New York, Massachusetts Utilities Investigate Potential New Business Model: Community-Scale Geothermal
- Jan 25, 2021 6:53 pm GMT
It was a big moment in the career of John Ciovacco, president of Aztech Geothermal, a designer and installer of geothermal heat pump systems in upstate New York. At the National Society of Professional Engineers’ annual conference in February 2020, Ciovacco delivered a presentation called, “Are Electric Heat Pumps Ready to Replace Natural Gas?” to an audience that included both electric utility and natural gas utility engineers. A casual observer might have chalked up Ciovacco’s bold question to wishful thinking. After all, geothermal heat pump systems—which use underground water pipes called “ground loops” to absorb the earth’s heat and deliver it to buildings—have remained a niche market for decades, mainly because of higher capital costs relative to other heating and cooling technologies.
But Ciovacco’s presentation was based on hard facts, not wishful thinking. He explained that New York’s ambitious new climate law, which requires the state to cut greenhouse gas emissions to 85% below 1990 levels by 2050, effectively mandates that buildings stop burning fossil fuels for heating and cooling by 2050. Today, heating and cooling in buildings account for 32% of the state’s combustion-related greenhouse gas emissions. “In the next 30 years, the vast majority of New York state’s buildings will need to convert to electrically driven space heating and hot water,” Ciovacco said.
The big question is, how will this conversion happen? Some natural gas utilities in New York are investigating the possibility of pivoting to a new business model: managing community-scale geothermal systems that circulate water in large underground pipe networks and exchange energy among numerous buildings. Because such systems have structural similarities with natural gas pipe networks—for example, both connect buildings with high-density polyethylene pipes—gas utilities are potentially a good fit to install, operate, and maintain them. National Grid and Con Edison are developing pilot projects in New York, some of which have been proposed to New York regulators. These projects offer an opportunity for the utilities to apply their decades of experience with natural gas infrastructure to geothermal energy.
Similar geothermal proposals from gas utilities are on the table in Massachusetts, which recently enacted a climate law mandating an 80% reduction in greenhouse gas emissions by 2050. In October, state regulators approved a $10.2 million demonstration project proposed by Eversource Energy. The developments in New York and Massachusetts could be the bellwether of a nationwide shift into utility-scale geothermal as more states adopt climate mandates.
Geothermal: Super-Efficient but Expensive
Geothermal heat pump systems have been used to heat and cool U.S. homes and businesses since the 1940s. In the winter, water circulating in underground pipes absorbs heat from the ground. The pipes deliver the water into the building, where a heat pump concentrates and transfers the heat to the building. In the summer, the heat pump extracts heat out of buildings and moves it into the ground via the same water pipes. This process takes advantage of the earth’s constant, moderate temperature: While air temperatures vary by season, temperatures of the ground 10 to 20 feet below the surface typically remain between 50°F and 60°F year-round—warmer than the winter air and cooler than the summer air. As a result, geothermal heat pumps are the most efficient heating and cooling systems, with a coefficient of performance in the 3 to 5 range. In other words, one unit of electricity used to operate a heat pump can extract 3 to 5 times the energy from the ground. (This is sometimes expressed as 300% to 500% efficient, based on the potential energy of the electricity needed to run the geothermal heat pump system and the total output energy to the building.) Efficiencies of other heating technologies are considerably less: 200-250% for air-source heat pumps in cold climates, 95% for condensing natural gas and propane furnaces, and 85% for oil and kerosene-based heating systems. (These efficiencies are estimates and can vary widely based on numerous installation- and product-related factors).
However, geothermal systems can have several times the installation cost of air-source heat pump systems because they require drilling in the ground, piping for the ground loop, and other expensive underground work. While an air-source heat pump and geothermal heat pump share common mechanical components, the geothermal customer buys a more specialized version of the equipment and needs to pay for the installation of a ground loop. Even though oil and propane customers installing a geothermal system can recoup the additional costs through energy savings over 5-10 years, high upfront costs have limited the geothermal market. According to U.S. Energy Information Administration, geothermal systems represent just 1% of the total HVAC market.
