a great rush.

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Joe Parsons: As I said, to focus on heat pump technology. But in reality, the way to get to, you know, a net zero carbon economy is by the installation of these ground source heat pumps.

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Joe Parsons: We also have a long history of satisfied customers. So just our heat pumps also offer a very unique position from the standpoint of clean energy. And they've achieved this unique position also in public policy. So that's really taking a look at some of the reasons that geothermal heat pumps were included in the Inflation Reduction Act.

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Joe Parsons: So let's turn our attention to commercial tax incentives. So what's covered there? As I mentioned before, the tax incentives we had prior to the IRA were at 10%. So we've been increased, you know, from 10% to other options. But if you take a look at the structure of the tax credits, really we now we're starting at a base rate of 6% with a bonus rate of five times five times the base rate.

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Joe Parsons: And to achieve that, there are a couple of parameters that have to be met. So if your installation is less than one megawatt of required. Required thermal energy or electrical or thermal energy, your project automatically gets that additional bonus. You're going from 6% to 30%. And this covers a lot of light commercial projects. It doesn't include a lot of new installations, high rise buildings, and, you know.

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Joe Parsons: Systems that are basically out there that are exceed that rate. But.

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Joe Parsons: What it does for us, it also provides a way of meeting that additional meeting and additional bonus requirement. So to do that, if you're over one megawatt, you must meet prevailing wage rates. And on most larger projects, projects that would be more than, you know, 284 times in that range. You might already be working under prevailing wage rates.

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Joe Parsons: And there's also a qualified apprenticeship program that those requirements need to be met to get to that bonus that you're.

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Joe Parsons: One other constraint any project that started started prior to January 29th of 2023 has all been grandfathered in to receive that bonus. Bonus status.

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Joe Parsons: The discovering. Here are the basic parameters. How to get from from basically from 6% to to 30%. But that's not the entirety of what is out there and available.

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Joe Parsons: So there are ways to go from 30%, up to 40%, and even to 50% if you meet certain additional parameters. Again, looking at the way that the credits are laid out, you have basically a 6% base rate and then base rates of of 2% on domestic content and energy communities. Again, those can hit the the five times bonus and under certain scenarios.

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Joe Parsons: And we'll walk through that process as we walk through the presentation. So how do we get from 30 to 50%?

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Joe Parsons: First we'll talk about domestic content. So to achieve domestic content the construction projects must the components of that project must be produced with iron and steel. And these are projects. These are building projects. So if you're if you have a structural building that's a part of this program, and you're going to go after tax incentives for.

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Joe Parsons: Incorporating these energy efficient, efficient measures, any of the structural components would need to be made of steel that's produced here in the US. Manufactured products must be produced in the US, but there's some constraints and still some concerns around the clarity that we've received from from the Treasury Department right now. Right now, the, you know, the computation that's required to determine the amount of components that are made in the US is extremely complicated and difficult.

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Joe Parsons: So we have reached out through the geo exchange organization to have communications with the IRS. And we're seeking clarification that we're expecting in the fourth quarter yet yet this year.

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Joe Parsons: So let's take a look at the responsibility for determining domestic content.

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Joe Parsons: Again, that really is relying on the the individual, the owner of the property, the project that is receiving these incentives. So that needs to be taken into consideration when making that that decision. Furthermore, we have what's what are known as energy communities and energy community. Bonus. You know, they're basically three ways to qualify.

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Joe Parsons: First, there are brownfield sites. These are sites that typically were involved in industrial manufacturing where there's been sort of pollution on the site. So any area that would meet that brownfield requirement and these this can be determined by basically reaching out to the Environmental Protection Agency that serves that particular market. They can not only allow, you know, provide you information to know which sites, which zip codes, or even which lot city blocks are included in these areas, but also what's out there and available as incentives for brownfield site remediation.

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Joe Parsons: So typically when you're using the brown field site, you would be responsible for that cleanup. But there are, you know, incentives out there to make that happen.

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Joe Parsons: So in additional brownfield sites, we also have what are known as statistical areas. And these are areas that are that meet certain requirements. So and this falls under the energy community portion as well. So these are census tracts.

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Joe Parsons: Where we have areas that have been disadvantaged by the basically the closing of.

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Joe Parsons: Fossil fuel related industries. So coal closures for example.

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Joe Parsons: Any census tract or adjoining census tract that has a coal mine that's closed since the year 2000, or a census tract or adjoining track for a coal plant that's closed since 2010, that would be qualified as one of these statistical areas. And it also needs to take into consideration the level of unemployment within that particular area. That would need to be based on a legislative determination and area with 0.17.

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Joe Parsons: Employment, total employment related to the production of coal, oil and natural gas, and with a higher than average unemployment rate, or an area where 25% of the overall tax revenue had been related to the production of coal, oil, natural gas, and also qualifying with that higher than average unemployment rate.

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Joe Parsons: So we'll touch on that a bit more as we go through. But brownfield sites, the question always comes up is, you know, how do we how do we determine what is a brownfield site. So we've been able to put together information. We pull from maps. And these provide you an overview of of these areas. You know what. And you can see there's a higher concentration in the northeast and some of the industrial areas in the Great Lakes region, and also areas where you had, you know, substantial amount of oil and gas production.

