When Should Geothermal Heat Pumps Qualify for State Renewable Energy Credits?

A relatively new policy being considered for state renewable energy standards (RESs) is to allow geothermal heat pumps (GHPs) to be treated the same as traditional renewable energy sources for awarding renewable energy credits (RECs).

GHPs are used for space heating and cooling in buildings.  The temperature in the ground remains relatively constant throughout the year. A GHP can transfer heat from the ground into the building during the winter and transfer heat back into the ground during the summer. Thus, the ground acts as a heat source in winter and a heat sink in summer. 

Renewable energy is defined as electricity generated from renewable sources. GHPs do not generate electricity. They do not fit the definition of a renewable energy source. Of the thirty seven states that have mandatory or voluntary RESs, nine allow GHPs to earn alternative energy credits by displacing electricity and/or fossil fuels used for heating or cooling (see Table 1 below). The alternative credits can substitute for conventional RECs. 

Table 1. States That Give Alternative Energy Credits for Geothermal Heat Pumps

* Indiana’s renewable energy standards are voluntary.

Source: Cogent Policy Research, LLC 

According to the U.S. Environmental Protection Agency, GHPs can save homeowners 40 – 60 percent in heating and cooling costs over conventional heating and cooling systems. GHPs use electricity, but far more efficiently than traditional air conditioning systems for cooling. Since they reduce the total amount of electricity used, usually during peak load hours, they always reduce CO2 emissions when used for cooling. Nationally, 22 percent of the electricity used in homes is used for cooling. Thus, in states where lots of cooling takes place GHPs can reduce electricity usage considerably. But since installing a GHP is very expensive, no one is going to invest in one simply for cooling.

When GHPs are used for heating the impact on total carbon dioxide (CO2) emissions can vary due to many variables like local climate, building size, the efficiency of the GHP itself, etc. The charts (below) show the tons of CO2 emitted from producing one mmBtu from electricity generated from coal, natural gas, fuel oil, and propane for space heating. They also show the tons of CO2 emitted by producing one mmBtu from using a GHP, fuel oil, natural gas, and propane. Since the amount of CO2 produced generating electricity is much greater than the CO2 produced from the other fossil fuels, using a GHP operated by electricity to produce one mmBtu of heat creates more CO2 emissions than producing one mmBtu from fuel oil, natural gas, or propane. Thus, GHP is likely to reduce total CO2 emissions only if it also displaces electricity for heating. 

* 3.6 is the minimum Coefficient of Performance to meet the ENERGY STAR specification on January 1, 2012.

Source: Cogent Policy Research, LLC 

There have been two bills recently enacted which are considered model bills for treating GHPs like tradition renewable energy sources for awarding RECs — one in Maryland  and one in New Hampshire. The two dominate points in support of the bills were cost and efficiency. The two laws only require that the GHP show energy savings and not emissions savings. But, the goal of state RESs is to reduce CO2 emissions by reducing the amount of electricity produced from coal. RESs are not about saving energy or money per se. Energy efficiency is only relevant if it results in a net reduction in CO2 emissions.

An engineering study done in Minnesota found that the installation of a GHP system in residential buildings “increases CO2 equivalent emissions approximately 24-20 percent… due to the increased electric consumption.” CO2 emissions were reduced in commercial buildings.

Thus, allowing RECs for GHPs probably only makes sense in states where the consumption of electricity for cooling is high and the consumption of fossil fuels for heating is low, or if the GHP always displaces heat from electricity — not heat from fossil fuels.

In Table 3 (below), states in warmer climates with high annual usages of electricity for heating and that do a lot of cooling, like Arizona or Texas, are states where including GHPs in their RES programs might reduce total CO2 emissions. States in cooler climates with low annual usages of electricity for heating and that do little cooling, like Michigan or New Hampshire, are states where using GHPs in their RES programs is likely to increase CO2 emissions — as a general rule. 

Table 3.  Average Monthly Consumption of Electricity in Kilowatt Hours (kWh) in States with Renewable Energy Standards in 2011; Percentage of Homes Heated by Electricity, Fuel Oil, Natural Gas, and Propane in 2011

* Indiana’s renewable energy standards are voluntary

Source: Cogent Policy Research, LLC, Data from Energy Information Agency

When considering the policy of giving RECs for GHPs, the question should not be are they more efficient or save money, but do they reduce CO2 emissions? If not, then allowing RECs for GHPs will likely lead to higher CO2 emissions, which would be contrary to the policy goal of the renewable energy standard itself.

Much of this article has already been published in ‘Barclay, R. Should geothermal heat pumps qualify for state renewable energy standards? Natural Gas & Electricity 29/8, ©2013 Wiley Periodicals, Inc., a Wiley company.

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Richard is the Principal at Cogent Policy Research LLC. Formerly he was Director of Research and Policy Development at an electric cooperative utility trade association in Michigan where his responsibilities included analyzing the fiscal and policy impacts of state and federal policy on Michigan’s member owned electric cooperatives, and keeping association members informed on current energy industry related developments. Previously he worked for over 20 years as a Policy Advisor for the Michigan legislature. During that time he worked primarily on state budgets, municipal finance, and state tax legislation. He has a Ph.D. in Agricultural Economics from Michigan State University. The opinions are his and not those of Cogent Policy Research, its clients, or any affiliates of its clients.

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