Community-scale geothermal is not a novel concept, though its execution in the United States is relatively rare. The systems that have been deployed have consistently demonstrated impressive results. For example, a system installed at Colorado Mesa University uses only one-third of the water and a quarter of the energy that would be needed by a conventional system of natural gas boilers and cooling towers while supplying 100% of the heating and 79% of the cooling energy for all connected buildings. It has saved the university $1 million per year in energy costs and reduced fossil fuel emissions from heating and cooling by 75%. In addition, as more buildings with more diverse energy uses were strategically connected to the network, overall system efficiency improved.
Massachusetts-based climate non-profit HEET (Home Energy Efficiency Team) is advancing a “GeoMicroDistrict” concept, which refers to a shared ground loop serving a street segment, with thermal energy being transferred between individual buildings and the ground loop. A 2019 study by HEET and BuroHappold Engineering examined the feasibility of replacing aging natural gas infrastructure in Massachusetts with GeoMicroDistricts and linking them over time to build a large thermal distribution system. The study, which involved analyzing building and site conditions throughout the state, found that as the system grows larger and the diversity of energy uses increases, the overall efficiency improves, with more potential for energy storage and load sharing. For example, a supermarket with numerous refrigerators can help balance heating of houses. A second key finding: based on today’s electric generation mix in Massachusetts, GeoMicroDistricts connected to geothermal heat pumps in buildings can potentially reduce greenhouse gas emissions from heating, cooling, and hot water by nearly 60%. These emissions will decrease further as the electric grid moves to renewable energy.
The study advocates for a utility-scale approach in which existing natural gas companies install, operate, and maintain the GeoMicroDistricts. HEET is in discussions with several utilities about piloting the GeoMicroDistrict concept, including Eversource Energy and National Grid.
National Grid: After Promising Early Results, Bigger Proposals
In 2016, National Grid’s natural gas business deployed a community geothermal demonstration project that connected 10 houses in Riverhead, New York on Long Island. The houses, located in an area without access to natural gas, were previously heated by oil or kerosene and cooled by electric air conditioning units. The new systems performed well even in extended cold and warm periods, with coefficients of performance between 2.2 and 3.5. The customers saved 33-67% on heating costs while reporting improved air quality, quiet equipment operation, and more even distribution of hot and cold air. No backup heating was needed, so the customers were able to completely retire their original systems.
Encouraged by the project’s success, National Grid in April 2019 submitted a proposal to the New York Public Service Commission to expand this demonstration project in New York’s downstate region, with a focus on low- and moderate-income residential customers and commercial and industrial customers that are outside the gas network. National Grid would install and own the ground loops while partnering with geothermal installers to deploy the in-home equipment. A flat monthly fee paid by participating customers would offset the cost of the engineering and design work as well as a portion of the loops. The company said it also would examine how best to operate the systems in areas with high penetration of natural gas infrastructure.
“Our primary intention with this proposed project is to work with customers outside the natural gas network as they are generally paying the highest cost for their energy and—in the case of delivered fuel customers—have the potential to reduce their carbon emissions by the greatest amount,” said Owen Brady-Traczyk, manager of National Grid’s Future of Heat program. “But we also want to begin investigating how we would manage a geothermal system located inside our gas network. We would like to explore issues like supporting gas customers who choose to transition to geothermal and safely deploying geothermal infrastructure in the same rights-of-way where gas infrastructure is located.”
In July 2020, National Grid proposed to deploy 2,600 tons of shared geothermal ground loops serving the equivalent of 650 single-family homes in its upstate New York natural gas service territory. As part of the four-year, $12.9-million project, the utility would own and operate the ground loops and contract with geothermal suppliers who would install the loops and above-ground equipment (such as heat pumps and ductwork in buildings). Customers would include those that use delivered fuels like propane and oil, customers who are far away from gas mains (large distribution pipes), and new residential construction customers. The utility said that it also would evaluate the potential for geothermal conversion for existing gas heat customers who are served by a segment of leak-prone gas pipe. The idea would be to remove that segment from service and replace it with geothermal infrastructure in the same right-of-way.
A flat monthly fee paid by participating customers would enable the utility to fully recover its ground loop investments. Through this approach, National Grid would depreciate its investments over 50 years, a conservative estimated life of the shared loop equipment (which could last 100 years or more). Depreciation is the practice of spreading the expense of a fixed asset over the course of its useful life.
“Fifty years is also the depreciation period that we use for some of our natural gas piping,” said Brady-Traczyk. “We wanted to make the financial evaluation of geothermal infrastructure equivalent to that of our gas infrastructure so that we can evaluate them side by side. As we learn more about geothermal technology and—hopefully—receive approval from state regulators to deploy it, we will review the useful life and depreciation period to ensure that we are doing everything we can to facilitate adoption.”