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Joe Parsons: So.

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Joe Parsons: The question is, is it always comes up is how do we really know? We've been able to locate what's known as the Atlas. And it's an environmental, you know, demographic area map that can be used to identify these areas. It makes it very simple. You can basically insert a zip code, and it will create a curated set of map layers to show you where these brownfield sites are.

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Joe Parsons: But as I said earlier, it's always best to contact your local EPA office for assistance regarding these brownfield sites to determine exactly where they are in your area and if they're if there are other funds out there available to help remediate those signs.

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Joe Parsons: So let's take a look now at areas related to fossil fuel employment.

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Joe Parsons: This map indicates these coal mines that we were talking about. And on the numbers on the slide are a little bit different. Anything after, you know, 1999 for the coal mine closing or a power plant that was fueled by fossil fuels closing after the year 2009. These are listed. And if you see on the map, you can see that those areas in the darker orange are where those the census tracts where those mines or power plants are actually located.

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Joe Parsons: Did you also see adjoining those? These are the census, the adjoining census tracts that we discussed. And the government included this because typically, you know, we're trying to address issues where closures have created a hardship on those within within those areas. So typically the employment, the employees for these plants or mines would come from areas that are are adjacent.

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Joe Parsons: So they would also qualify.

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Joe Parsons: Now looking at the statistical areas, these are known as MSA s which are metropolitan statistical areas. And then non MSAs. And you can see here the areas initially excuse me just slide.

00:18:42:21 - 00:19:04:07
Joe Parsons: You can see these areas again where the the areas in blue these areas had employment. That was again within that percentage related to the industries of coal oil and natural gas.

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Joe Parsons: The areas in the purple color are areas that have also met the unemployment rates. These rates are established every year. They typically come out in, you know, and in the month of March and are typically published in the month of April. So initially looking at this, but before these unemployment rates were published, we really didn't get a great picture of what was included, because all we could see on this map where the blue areas, once the tax, the information around unemployment was, was released, then we have are able to do the overlay of this area.

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Joe Parsons: So by doing that we can take a look now at, you know, really everything that's qualifying in this energy community community bonus credit. So you have everything overlaid. You have your census tracts around coal closures, power plant closures. And then you have also those areas that are included in those areas where there was substantial employment around fossil fuel production.

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Joe Parsons: So you can see there's a substantial amount of these areas that are that are covered. And then we can lay in the the brownfield areas as well.

00:20:36:16 - 00:21:09:06
Joe Parsons: So one of the things that's really had a great deal of impact and something that was really we've never seen before, and the standpoint of tax credits or incentives before, in order to receive a tax credit, you obviously had to have a tax liability with the adoption of the Inflation Reduction Act. This is opened up these same opportunities to nonprofit organizations.

00:21:09:08 - 00:21:27:28
Joe Parsons: So, you know, in areas where and again, you have no tax liability. And these typically these organizations have not even filed tax credits or tax returns. Now there's a possibility of receiving.

00:21:28:00 - 00:22:21:26
Joe Parsons: A basically a refund check. So this direct pay option is available for certain tax exempt organizations like state and local governments or Tennessee Valley Authority. As far as a power producer in the Indian tribal governments, Alaskan native corporations, even rural electric co-ops qualify for this. So if you have a situation like a nonprofit organization like it from a municipality with a school district, for example, you can install ground source heat pumps and receive not only the overall benefit of the efficiency of operating costs and maintenance, but you can also receive an incentive check basically once that project is complete.

00:22:21:28 - 00:22:42:04
Joe Parsons: So the qualifier for this, it had to begin. You know, projects that were started, you know, in in 2023. There's also, you know, a maximum credit for the rebate. But it's not limited. And it can be carried back for a period of three years or carried forward.

00:22:42:07 - 00:23:17:08
Joe Parsons: There's also an in addition to a direct pay option. There's also the ability to transfer any applicable credits to another taxpayer. So basically you could sell those credits to another entity that had a substantial tax liability. So it's providing a way for project owners to monetize their projects that, you know, by selling the credits or transferring into third parties.

00:23:17:10 - 00:23:55:01
Joe Parsons: There's still substantial questions about this transferability and elected pay. I've included a link though, here in the in the presentation, which will be available after the presentation. This provides a lot of information. I think they're probably 40. This is frequently asked questions document with at least 40 different questions that address the majority of questions that have come up over, you know, since beginning in March of 2023 around this new IRS section.

00:23:55:04 - 00:24:29:20
Joe Parsons: Section 6417. This will walk you through the process of how you qualify for these additional incentives. There are some requirements a requirement for a registered preregistration of your project. This document will walk you through which forms to use for that. How to get that done. It's not really a pre-qualification, it's only a pre-registration. Because again, we're dealing with entities that had no tax liability before and it typically never filed a tax return.

00:24:29:23 - 00:24:53:05
Joe Parsons: This allows them to register their project. And it must be done within the year that that project is going to be complete. So, you know, everything hinges on when that project is completed and submitted for the tax return. And it would be paid within that tax year.

