But there’s still one way to tap federal assistance for cleaner heating.
The same law allows installers of geothermal heat pumps and systems that store thermal energy for later use to earn tax credits for years to come. Though individuals can’t tap the incentives directly, companies that retain ownership of the systems can lease them to customers at a cost that reflects the federal discount of 30% to 50%.
Already, some companies are adapting to the new state of play. Installers that didn’t previously have a leasing business are pivoting to take advantage of the incentives. For firms that already deploy thermal energy storage systems in multifamily buildings via commercial partners, the transition is especially straightforward.
If anything, the new law has made Dandelion’s approach to earning tax credits simpler, said CEO Dan Yates. That’s because the Google X spinout has in the past few years “focused on working with large-scale new homebuilders, where we do hundreds, even thousands of homes in new projects,” like its sizable partnership with homebuilder Lennar in Colorado.
Homebuilders didn’t have a clear way to capture the value of geothermal heat pumps under the Section 25D tax-credit program that’s going away at the end of this year, Yates explained. That tax credit was for households, not for companies that build homes with the eligible technology.
But under Dandelion’s new leasing structure, homebuilders can capture the baseline 30% tax credit, plus a 10% adder under domestic-content provisions that Dandelion’s U.S.-built systems qualify for. That enables them to save “thousands of dollars” up front, Yates said. “In many states, we’re seeing this lease as a real tipping point, where geothermal becomes less expensive than the status quo for the builders.”
The changes in the OBBBA also solved a key problem for third-party ownership of geothermal heat pumps, he said. Under previous tax-code language, those systems were considered “limited-use property,” meaning that the commercial owner couldn’t repossess them if the leaseholder failed to make payments, which complicated leasing structures.
But the Geothermal Exchange Organization, a geothermal-heat-pump trade group, successfully lobbied to change that language with the OBBBA. Now, leased geothermal systems can enjoy the same tax credits that have helped boost larger projects such as geothermal district-heating networks, which supply ground-source heat to buildings, campuses, or entire neighborhoods.
Dandelion’s leasing partner is Upstream Lease, a division of Carbon Solutions Group, which has previously specialized in monetizing tax credits for distributed energy systems like rooftop solar. Third-party lease and power purchase agreements make up roughly half of the U.S. residential rooftop-solar market to date, and remain available, at least in a truncated form, under the OBBBA.
Keith Martin, an attorney with law firm Norton Rose Fulbright and an expert on clean-energy tax equity, said his firm is working on geothermal-heat-pump leasing and tax-credit monetization strategies similar to those undertaken by Dandelion and Upstream, though he declined to name the companies involved.
“They’re looking at retaining ownership, just like the solar rooftop companies do, and then packaging large groups of heat pumps and arranging tax equity as a way of monetizing the tax benefits,” he said.
Companies can continue to claim geothermal-heat-pump tax credits for projects that start as late as 2034, Martin said.
As for the cost to homeowners, Yates said the typical payments add up to $150 to $200 per year, a “tiny” amount compared to typical rooftop-solar lease payments that can be as much every month. And the superefficient nature of ground-source geothermal can cut a home’s energy bills by $500 to $900 per year, or two to four times as much as they’re paying for a system that can last decades.
“That’s what we love about this — it really does align everybody’s interests,” he said.
How buildings can access tax credits for thermal energy storage
The other class of household heating and cooling equipment that received a reprieve from Republicans in the OBBBA is thermal energy storage systems. The term typically describes large-scale systems that use energy to generate heat or cold, which is stored for later use — a class of technologies that range from industrial-scale heat batteries to massive chilled-liquid networks connected to multiple buildings.
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