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THE NEW GEOTHERMAL TAX CREDITS ARE CREATING A “PERFECT STORM” IN THE WATER WELL DRILLING INDUSTRY By Todd Giddings, Ph.D., P.G., IGSHPA Accredited Trainer Reprinted from the Fourth Quarter 2008 Pennsylvania Driller Newsletter of the Pennsylvania Ground Water Association We all remember when the 700 billion-dollar bailout legislation was signed into law on October 3, 2008. This legislation, called the Emergency Economic Stabilization Act of 2008, H.R. 1424, also contained long-term tax incentives to encourage the use of renewable energy technologies in both homes and businesses. The energy technologies included solar electric generation, fuel-cell electric generation, wind electric generation, and geothermal heating and cooling. The new residential geothermal tax credit is 30% of the cost of the geothermal heat pump system up to a maximum of $2,000, and the commercial building geothermal tax credit is 10% of the cost of the geothermal heat pump systems with no cap. While the residential geothermal tax credit became effective retroactively to January 1, 2008, the commercial building geothermal tax credit became effective after October 3, 2008, the date of the signing of the legislation. Both the residential and commercial building geothermal tax credits are available until the end of 2016. Tax credits are not deductions that reduce your taxable income; they are subtracted from the federal income tax you owe. The geothermal heat pump industry has been growing at an increasing rate due to a) the demand for “green” heating and cooling systems, and b) the long-term increasing costs of propane, natural gas, and heating oil. By adding tax credits on top of the already high demand for geothermal systems, an unprecedented rate of growth is expected in the geothermal heat pump industry. The phrase “A Perfect Storm” is described by Wikipedia as “the simultaneous occurrence of weather events which, taken individually, would be far less powerful than the storm resulting from their chance combination. I believe that the new geothermal tax credits are creating “a perfect storm” in the water-well drilling industry. The “perfect storm” component that is unique to the water-well drilling industry is the abundant availability of drill rigs due to the precipitous decline in new home construction. This water-well drilling industry “perfect storm” is an important and very large new growth opportunity for water-well drillers. The same drilling rigs, crews, and methods are used to drill geothermal loop field boreholes, and there are some million-dollar loop field drilling projects across the US that are ready-to-go, but are not being constructed due to the lack of available drilling rigs and qualified crews. Replacing a fossil-fueled heating system with a closed-loop geothermal heat pump system requires that two or more boreholes be drilled in the yard of the home. The high demand for retrofitting closed-loop geothermal systems has caused some heating contractors to buy their own small drill rig because they could not get the boreholes drilled by a water-well driller. This geothermal system retrofit demand is often located in public water service areas, where, of course, there is no water-well drilling demand. I recently overheard a water-well drilling contractor say: “If you’re not drilling geothermal loop boreholes, you’re completely missing out on a huge business opportunity.” This well drilling contractor just took delivery on a new Schramm air-rotary drill rig ordered specifically to drill geothermal loop field boreholes. He estimated that geothermal borehole drilling had grown to account for 80% of his company’s business. At an elementary school being retrofitted with 24 geothermal heat pump systems, the discussion was about the more than 3 million dollars of commercial loop field drilling projects that are located within 40 miles of State College, Pennsylvania and are currently being drilled or are going out to bid. To grow their water well drilling business into geothermal borehole drilling and loop installation, a water well drilling contractor could attend the International Ground Source Heat Pump Association’s (IGSHPA) new Accredited Drillers Training - Applications of Production Drilling and Borehole Construction for GeoExchange Systems course, and by passing the written examination, become an IGSHPA Accredited Vertical Loop Installer. This training course is designed to help water well drillers transition into the geothermal borehole drilling industry.
When you look at the graph, it shows an increasing rate of growth prior to the geothermal tax credits. Imagine what the geothermal industry growth rate will look like with the tax credits. When I see heating contractors buying and operating drill rigs in order to meet the demand for geothermal boreholes, I become convinced that the demand is here to stay. I believe that the water well drilling industry should grow to meet the demand for geothermal borehole drilling, because they will bring their knowledge of grouting and ground-water quality protection to the process of drilling of geothermal boreholes.
Reprinted from the Fourth Quarter 2008 Pennsylvania Driller Newsletter of the Pennsylvania Ground Water Association
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