00:24:53:08 - 00:25:35:16
Joe Parsons: There's also something that we've had, you know, throughout the incentive incentives that we had before, commercial tax credits with the 10% credit before. We've always had the ability over the past at least ten years to take an accelerated, accelerated appreciation. So what does that mean? That means that typically the basis of the standard HVAC systems, typical rooftop units, applications, they're depreciable, but they're only depreciable on what's known as a 39 year straight line depreciation basis.

00:25:35:18 - 00:26:08:19
Joe Parsons: By depreciating over 39 years, this would provide only about 3.3% of the basis in tax savings over the first five years. By qualified as an energy property, the owner is able to depreciate that investment over the first five years. So is that 39 year straight line depreciation in the first five years? You don't want to be getting a little over 3% of that of the tax savings.

00:26:08:20 - 00:26:42:23
Joe Parsons: You can take the entire depreciation in the first five years. Also, there are accelerated depreciation schedules, bonus depreciation, which allow based on the tax year, the current tax year, you could elect to depreciate your investment in the first year if that's what you choose to do. The systems that were installed in 2022, that bonus allowance was 100%, so you could expense 100% of that investment in the first year.

00:26:42:26 - 00:27:16:15
Joe Parsons: Depreciation schedules typically decline over time, and as they get close to zero, they're basically started over again. So projects that complete in 2023 are going to qualify at 80% bonus depreciation 60% 2024 and then potentially phase out in 2027. But again, historically these do not phase out. You know, this is not just something that's out there for, you know, ground source heat pumps and disqualifies other properties as well.

00:27:16:16 - 00:27:29:03
Joe Parsons: So historically it will renew itself and start over 100%.

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Joe Parsons: So let's take a look. Now we talked a little bit about the the structure of the tax credits, what they look like, how they're made up, you know, and some of the areas that are where we still need to have some clarity from Treasury over how to request these tax credits. But we felt like it was very important to provide a tool that would help contractors.

00:27:53:24 - 00:28:16:05
Joe Parsons: We would help architects and engineers, specifying engineer building owners, you know, and those who are out there selling, you know, ground source heat pumps into this market, create a tool that allows them to factor in the overall benefits of the real economics related to.

00:28:16:07 - 00:28:27:15
Joe Parsons: The adoption of IRA. So let's take a look first at what would be impact how we could impact a nontaxable entity.

00:28:27:18 - 00:28:36:16
Joe Parsons: So before the IRA, you know, there were some local incentives around.

00:28:36:19 - 00:29:10:13
Joe Parsons: Nonprofit organizations that would install ground source pumps, but that was really up until our a, you know, a charitable organization, for example, just didn't qualify. So what we've done is put together a tool that provides us. Anyone who downloads this tool can quickly determine the impact. So what do we wanted to do? Ultimately is having having everyone who needs this information, providing them access to this tool.

00:29:10:13 - 00:29:32:18
Joe Parsons: But we thought it was very important to show the overall benefit of what we had before and what we have now. So in order to do this, and when we provide training on how to use this tool, we take a look at a couple of examples. These are projects that were installed actually here in Oklahoma City. One was a charitable organization.

00:29:32:18 - 00:29:51:21
Joe Parsons: And and one was that one was a for profit. So we'll take a look at both of those. Again this tool is available for download from the CCD and your website.

00:29:51:24 - 00:30:22:00
Joe Parsons: So let's take a look at this is the Catholic Charities organization Oklahoma City. Again we can see that obviously there's no no real incentives here. So what what we do when we use this tool, we look at an installation comparison. So we look at a traditional HVAC system. And since this project was already had already specified HVAC equipment, we knew exactly what the cost of that equipment would be.

00:30:22:01 - 00:30:48:06
Joe Parsons: So to determine this, basically it's a calculation of determining the, you know, the project cost per square foot just in designers, system specifiers typically know this area. You know this this information in a particular region. So it allows you to customize this. It's not one size fits all. It's you know, if you're in Chicago versus city, you know, the cost of of product.

00:30:48:06 - 00:30:53:13
Joe Parsons: The cost of installation will vary based on the.

00:30:53:16 - 00:31:29:16
Joe Parsons: Contributing factors there. So in this project, traditional bake came in at $508,000 for this two story new construction building the geothermal system. Again this was from the actual quote. Quote. This is the number that was provided and paid $737,000. Again, there was no IRA tax rebate at the time. There was a 10% tax incentive at the time. But you've only got that if you qualified and had tax liability.

00:31:29:18 - 00:32:21:02
Joe Parsons: So in this calculation, you're looking at the cost per square foot, and you're looking at basically the overall savings per square foot, which is a calculation of operating cost savings and maintenance cost savings for this type of structure. Yeah. So in the first year, the investment of this organization almost $195,000 in year five, they're approaching $8,000. So this system basically paid for itself at about 6.5 years by ten years, based on the energy savings and the reduced maintenance cost, they had accumulated a little over 200 and $207,000 in in savings based on operating cost savings.