“As an entity with access to low-cost capital and the ability to recover costs over long periods of time, [National Grid] is well-positioned to invest in long-lived thermal infrastructure,” the proposal said. “By amortizing the costs of geothermal loops over their useful lives and charging participating customers for access to the loop over time, [National Grid] can make access to this technology more affordable for customers…. A gas utility also is well-positioned to support construction and oversee long-term operation of the geothermal ground loop infrastructure because gas engineers and construction personnel are already experienced in the design and installation of underground plastic pipe systems.”
The pilots will examine the cost reductions enabled by scaling up geothermal and shed light on the circumstances where shared ground loop systems are most cost-effective. “To reduce capital costs of community-scale geothermal, how can we apply our experience coordinating with construction companies, municipalities, customers, and other stakeholders in deploying and operating these projects?” said Brady-Traczyk. “How much can we lower costs by enabling energy exchange among large numbers of customers with diverse load profiles? These are some of the questions we want to explore.”
Insights from these projects can inform the utility’s decisions about its future investments in geothermal technology. “National Grid has gas-only, electric-only, and mixed service territories,” said Brady-Traczyk. “This allows us to understand how the clean energy transition impacts both sides of the energy system. How can we deploy geothermal technology to maximize benefits for the gas and electric systems and appropriately allocate costs? How do we satisfy our statutory obligation to provide natural gas to customers who still want it?”
Con Edison: Pilots in the Works, Heat as a Service
In early 2019, Con Edison—which provides electric, gas, and steam service for the 10 million people who live in New York City and Westchester County—announced a moratorium on new natural gas hook-ups in Westchester because the utility’s gas pipeline capacity could not accommodate increasing demand. To help mitigate demand, Con Edison partnered with Dandelion Energy, a geothermal installer and Google X offshoot, to provide Westchester residents with an alternative to gas- and oil-based heating. More than 100 residents have opted for the geothermal installation to date, receiving significant rebates from both Con Edison and New York state. Con Edison has since expanded its rebate offerings to all qualified geothermal installers as part of the state’s Clean Heat program.
Con Edison’s natural gas business is planning community-based pilots in downstate New York that would involve removing old natural gas infrastructure and replacing it with geothermal ground loops in the same rights-of-way. “It’s a concept under development,” said William Xia, Con Edison’s program manager for electrification and gas alternatives. “We want to better understand the technical and economic feasibility of a community-scale geothermal system.” In a December 2020 submission to the New York Public Service Commission, Con Edison said that it had conducted engineering analyses and other technical studies to identify 19 potential sites for a community-scale geothermal system. A Con Edison press release from early 2020 noted that if these efforts had promising results, the utility “will test the concept of heating an entire neighborhood with clean geothermal energy.”
In July 2020, Orange and Rockland, a Con Edison subsidiary that serves the northwestern suburbs of New York City, announced that it was seeking a development partner to build a utility-owned, community-scale heat pump project for residential heating and cooling, with a focus on low- to -moderate-income customers. The three-year demonstration project will deploy infrastructure for both geothermal and air-source heat pumps while examining various approaches to customer outreach, utility investment, rate design, and cost recovery models.
Other changes at Con Edison hint at a shift from natural gas to other heating options. As reported in S&P Global Market Intelligence, CEO John McAvoy said in an August 2020 investor presentation that the company would stop investing in long-haul natural gas pipelines. During the same month, Con Edison requested funding from the New York Public Service Commission for a “Heat as a Service” program, in which third-party technology vendors would invest the upfront capital to own and maintain heating and cooling equipment at customer sites. Customers would pay a monthly fee for the service.
Eversource Energy: Green Light for Big Demonstration Project
In an October 2020 order, the Massachusetts Department of Public Utilities approved a proposal from Eversource’s natural gas business (NSTAR Gas) to implement a three-year, $10.2 million geothermal demonstration project in a dense mixed-use, residential/commercial neighborhood with diverse thermal energy needs and loads. The mixed-use site can potentially enable Eversource to better understand the efficiency benefits of serving customers with different heating and cooling needs on the same network. The site is expected to have roughly 100 customers with a combination of residential and commercial buildings, pending the final site selection.
