Incentives in play - does geothermal make sense for you?

The Emergency Economic Stabilization Act of 2008 (perhaps better known as the “bailout” bill) included several provisions for energy efficiency and conservation tax credits. Among these is a tax credit of up to 30% for use of renewable energy systems in homes including wind turbines and geothermal heat pumps. (See a summary of the enacted bill.)

While geothermal heat pumps have been around since the 1940’s, it’s seen considerable growth in the past few years (about 20% growth per year according to the Geothermal Heat Pump Consortium). Factoring into the increased use are higher oil and natural gas prices along with a greater desire for clean energy technologies. Some Cincinnati area builders are now including geothermal as a standard feature in the home, or at least making it available as an option. Though the installation costs have been a roadblock to broad usage in the past, we could see costs come down as more homeowners opt for this approach.

How it works:

Operation of a geothermal heat pump is similar to a standard air heat pump, except that it is based on relatively stable ground temperatures rather than air. Installation of underground piping is used to transfer heat to and from the home via a water/antifreeze mixture and heat exchanger. Electricity is used to drive components of the system, but the efficiency rating can reach between 300-600% (in essence using the earth’s heat energy to compound the electricity input).

Some factors to consider:

Pros

• Highly efficient, better at heating and cooling than a standard air heat pump.
• Can be used to supplement hot water needs in addition to home heating and cooling.
• Long life span, low maintenance

Cons

• Higher up front expense for equipment and drilling.
• Requires land area that will support “ground loop”. Price may increase if vertical loop installation is necessary vs. a horizontal loop.

While it may not be the best option for every situation, it should at least be given consideration. Anyone looking at new construction should assess how much they can reduce their total monthly costs by including the price of installation in their mortgage. The same goes for anyone buying a home that has an inefficient furnace which can be replaced using an Energy Improvement Mortgage. Beyond those situations, the time to recoup your initial investment could be anywhere from 2 – 10 years with 5 - 7 years a likely average. It’s not unreasonable to expect that an installed system would also add value at resale.

To learn more, see the Department of Energy’s geothermal guide.

Fannie, Freddie, and OHFA. Oh my...

Can anyone buy a house anymore? You’d think not with the indication that credit markets are frozen and the media suggesting that “main street” can’t get loans. Just in the past few days, the Ohio Housing Finance Agency (OHFA), an agency that focuses on helping first time homebuyers around the state, temporarily suspended its down payment assistance program. The reason given was that the agency could not sell bonds on the open market to cover the grants (see the OHFA website for more information). While this is very likely a short-term issue, it nonetheless illustrates how everything related to housing is being looked at with disdain.

We’ve all heard about the trials and tribulations with Fannie Mae and Freddie Mac, but the basic concern is what’s the impact to those looking for a new home and how long will the situation last. The primary impact is that the riskier loans that were bought or guaranteed by these two entities will no longer get backing, which effectively eliminates them from the public at large. I would not expect that to change in the foreseeable future (but, as the saying goes, never say never).

That said, there are still plenty of lenders providing funds to would-be buyers. While Fannie and Freddie are still conducting business, the guidelines for purchasing or guaranteeing mortgages have tightened considerably. 100% loans and stated-income loans are now a thing of the past. We are returning to the days of having 10 - 20% down, good credit, and stable income. Many have suggested we should have never have abandoned that approach in the first place.

Investors may be a bit more impacted by the Fannie / Freddie debacle. Lenders are beginning to restrict the number of properties that a single investor can hold for mortgages. At least one bank in the area is requiring investment property mortgages to be more than $125,000 to qualify for financing.

Federal Housing Adminstration (FHA) loans are being used in many cases where buyers have limited funds for down payments, but even there things have changed a bit. Privately funded down payment assistance programs through entities such as Ameridream and Nehemiah have gone by the wayside as of September 30, 2008. Additionally, the amount required by the buyer as a down payment will increase from 3% to 3.5% effective Jan 1, 2009.

Bottom line: there are many good deals in the current housing market and those individuals that are well capitalized and good savers are in position to take advantage. For others, there’s no free lunch anymore and the goal of owning a home has returned to being an aspiration, not a right.

Winter '08 - prepare your home now

Duke Energy has a request for a 6% increase in utility rates and the Energy Information Administration is predicting 15% average increases in “space heating fuels” this winter (UPDATE: as of Oct. 27th, agreements were reached setting a 2% increase in Duke electricity generation rates from 2009 - 20011.)

Unless you heat with wood or solar energy, you are likely to be impacted to some extent by cost increases. If you’ve seen a recent Lowe’s or Home Depot flyer, you can see they are trying to tap this concern by promoting energy fix ups to your home before heating season begins. While I recommend a whole house energy audit to identify the most cost-effective improvements, here’s some basic things to check before the cold gets here:

• Have your furnace inspected and cleaned. Furnace filters should be cleaned or replaced each month.
• Check for gaps around windows, doors, pipes, etc. around your home. Seal with caulk, foam, and weatherstripping as appropriate. You may need to cover drafty windows with plastic sheeting.
• Determine if there are good opportunities for adding insulation. According to Energy Star research, you could potentially save up 20% on your heating and cooling bills by fixing air leaks and adding insulation. See more in the insulation Do-it-yourself guide. Unfinished basements with no insulation can be a significant source of heat loss and are good candidates for energy savings, but there’s some debate on the proper method of installation. Check the Department of Energy’s consumer guide for more information.
• Swap out your window screens with glass replacements if you have them.
• Prepare for emergency power outages. The standard litany of items is always good to have on hand: matches, candles, bottled water, non-perishable foods, etc. An open masonry fireplace generally isn’t an efficient heating source, but could fill in during an outage.

If your windows are in good shape, take advantage of heat from the sun by opening shades on south-facing windows during the day and closing them in the evening. A side note, there are now products available to put in your windows that will act as a heat trap in winter / reflector in summer. I’ll discuss these in a future article.

For more energy saving tips, check out www.Energysavers.gov