00:32:21:08 - 00:32:44:21
Joe Parsons: So what would have happened today if there's another building and there are out there, there's a lot of interest, you know, especially with this tool, to be to be able to project what the savings will be. So let's take a look at the same the same structure.

00:32:44:23 - 00:33:23:09
Joe Parsons: By taking a look at this under today's tax benefits. So again the same numbers out there traditional HVAC $508,000. Geothermal three 3737 excuse me. In this scenario, under the IRA, the owners of this charitable organization in the year that it was completed would have received a check from the IRS for $338,000. Again, you've got the same savings per square foot against operating costs and reduced maintenance.

00:33:23:10 - 00:33:29:00
Joe Parsons: What this means is in the first year.

00:33:29:03 - 00:33:32:17
Joe Parsons: This owner.

00:33:32:20 - 00:34:04:04
Joe Parsons: Would be cash positive $143,000 cash positive in the first year, and accumulated savings of almost $550,000 in the first ten years of operation. You'll notice two and apologize for the size of this. We tried to get everything on one one slide here, but you'll notice there. Why was there no depreciation? Well, in order to to depreciate an asset you have to have that tax liability.

00:34:04:05 - 00:34:41:05
Joe Parsons: So remember that as we look forward because those numbers radically change radically change the payback. So again this takes a look. And this could be you know this could be a tribal organization. It could be a K through 12 school. You know it could be again any sort of nonprofit organization. So it helps to be able to show this and talk about it in an intelligent way, to help a customer make that decision to go geothermal.

00:34:41:08 - 00:35:20:05
Joe Parsons: So let's take a look now at a for profit project. This project was completed in 2016. It was actually sold in a construction team meeting with the CEO of this organization. And by an entity that was actually using something similar to this geo economics tool. Again, while it was in kind of the conceptual design stage, the thermal is always, as I said earlier, in the beginning, always made sense.

00:35:20:05 - 00:35:53:10
Joe Parsons: But even now, the paybacks are just tremendous. A really compelling argument to go this way. So again, this this project is a six story, you know, purpose built class, A office building, basically. You'll notice on the slide there were some additional items included in this project. These are dry coolers that were designed to not provide any sort of benefit to the heating or cooling load of the structure.

00:35:53:12 - 00:36:29:09
Joe Parsons: These are designed to maintain the ground temperature around the Earth loops, the somewhat somewhat limited. Just like because all the ground loops are installed vertically and are beneath the parking. The parking area. So rather than expanding that loop field, these dry coolers were installed and these only operate when the ambient temperature is below 48 degrees. So, you know, the installation of these components have zero on the summer peak.

00:36:29:09 - 00:37:01:29
Joe Parsons: And that's important because if you're looking for auxiliary equipment to provide some of the basic load, then that has to be taken into consideration around the the overall amount of ground source geothermal system that have been installed to meet that, to meet that interior demand. You know, overall annual demand for heating and cooling. So in this case, again, dry colors were installed.

00:37:02:01 - 00:37:28:28
Joe Parsons: There were a benefit. They're not a contributor to the thermal transfer of heat within the building. So they would have qualified as part of the overall project cost. So let's take a look here. And again this is this was kind of a unique scenario because the the utility Oklahoma Gas and Electric had a substantial rebate in place at the time that this project qualified for.

00:37:29:00 - 00:37:55:06
Joe Parsons: But again, let's take a look at equipment costs. So the traditional equipment again this is based on actual this the equipment had already been specified and cost it out for this project. This is based on bid documents. So again a project like this rather expensive equipment, little over $3 million for traditional. The geothermal systems came in higher but around $3.5 million.

00:37:55:07 - 00:38:27:07
Joe Parsons: Not a great deal of difference there. The inflation say a tax credit. This is not a credit. This was the credit that was in place at the 10% level prior to IRA. So part of the mistake there, but $356,793 based on a 10% tax credit. Again, this building calculating a dollar per square foot energy, you know, operating cost savings and reduced maintenance savings in this scenario.

00:38:27:08 - 00:38:58:11
Joe Parsons: Again, this based on the incentives from the utility with cash positive in year one. Okay. That's not typical. Again that rebate was substantial. Would take a look at that as we go forward. But again the thermal system was cash positive in year one. Kind of a no brainer there. Year five 1,000,007. You know, a ten year projection of a little over $2 million.

00:38:58:13 - 00:39:09:00
Joe Parsons: Year five is was certainly a reality.

00:39:09:02 - 00:39:16:00
Joe Parsons: I'm sorry about that.

00:39:16:03 - 00:39:29:16
Joe Parsons: Again, the year five calculation certainly met. That projection slightly exceeds that projection. And there's the expectation in ten years.

00:39:29:18 - 00:40:05:09
Joe Parsons: So now let's take a look in today's business climate. So if this system were installed in and completed in 2023 and you'll notice the areas within the spreadsheet here, those in blue or required inputs okay. So you've got your energy credit here a 30%. We're assuming again a 10% bonus credit for domestic content and energy community credit. This project is not in an area that would have qualified, so that would not be included.