In its proposal, Eversource said that the project is intended to test the viability of a non-gas thermal distribution model, assess the technology’s scalability, costs, and benefits, and provide real-world experience in building, operating, and maintaining large geothermal networks. The company also seeks insights on rate structures, monitoring, and system metering. Eversource will contract with private companies to install the geothermal network and will own and maintain the network equipment outside the buildings. It will be responsible for monitoring various aspects of the network’s performance, such as temperature and pressure in the pipes. The participating residential and commercial customers will own and maintain heat pumps, ductwork, and other equipment inside buildings and pay a flat monthly fee for the heating and cooling service.
“We expect the geothermal pilot to test whether the technology is a feasible alternative for oil, propane, and natural gas customers, what the right business model looks like, what environmental value is delivered, and how well this thermal option meets customer expectations,” said Nikki Bruno, director of clean technologies at Eversource.
The Eversource proposal noted that the company’s natural gas experience positions it well to deploy geothermal. It pointed to several common aspects of geothermal and natural gas networks, such as capital-intensive projects, deployment and operation of long-lived underground infrastructure in public or private rights-of-way, and condition monitoring in a pipe network.
In its order, the Department of Public Utilities encouraged Eversource to consider incorporating existing natural gas customers in the project and to study the scalability of networked geothermal to serve such customers.
A Glimpse of Geothermal’s Future
Given that utilities are still in the early learning phase of community-scale geothermal, it’s premature to speculate on the new business models that utilities may adopt. There will likely be numerous roles for the various stakeholders, which include regulated utilities, unregulated energy companies, and private geothermal suppliers and installers.
“We’re taking a holistic approach,” said Con Edison’s Xia. “We are open to working with many different stakeholders to see if different business models work.”
If utilities decide to make big investments in community-scale geothermal, it could be a boon for heat pump installers. According to Aztech Geothermal’s Ciovacco, very few installers today have the skills, expertise, and equipment needed to deploy the ground infrastructure of geothermal systems—work that includes fusing pipes and using excavators to dig in the ground.
“If the utility installs the ground loops, then practically any HVAC installer can install the geothermal heat pumps inside the building because they are very similar to equipment they install today,” said Ciovacco. “It would make every HVAC contractor one manufacturers’ training course away from installing a geothermal system. At the same time, the upfront costs of geothermal would be comparable to the costs of installing conventional heating and cooling equipment.”
With widespread deployment of community-scale geothermal systems, utilities could become thermal distribution managers. “They would predict thermal demand and make real-time decisions to move or store energy,” said Zeyneb Magavi, HEET’s co-executive director. “It’s a similar concept as the electric grid, where operators are balancing renewable energy generation with electricity use. The ideal is balanced heating and cooling energy use over the course of a year. If the system is not perfectly balanced, it’s not the end of the world. The utility can add a boiler, chiller, or new customers to help balance it.”
According to Zeyneb, utility-scale geothermal could lead to valuable synergies with electric grid operations. For example, if wind power plants are producing excess energy at night when demand is low, that power could be stored in the ground as thermal energy for future use by the geothermal network.
“If natural gas utilities are deploying new underground geothermal infrastructure, why not coordinate with electric utilities and underground the power lines along with the water pipes in the same rights-of-way?” said Zeyneb.
Community geothermal systems have the potential to reduce summer electric peaks because geothermal heat pumps use less electricity for cooling relative to air-source heat pumps. Winter peaks could grow significantly as geothermal heat pumps replace heating powered by natural gas, propane and oil, but these peaks could be more consistent across changing weather conditions.
“During a heat wave in the summer or a polar vortex in the winter, the ground is still the same temperature, so there’s a consistent thermal energy source all the time,” said Zeyneb.
“We see synergies between geothermal systems and our existing gas and electric systems, and there could be economies of scale and better electric grid efficiencies if we can utilize the geothermal systems to shave and better manage peak demand,” said Eversource’s Bruno. “In this way, future utility operations would be about being the holistic energy provider for the customer rather than being the gas or electric utility only. We expect our geothermal pilot to shape our thinking on these future operations.”
“There is a lot of innovation happening in geothermal,” said National Grid’s Brady-Traczyk. “But it’s not easy to make these changes quickly because we need to carefully think about what the changes mean. Dialogue is important. We plan to share our data with all stakeholders to inform thoughtful investments.”
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