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The Payback Principle – What Am I Really Going to Save?

Within the last 3 years, savings on geothermal energy has been marketed to the masses in many different ways. Based on comments from my customers, 3 of the most common misconceptions I have heard are:

1. My electric bill will be zero;
2. My electric costs will be reduced by 70%;
3. Geothermal will pay for itself over time.

It is critical that we correct these misconceptions before the customer ever signs up for a geothermal project so that everyone’s expectations are in order. How would you feel as a homeowner believing that once geothermal heating and air was installed in your home that your electric bill would disappear, and then it didn’t? As a homeowner myself, I would be extremely disappointed and probably believe that my system was not functioning properly. I would feel as if someone had deceived me. Let’s set the record straight on geothermal heating and air conditioning:

Everyone heats and cools their homes. Some people use all electric sources to heat and cool their homes such as central heat and air conditioning, heat strips, window air conditioners or box fans. Some people use natural gas, propane or oil burners. Some use a combination of these.

No matter how you heat and cool your home, it costs a specific amount per year to do this job of heating and cooling. All of this cost to heat and cool your home will show up in your electric bill if you use all electric sources of heating and cooling. If you use part electric and part oil or gas, the cost for heating and cooling your home will be split accordingly between the two.

Geothermal heating and cooling reduces the cost to heat and cool your home. Let me say this another way….of all the ways to heat and cool your home, geothermal heating and cooling uses the least amount of energy and therefore costs the least.

You must determine your savings by energy usage NOT energy costs. For several years, Delmarva Power had a cap on the costs to provide me electricity. Two years ago, this cap was lifted and my bill increased by 70% immediately. Did I use more electric to incur this cost? No, I was just paying more for the same amount of electricity usage. In order to determine savings, you must go to the source of the savings, which is energy usage, shown on your bill as kilowatt hours, or KWH. Let me use my home as an example:

I live in an all electric home. I heated my home with baseboard heat strips and in the summer I cooled with window air conditioning units. During the coldest months and during the hottest months my energy usage, not the actual cost of my bill, was around 2700 KWHs per month. Months that had only partial usage of heating and cooling were averaging 2450 KWHs per month. The most important months, though, were the months I did not heat or cool my home. These months showed me how much energy was needed to run my whole house, i.e. water heater, appliances, because these items run every month all year long. Looking at my bill, I now know the amount of my base electric usage, which is around 1600 KWHs. Regardless of what the electric company charges me to use 1600 KWHs, the fact is I am still using 1600 KWHs every month to run my home. Now, how much extra energy did I use to heat and cool my home utilizing baseboard heat and window air units? On average, I used an additional total of 5500 KWHs for heating and cooling in the hottest and coldest 5 months, and I used an additional total of 4250 KWHs in the 5 partial months. So what do these figures mean? If I had not used any heat or cooling source for my house over a one year period, I would still have used 19,200 KWHs. Because I used a very inefficient way of heating and cooling, I added on an additional 9750 KWHs to my yearly bill. Installing a closed loop geothermal system has significantly affected those numbers. My energy usage has dropped to the point that my heating and cooling is now only 10% (2925 KWHs) of my total yearly bill instead of 30%. That is a savings of 6825 KWHs! I want you to see this example another way, too. If the electric company charged me .15 cents per KWH, the old way to heat and cool my home would have cost me .15 X 9750 KWH = $1462.50 per year. With the reduction in energy usage since the geothermal installation, I am now paying .15 X 2925 KWH = $438.75 per year.

This breakdown on energy savings can be done no matter what your energy source, as long as you can get an idea of how much of that energy you are using. If you are using propane, for example, you may need to contact your propane company to assist you in determining how much propane is used for actual heating, as opposed to using it for cooking or your hot water heater. So in summary, geothermal “pays” for itself in energy savings which translates into fewer dollars spent on total heating and cooling throughout the lifetime of your system.

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