00:40:05:09 - 00:40:34:12
Joe Parsons: So we're looking at overall tax benefit of a 40% credit here. You'll also notice there are other areas like corporate and federal taxes. These are all baked into the system. So depending on where you are what state you're in, what local area you are in, based on the implementation of a, you know, zip code, it will provide you with information around exactly what what to expect.

00:40:34:12 - 00:41:03:02
Joe Parsons: And there's, you know, these tax rates are updated, you know, or an annual basis. So this calculator is always fresh and also always provides the most accurate information possible. So in this scenario we're looking at the same equipment. We're looking rather rather than a a tax credit. Before which we had we were looking before at an income tax credit at 10% at $366,000.

00:41:03:05 - 00:41:22:13
Joe Parsons: We're looking at our a tax credit of almost a million and a half dollars for this particular project. So what does that mean to the, you know, to the bottom line? Well, in this scenario, the owner, you know, we're looking at a scenario where.

00:41:22:15 - 00:41:59:28
Joe Parsons: They chose to go with accelerated depreciation. So depreciating the entire investment at 80% less the tax credit. So you're going to remove the tax credits from that. And then at 80% you're looking at you know being cash positive in the first year, you know at $1,883,000, almost $884,000 in the first year, you're five three, 2.3 million. And year ten, you're looking at almost $2.7 million.

00:42:00:00 - 00:42:27:26
Joe Parsons: So here's the check, basically, that, you know, as I mentioned before, this was kind of a unique situation where Gulfport Energy, the owner of this of this building, received a rebate check from Oklahoma Gas and Electric for $237,000, which was actually the largest incentive check that they had ever, ever written for this type of program. Those incentives are not in place at the time.

00:42:27:26 - 00:42:40:01
Joe Parsons: So we have the other incentives out there through IRA to help through that.

00:42:40:03 - 00:43:44:13
Joe Parsons: So what is this tool? This tool is important. We feel like that to to tell the story of the benefits of tax credits. It just makes good operating sense to understand how to use the tool okay. Do we make it available. We make it available at no cost to download from our website. And are our sales team certainly willing and able to provide you with additional information to walk you through a project to also show the opportunity to incorporate the additional tax credits and provide that knowledge around guidance as to how to how to capture those additional credits, especially as we receive additional information from the Treasury Department.

00:43:44:16 - 00:44:29:02
Joe Parsons: So I mentioned this. This tool was created initially before we had 30 to 50% additional incentives on commercial projects. But this is just a kind of a tabular view of how this tool was used when we had 10% tax credits. So a particular contractor here in the Oklahoma City area totally involved not only in commercial but residential geothermal projects, use this tool to get in front of the building owner to get in front of the developer, you know, to say, okay, you understand what it's going to cost to install a conventional system, please consider geothermal.

00:44:29:05 - 00:44:56:13
Joe Parsons: Those of you have you know, obviously there's been some challenges around selling geothermal because of the the perceived cost of installation and not really looking ahead at the how properly designed systems can pay for themselves, you know, easily in 5 to 6 years and the overall benefits to to a system that has extreme longevity and provides continuing operating cost savings and maintenance cost savings.

00:44:56:21 - 00:45:27:20
Joe Parsons: But, you know, here's here's a view of exactly what's out there. And then these projects are verified, a total over a five year period of 102 projects that were sold, you know, three point 9,000,000ft² in total and not, you know, these are projects that are ranging from, you know, strip mall type applications to standalone mom and pop stores to warehouse areas, you know, and office areas.

00:45:27:21 - 00:45:47:02
Joe Parsons: So a wide variety of here and all these qualified for a 10% tax credit. But once that was presented to them, in a way, by using this tool, it made sense, you know, and resulted in those in those sales.

00:45:47:04 - 00:46:06:03
Joe Parsons: So that, you know, into my presentation certainly willing hopefully have some questions available that I can provide guidance on some answers to. And I'll turn it, turn it back to the team.

00:46:06:05 - 00:46:27:29
Mike Collignon: All right. Thank you Joe. Really appreciate it much. And if you do have questions like you said, go ahead and submit those via the questions box. We'll try to get through as many as we can here in the next ten minutes. We have one from Sarah in regards to power purchase agreements or PPAs. We see those in the solar industry.

00:46:28:06 - 00:46:38:07
Mike Collignon: Do they offer those in the geothermal sector, and if not, what are the hurdles that are preventing that from happening?

00:46:38:09 - 00:46:47:29
Joe Parsons: That's certainly something that's under under discussion now to take advantage of those opportunities.

00:46:48:02 - 00:47:00:04
Joe Parsons: Especially from the standpoint of looking at, from a purely from a decarbonization standpoint, understanding what incentives are out there and.

00:47:00:06 - 00:47:22:01
Joe Parsons: How to create some meaningful use from, from those incentives. So again, not a substantial amount of information that I can provide on that subject at the moment, but it's something that we're certainly keep our ear to the ground on. And, you know, a lot of what we do is focused on continuing lobbying efforts for, you know, these technologies.

00:47:22:01 - 00:47:47:19
Joe Parsons: So, you know, that's, you know, that's something that's certainly a hot topic. You know, as well as third party ownership, things like that. So which sellers had for a while, and it seems to be a way that this industry could really advance itself more rapidly to deploy ground source heat pumps really in all areas.

