Is Texas Geothermal Energy Housing Development a "Green" Dream?
Or Is It Just Another Boondoggle?
I came across the following headline from a cnbc.com article that successfully grabbed my attention1 :
“Largest-ever geothermal grid under this Texas housing development is saving homeowners serious money”
I had sort of a two-part reaction to the headline. The engineering side of my brain said, “oooh, sounds innovative” while the economical side of my brain said, “yeah, right … boondoggle alert.”
In the hysterical world of today that treats carbon dioxide as if it is toxic hydrogen cyanide, it’s rational to have a skeptical reaction when reading anything about energy. I, for one, have questions.
The article tells of a 2,000-acre new housing development in a Texas community called Whisper Valley. EcoSmart Solutions, a subsidiary of the community’s developer, Taurus Investment Holdings, built a geothermal energy grid into which each home is connected. Each home is outfitted with solar panels and a geothermal heat pump to heat and cool the house. The article makes a bold statement:
“The master-planned community is built atop an enormous geothermal grid. It’s the largest ever created for a residential community – essentially a blueprint for greener living. It is also saving its residents thousands of dollars in energy bills.”
But is it really “saving residents thousands of dollars?” In order to compare the economics of geothermal systems to other HVAC alternatives, a direct comparison must be made between capital, operating, and maintenance costs over the lifetime of the installation. So, what are the real costs? Well, it’s very difficult to understand because the government has distorted the market. I’ll expand on this distortion further below.
Now, don’t get me wrong. There is nothing wrong with geothermal heat pumps or solar panels per se. These are both forms of energy conversion that have unique advantages where the application is appropriate. But the application is key. The questions we should be asking are if a geothermal energy system is appropriate for Whisper Valley in an economic sense, and if this type of setup is really a blueprint for other communities. Again, I am skeptical.
What are Geothermal Heat Pumps?
Geothermal heat pumps are based on a very simple concept of heat exchange, they’re emission-less, and they utilize a resource that is essentially free and constant: the ground. If you drill down the surface of the Earth (~300 feet in Whisper Valley’s case), you can access a constant year-round temperature. A geothermal heat pump exploits this constant temperature by circulating water (or other coolant solution) through a piping loop buried deep down into the ground. The heat pump itself is located on the surface and performs heat exchange between the air in your home and the circulating water. It works for both heating and cooling due to the differential existing between the surface and underground temperatures (e.g., in the winter, the ground is warmer; in the summer, the ground is cooler).
But not everything is peachy when it comes to geothermal energy. It has high upfront installation costs. Granted, with a new development, these costs are minimized because the systems can be installed before houses are built, but unless you have acres of open land, you have to drill down, not sideways. It requires a drill rig to come out and bore holes for each pipe loop. If you live in an area with clay-based or rocky soil, well those drilling costs go up. Think about what has to happen if the piping ruptures or fails. The big drill rig may have to come back and setup right next to your house.
The geothermal systems require electricity to be powered. But, the claim by EcoSmart is that the system uses 80% less electricity than a traditional HVAC system, considering solar panels are helping to cover the electrical needs. Homeowners can also opt in for a full home battery backup for times when the sun is not shining. But battery backups can be on the order of ~$10-20K. Sounds affordable, right? Yeah, right.
A typical 2,050 square-foot house in Whisper Valley is going for $575,000 as of today.2 That's about $280/square foot. Definitely not affordable, but perhaps a real estate comp would reveal if it was comparable to neighboring communities. The article claims these homes are only $10K more than a comparable home. But right off the bat, you should see through that nonsense. Solar panel installations alone cost more than $10K for the average home.3 Throw in a geothermal grid installation and, well, you should be getting a bit more skeptical now, too.
The Proof in the Government Pudding
An economist (a good one, at least) assesses not only the costs that are immediately seen, but also the costs that are unseen, including the ultimate consequences of a decision.
A geothermal installation on a relatively large scale such as that of Whisper Valley, may only make economic sense because it is “gifted” a competitive edge. And well, governments have never been shy to “gift.” Let’s not kid ourselves … a key reason many people vote is to get “free” stuff that they would otherwise have to buy on their own in polite society.
