Evaluating the Economics of the Geothermal Investment

Although a geothermal heating & cooling system has an exceptional set of features – comfort, versatility, durability, safety, carbon footprint – as compared to fossil-fueled systems, the primary factor affecting the decision is usually the economic benefit.

How you evaluate the economics of converting to geothermal heat & cooling will depend on how you’re paying for it. In that regard, there are two general choices today: (1) pay everything up front or (2) pay nothing up front and make monthly payments for a number of years. (In the future, there may a third option: your utility company owns the ground loop and charges you a monthly fee for its use, and you pay for the inside equipment.)

If you opt to pay for the system at the time of installation, you want to know what the return on your investment (ROI) is likely to be and/or how soon will the investment pay for itself, i.e. payback – when the cumulative savings exceeds the upfront cost.

If, instead, you choose a payment plan, you’ll likely want to know how that impacts your cash situation, i.e. cash flow.

Let’s look at these economic measures by way of a common example:  converting a 2400-square-foot two-story house that has central air conditioning and heat from a propane furnace, and has at least 10,000 square feet (e.g. 100’x100’) of nearby open space to accommodate a horizontal ground heat exchanger, aka loop.

For this example, we’ll assume a typical design heat load of 39,000 Btu/hr for a house this size, which will necessitate a 4-ton heat pump. In the Geostar product line, you can choose from three different heat pump models to convert forced-air systems:

  • Sycamore – highly efficient, provides exceptional comfort (e.g. temperature uniformity, humidity control, minimal noise), convenience of remote monitoring and control by both homeowner and contractor
  • Aston – similar to Sycamore except its compressor is two- (vs variable-) speed, thus efficiency and comfort is very good (but not exceptional)
  • Magnolia Plus – a more economical version of Aston with fewer options, including remote monitoring and control

We’ll consider all three.

Energy cost savings will be highly dependent on the cost of propane, which can vary significantly from household to household and year to year. We’ll consider a wide range of propane prices and use an industry-standard model to estimate annual energy savings.

A few other assumptions are worthy of mention: variable cost of electricity (11.5 cents/kwh), furnace efficiency (90%), and cost of financing (5% APR).

For the sake of illustration, let’s say the geothermal system features the Geostar Aston 049 heat pump. Total installation cost would be ~$26,770; after government incentives  (applicable in 2020) are applied, the net cost would be ~$13,460. Let’s also assume that the price of propane averages $2.50/gal; for reference, the average price of propane in western New York in December 2019 was ~$2.55/gal according to NYSERDA.


Simply put, this is how many years of accumulated energy savings (versus continuing to heat with propane and cool with a conventional air conditioner) does it take to pay back the initial investment. In our example, estimated annual savings is $1983. So payback is (13460/1983=) 6 years 10 months. 


The annual return on your investment is the annual energy savings as a percentage of net installation cost or (1983/13460=) 14.7%. There aren’t very many professional investors who can make that year in and year out.


In this scenario, you finance the entire net installation cost with (for example) a home equity loan at an interest rate of 5% APR for 15 or 20 years. (Given the average life of a geothermal heat pump is 25 years and >75 years for the loop, these are reasonable terms.) Annual payments on the loan (paid in monthly installments) amount to $1277 or $1066, respectively – much less than your estimated annual savings. So your net annual savings with no upfront investment – cashflow – is (1983-1277=) $706 for a 15-yr term or $917 for a 20-yr term.

For homes larger than 2400sf with typical design heat loads, the economics are even better. The economics for converting from an oil-burning furnace are comparable to those presented here; while oil prices per gallon are generally higher than propane, the heat content per gallon is less and the combined effects roughly cancel one another.

If you have questions or want to learn more, contact us at info@lcgeo.com.