00:47:47:21 - 00:48:11:12
Mike Collignon: Right. Okay. And then also a question in regards to some of the labor challenges that we're seeing. I mean, we're seeing them in the building industry. Certainly. I don't think geothermal industry has been spared from some of the labor challenges. So in your opinion, is there anything that can be done to address that?

00:48:11:15 - 00:48:49:05
Joe Parsons: Absolutely. I mean, we've been working, you know, with various state organizations over the past year and a half now to work through these workforce development challenges, doing quite a bit in the state of New York and other areas where geothermal heat pumps have been adopted, you know, for several years. It's, you know, we're working in areas like where the, you know, the the labor unions have been involved in providing drilling services, also doing a great deal of outreach to the drilling industry because we really can't get there, you know, without the alignment with with drillers.

00:48:49:05 - 00:49:21:26
Joe Parsons: So going through the process of providing education, of changing from water well drilling to geothermal drilling and creating, you know, scenarios around the business opportunities. And now we're seeing a great deal of, you know, excitement from some companies that are seen, the handwriting on the wall that this is a market, this that's a huge growing market. We need that infrastructure, that building infrastructure, you know, and we also need that HVAC.

00:49:21:28 - 00:49:28:11
Joe Parsons: Input as well. This industry itself has been.

00:49:28:14 - 00:49:52:17
Joe Parsons: Aging out basically. I mean really you know, we've have people that are experts in the industry and you've got companies that started out as mountain organizations. There are a few out there now, and I say a few there are, you know, substantial percentages of companies that you see the opportunity to, you know, take advantage of the decarbonization requirements.

00:49:52:17 - 00:50:14:18
Joe Parsons: And I think that's what it really comes down to. The tax credits are great. I mean, but, you know, we don't need that dependency on tax credits. You know, that's been one thing that's going to enter this industry over time is that overall, you know, focus on what's the tax credits going to be. And, you know, we're in the companies involved based on when that tax credit is set to expire.

00:50:14:19 - 00:50:45:22
Joe Parsons: So our age has done a great, great, great things for us because, you know, it extended that runway from, you know, typically being 2 to 3 years for an extender to, you know, ten years at full boat and, you know, an additional two years before things wind down. So I think we're seeing a great deal of interest now, you know, in investing in the technology that's really going to be necessary to to get us over the finish line and hit those 2030 and 2050 decarbonization domes.

00:50:45:25 - 00:51:00:18
Mike Collignon: You know, you brought up drilling, you brought up their own gas industry. There was a question that came in asking if the industry's ever looked at intangible drilling costs from the oil and gas industry for their vertical well bores.

00:51:00:20 - 00:51:35:14
Joe Parsons: There are some studies out there. We do quite a bit of outreach to with companies and individuals who have come from the well and gas industry. And, you know, I've seen some studies to around making use of those, basically some of the abandoned wells that are out there. So you've got, you know, the hard work has been done, you know, repurposing those, those wells for ground source applications, I think is, you know, something that we need to be looking at all the options out there.

00:51:35:17 - 00:51:38:17
Joe Parsons: Yeah.

00:51:38:19 - 00:51:52:01
Mike Collignon: Switching to a different question here from Sudeep, who wanted to know what incentives are available for schools in California.

00:51:52:03 - 00:52:09:15
Joe Parsons: There are, again, you know, these are nonprofit organizations. They would qualify for the same reasons. Basically, collective pay, this electric pay scenario.

00:52:09:17 - 00:52:38:01
Joe Parsons: I'm not sure if that answers the question completely, but, you know, you know, California, there's a great deal of potential, you know, in that state, we're seeing a lot of increase in school projects. We're seeing a lot in, you know, health care as well, you know, adopting systems that are on a heat pump based ground source chiller, reverse cycle, chiller based projects like that, where, you know, in campus installations as well.

00:52:38:02 - 00:53:03:14
Joe Parsons: I mean, you, you hear about major geothermal projects like to George Lucas project, but there are a lot of other projects, you know, and correctional facilities that have been going in with, with geothermal systems for quite some time now. We're also seeing a great deal of interest now, and I guess you qualify these as district systems or community systems, you know, shared, shared thermal energy.

00:53:03:19 - 00:53:49:03
Joe Parsons: A lot of communities that are considering that with the Carb conference 2 or 3 weeks ago, and that was kind of a source of discussion with several people that I met with. There is what can we do as municipalities that are either, you know, increasing or upgrading their infrastructure, for example, you know, why not include, you know, a thermal connection within the city right of way that would provide heat that could be transferred from from building to building, basically, because you have, you know, systems that are providing discharging heat into the loop and you have systems at the same time that are extracting heat from that loop.

00:53:49:03 - 00:54:10:08
Joe Parsons: So that makes a lot of sense. I think there are a lot of exciting areas, and we're seeing that in New England. We're seeing, you know, you, you know, certain projects that are underway right now in Massachusetts that are doing that. And we're seeing overall communities. We have a community in Kentucky that's gone entirely geothermal for the last six years.