So, as you read through the CNBC article, you eventually get to the kicker:
“The recently passed Inflation Reduction Act is also a massive windfall for commercial geothermal development. It triples the current 10% tax credits for at least the next ten years. The government backing also shows investors that geothermal is a good bet. … The homeowners can also receive tax credits based on the solar and geothermal elements of their homes.”
In fact, in December 2020, Congress passed an extension of the Investment Tax Credit which provides a 20-30% credit for homeowners with eligible “renewable” energy systems.4 And State governments have their own tax incentives. Texas offers a 100% property tax exemption on the appraised value of the energy system installation.5
The Whisper Valley developer is no doubt claiming tax credits to offset their installation costs and it’s unclear what incentives they were given from the onset. And the homeowners are no doubt claiming tax credits to offset their purchase costs. So, on the surface (no pun intended), a geothermal energy installation may seem affordable. But deep down (pun intended this time), it’s likely a boondoggle.
Remember the Solyndra fiasco? The government gave this company unconditional, guaranteed loans. Then the government solicited to the American people on behalf of Solyndra that the company was essentially the path to a "green" future. President Obama had high praise at the time:6
“It’s here that companies like Solyndra are leading the way toward a brighter and more prosperous future. … The true engine of economic growth will always be companies like Solyndra, will always be America’s businesses. But that doesn’t mean the government can just sit on the sidelines. Government still has the responsibility to help create the conditions in which students can gain an education so they can work at Solyndra, and entrepreneurs can get financing so they can start a company, and new industries can take hold. … And we can see the positive impacts right here at Solyndra. Less than a year ago, we were standing on what was an empty lot. But through the Recovery Act, this company received a loan to expand its operations. This new factory is the result of those loans. … When it’s completed in a few months, Solyndra expects to hire a thousand workers to manufacture solar panels and sell them across America and around the world.” (Applause.)
Within a year of getting a sweetheart loan deal, Solyndra executives tell the administration that they are on the brink of bankruptcy. On August 31, 2011, Solyndra closes up shop while the executives made out like bandits.7
“Central Planners Gonna Plan”
Central planners think of themselves as social engineers. Like Cass Sunstein, the old Obama regulatory czar, they think they can “nudge” the world into their vision of how they think others should live. This is driven by the view that the common people are sometimes too irrational or ignorant to make “correct” decisions for their own lives. Behavioral bureaucrats, on the other hand, are not subject to the same irrationality or ignorance, apparently. Because they are your mommy and daddy, and they know best, you see. Sunstein expresses this philosophy:8
“Paternalism stirs strong emotions. Many people abhor it. They think that human beings should be able to go their own way, even if they end up in a ditch. … people are prone to error, and paternalistic interventions would make their lives go better.”
And so, here we have paternalistic legislation that artificially drives investor and consumer money into certain industries and politically favored businesses.
President Biden just nominated his new pick for regulatory czar — Richard Revesz.9 To no surprise, Revesz is cut from the same cloth as Sunstein. We should expect no change in paternalistic philosophy. After all, Revesz had a strong endorsement of Sunstein back in the Obama days.10
What Will Come of Whisper Valley?
Unfortunately, only time will tell if Whisper Valley really is an affordable “green” blueprint for others. Don’t get me started on the term “green,” there’s nothing green about covering a landscape in silcon solar panels. The true testament comes down to real costs. Because costs reveal the true amount of resources required to develop and maintain such an installation. The less resources used, the more “green” in my view.
Now, tax credits in general are a good thing. After all, credits keep the money out of the hands of the bureaucrats. But, targeted tax credits distort the market. Think if competing solutions were given the same edge as the politically favored systems. What would consumers choose then? What will happen when the tax incentives go away and traditional, more affordable energy solutions have already been driven out of business? At that point, the true costs will become seen, but no one will realize what happened. The cost of living will just seem like it magically increased.
This all applies to the ongoing push to drive out traditional automobiles in favor of electric versions. So be skeptical of that as well. There’s nothing green about lithium batteries, other than the polluted water at the lithium mines and the money pocketed by the politically favored businesses.