00:54:10:09 - 00:54:36:16
Joe Parsons: You know, there are thousands of systems and probably anywhere from 3 to 4, you know, loop systems going in every every week, you know, just growing that. And, you know, based on and based on the success story there, you know, there's interest and investment to create another, you know, additional two communities that are doing the same thing. So it's just, you know, it's taking that, you know, what was a leap of faith a few years.

00:54:36:19 - 00:55:15:11
Joe Parsons: And now with these incentives, you know, there's substantially less risk out there, you know, in the first in the first few years to be able to see that, see that payback. And there's a lot more expertise out there. Well, you're looking at people getting involved not only on the drilling side and not only on the HVAC side, but the key important part of this is the the system designers out there, you know, and educating the architects and engineers and specifying engineers, you know, and the companies that are involved, you know, the mechanical contractors, so that they're, you know, ramped up and ready to take advantage of this opportunity.

00:55:15:12 - 00:55:44:01
Joe Parsons: So it's a huge education process. And that's one area of focus here that's really important to the sustainability side of this industry. You know banking systems available out there to making them simplification I guess is a good way to put it, you know, so the facilities managers and commercial buildings can easily understand what they're dealing with. You know, we have to demystify the thermal.

00:55:44:04 - 00:56:07:04
Joe Parsons: Yeah. It's it's perceived as being this complicated process. But. Well, there are a lot of moving parts. It doesn't have to be you know, it doesn't. It's not a magical technology. It's it's, you know, it's understandable. And we're seeing so many installations out there that are taking advantage of it. So a long road ahead of head of us.

00:56:07:04 - 00:56:15:05
Joe Parsons: And as far as, you know, workforce development, you're absolutely right. A substantial amount of work that still needs to be done there.

00:56:15:07 - 00:56:29:01
Mike Collignon: And you mentioned the success story there in Kentucky, just to give our audience a sense of the of the size of the success. What how large, approximately is that community that you were referring to?

00:56:29:03 - 00:57:00:16
Joe Parsons: I think right now we're approaching almost 7000 systems that have gone in in this community. It's a large development that's gone through multiple, multiple phases. It was interesting because when it started out, they were going with the conventional system, with gas furnaces and, you know, standard air conditioners, a lot of zero lot line houses in this development. You know, it's kind of a live work type community where you can, you know, walk from your home to the store and to the theater and things like that.

00:57:00:17 - 00:57:33:19
Joe Parsons: So you had this scenario where you had basically a, you know, a ten foot separation between these homes and was substantially difficult to walk between, you know, around one conditioning unit around the other. And it was creating this basically this noise corridor basically between between these, you know, the two residences. So the developer happened to be at a convention and actually it was one of the client master salesmen presenting their around thermal.

00:57:33:22 - 00:57:58:28
Joe Parsons: And this was ten years ago. And, you know, the owner really got involved, wanted to learn more, came to Oklahoma City, spent some time with us here and made the decision to make that conversion. So yeah, that's that's kind of the beginning of that. So all of, you know, it's a design community. Our representative in the area helps with the overall system design.

00:57:58:28 - 00:58:30:23
Joe Parsons: Everything is very well defined. So they know exactly how much ground loop to install for each system. That goes in well in advance of the structure actually going up. So it's like, you know, staying ahead of the the production rate, so substantial amount of impact there, you know, and we're seeing that other areas of the country as well, you know, not just with climate master products but with, you know, other brands as well, taking advantage of developing these communities around.

00:58:30:25 - 00:58:49:23
Joe Parsons: I keep saying district systems, and they're almost district systems, but the kind of hybrid systems a lot of college campuses, for example, are adopting, you know, again, moving heat from one building to the next, installing ground source heat pumps, you know, tapping into the overall.

00:58:49:26 - 00:59:28:10
Joe Parsons: Heat energy that's produced, their thermal energy that's produced there and not just relying on ground source for the application, looking at applications with high efficiency boilers and, you know, cooling towers and chillers, things like that, that is important. You know, it's, you know, we're moving toward an area, an area where we have less dependency on fossil fuels. But if there are fossil fuel appliances that are efficient out there in place, it makes sense to take advantage of those to get the overall best, best performance of the system.

00:59:28:12 - 00:59:50:14
Mike Collignon: And final question here, Joe, I talked about in the open about, you know, benefits, incentives, tax credits to homeowners, I think up to 30%. Can you talk a little bit more because Kim was asking about this. You talk a little bit more about the residential credits and incentives as it pertains to like a single family home?

00:59:50:17 - 01:00:26:11
Joe Parsons: No. Absolutely, absolutely. What? IRA did we were in a scenario where we were in the going into the second year of kind of the decline. We had been at 30%. We dropped down to 26%. We would we're going into the second year at 26%. And then those credits were scheduled to to sunset at 22%. What I did, it basically changed everything from, again, from a 26% level to a 30% level, you know, and gave it a additional ten, ten years at 30%.

01:00:26:12 - 01:00:55:29
Joe Parsons: Those credits are out there and available. The guidelines are quite similar to what we had in the past, almost identical to what we had in the past. It's just that the rate has changed. One thing though, that has changed without any also funding out there for weatherization projects. So it makes sense to tighten the building envelope before you do the calculation to determine how much your thermal pump capacity that you actually need.

01:00:56:00 - 01:01:23:16
Joe Parsons: So if there's funding out there available and this is, you know, I think is a total of $9.5 million, I think, with almost 4.5 of that earmarked for low to moderate income, moderate income families. But to take that information, take those dollars, those dollars are being distributed to the state through some states that are not capitalizing on it.

01:01:23:16 - 01:01:48:24
Joe Parsons: And there are there others that already have programs in place. I think that is doing some research before the webinar. And I think we're up to almost 30 states that have programs that are planned or already in place to provide funding to, again, whether the home and to take advantage of that. And some of these funds can be, you know, it's not like you're having to do everything in the first year.

01:01:48:26 - 01:02:33:24
Joe Parsons: Some of these can be their tax tax credits that are out there and available. That can be taken in multiple years as well. So, it's called the Hera program, which is, you know, Energy Agora program. Look for that to see if your state has, you know, that program in place to take advantage of those, those opportunities. And you could spend, you know, $3,000 on weatherization and potentially reduce the amount of ground source heat pumps that would need by, you know, a half time to a ton of capacity, which would again reduce the size of the system and reduce the cost of the system, and more importantly, reduce the amount of drilling or excavation that

01:02:33:24 - 01:02:38:03
Joe Parsons: would be required to support that that ground source pump.

01:02:38:06 - 01:02:52:08
Mike Collignon: And just real quick, Joe, those guidelines you mentioned, where do we find those at? Is that something that your organization has to be able to distribute, or is there somewhere governmentally that we can go.

01:02:52:10 - 01:03:28:17
Joe Parsons: We provide, you know, documentation on our website for both residential and commercial. We keep the commercial. As I said, it's kind of a moving target as far as guidance from Treasury. So we keep that that document as fresh as possible when anything comes out. You know, in the same on the, on the residential side. So again, these programs as they roll out as far as their incentives, we're monitoring that, you know, and we'll keep the website updated, trying to put together a listing now of which states are adopting and which aren't.

01:03:28:18 - 01:03:38:16
Joe Parsons: I think it's important to, you know, provide that information. You know, we also you know, we have.

01:03:38:18 - 01:04:19:24
Joe Parsons: Personnel who are expert in their area, you know, with regional managers to understand the incentives that are out there available. You know, in the area they cover. We're also adding to the website to, you know, a program that we're working with, eco rebates. So if you happen to be looking for a particular type of product on our website, be it residential, commercial, click on that particular product, that products, that overall model or even an individual product and it will pull up, you know, any incentives that are out there and available, be it federal incentives or local incentives.

01:04:19:27 - 01:04:35:15
Joe Parsons: So in some, you know, some states, again, like in New York, for example, you know, you might click on a packaged residential heat pump and you have federal incentives you would have incentives for.

01:04:35:18 - 01:05:01:12
Joe Parsons: Income, state income tax reduction. There are credits and but it will calculate it's basically a database that's based on the the re energy star performance number of that system. And it will calculate those rebates and provide you a direct link to those rebates. So just the service we feel like it's important to get the word out from the center standpoint.

01:05:01:14 - 01:05:04:01
Joe Parsons: Yeah.

01:05:04:04 - 01:05:26:19
Joe Parsons: It's something that we we have out there and available. But please go to the climate master to the climate Control Group website. All that information is out there and up front. I mentioned, you know, it's free download not only for the calculator, for commercial, but I'll let other other information that's out there as far as that, that tax tax brochure.

01:05:26:21 - 01:05:53:22
Joe Parsons: It's amazing that the see a counter basically on my computer for the number of downloads of that tool and checked just before the presentation today. And I'm over since October the 1st we've had like 368 downloads of of that calculator to from individuals and companies around the around the United States who are interested in learning more about how to use the tool.

01:05:53:22 - 01:06:01:17
Joe Parsons: And we feel like it's important, important for us to provide that information out there to our to our customers.

01:06:01:20 - 01:06:20:10
Mike Collignon: All right. And I just put it into the link of the chat. Check it out. I don't see any other questions. So I want to thank Joe for sharing his time with us today. Really appreciate it, Joe. And thank you also to our audience for attending and asking the questions that you did. We really do appreciate your interactivity with us.

01:06:20:11 - 01:06:45:19
Mike Collignon: Thank you to also to Climate Master. Check them out at Climate Master and also Powershift by NV energy for their generous sponsorships. Now we'll see you back here again in one month for another webinar. And it's not just any webinar. Oh no. It's the annual state of the industry webinar from the Sustainability Commander in Chief, Sarah Gutmann. Why don't you join us on Wednesday, December 6th at 2 p.m. Eastern Time?

01:06:45:20 - 01:07:00:05
Mike Collignon: Until next time. Have a wonderful Thanksgiving. I hope you're able to relax and enjoy some great food with family and friends, and all the things that make it the best holiday, at least in my opinion. Anyway. Stay safe, stay healthy and take care everyone. So long.

01:07:00:07 - 01:07:00:29
Joe Parsons: Thanks. Bye bye.