Cost of Geothermal Energy Compared to Fossil Fuels

Cost Fossil fuel comparison Geothermal Energy

Jim Bruce

Updated on October 17, 2022

Cost of Geothermal Energy Compared to Fossil Fuels

How much does geothermal energy cost?

Is geothermal energy cheaper than other sources?

As a general rule, the cost of geothermal energy compares favorably with fossil fuel energy over the longer term. In the past few years, there has been an extensive effort in convincing the public to shift from non-renewable to renewable energy sources because they’re cleaner.

However, renewable energy also has several economic benefits, such as development, security, and price stability.

Fortunately, we’re seeing good acceptability of clean energy transition, evidenced by the 2% global increase in renewable energy generation in 2020.

Geothermal energy is among the many options utilized and produced in developed and developing countries, such as the USA, Iceland, Philippines, and Kenya. Slowly gaining popularity and endorsement, one concern of both commercial and residential property owners is the cost of geothermal energy.

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Is it worth investing in a geothermal system? Let’s find out by breaking down the installation, operating, and maintenance costs and comparing them with fossil fuel energy costs.

Is Geothermal Energy Expensive?

One of the disadvantages of geothermal energy is the capital or initial cost, which is around $10,000 to $80,000. The total amount usually covers geothermal heat pump system installation, professional drilling, and new equipment.

The considerable capital cost difference is because of the many factors the company will look into, which are as follows:

The Property’s Square Footage: The bigger your property is, the higher the cost since you’ll need a bigger unit and loop system.
The Type of System: While there are three types of geothermal power plants, those installed at home have two types: open- and closed-loop systems. Each loop type has different pipe-laying requirements, and the more complicated it is, the more expensive the project is. Likewise, a more complex pipeline construction means higher drilling costs.
The Plot Size: In relation to the last factor, the size of the yard where the system will be installed also affects the upfront costs. For instance, smaller lots can only accommodate the usually more expensive vertical loop unit, as horizontal loop systems require a minimum of 0.25 acres of land.
Home Insulation: Installers will also inspect whether your home has good insulation, which can lower the cost. Generally, residential units with efficient insulation only require smaller geothermal systems because the heat gets trapped more efficiently.
The Required Modifications: These are more common for old homes where the installer might need to replace or modify duct and wiring systems to accommodate the pump. Closed vertical and horizontal loop systems might also require landscape repair, such as moving your sprinklers.
Add-Ons: Some companies will offer an add-on feature known as a desuperheater tank system for an additional cost of around $1,400 to $3,000.

Cost of Geothermal Energy per kWh

Geothermal power plants running at 90% availability spend around one to three cents per kilowatt-hour. These numbers will increase when they run from 97% to 98% availability. That’s why most will charge around $0.03 to $0.035 per kWh but will increase during peak demands, such as the summer and winter seasons.

That said, the cost per kilowatt-hour that newer power plants charge is a bit higher, at least $0.05 per kWh. With those in mind, expect to spend approximately $0.05 to $0.09 per kWh, whether you rely on geothermal power plants in your area or have your geothermal heat pump system installed.

Video – Is geothermal energy worth the cost?

Geothermal Heating and Cooling Cost Comparison

Experts state that you will notice a 30% to 70% reduction in your annual utility bill when running a geothermal heating system, while 20% to 50% when operating a geothermal cooling system. Moreover, it was observed that a pump with a desuperheater system could reduce water heating costs by 50%.

Even better, hot water becomes free during the summer season. This benefit is all thanks to the fact that the system will utilize the heat removed from your home to increase the water temperature.

How Much Does Geothermal Energy Cost per Month for the Home?

Like installation costs, it’s pretty challenging to determine the exact monthly geothermal costs. After all, it will depend on several factors, such as your thermostat, heating system, and aircon usage, home size, and heat pump efficiency.

How expensive is geothermal heating?

Based on Dandelion Energy’s report on operating costs, a pump with a 3.4 efficiency will cost you about $114 a month when running a heating system. On the other hand, geothermal heat pumps with an 18.8 efficiency will cost you around $18 a month when running a cooling system.

In terms of maintenance costs, you would need to save $12.5 to $29.16 per month because maintenance is only required once a year. Standard maintenance practices include cleaning filters, coils, condensate traps, and ducts, checking for leaks, and correcting ground loop pressure.

Most of the time, though, companies offer warranties for a limited period, not just on preventative maintenance but also repairs.

Cost of Geothermal Energy vs Fossil Fuels Compared

Fossil fuels, such as oil, coal, and natural gas, have been the top sources of energy around the globe for more than 150 years. Hence, most buildings and homes have furnace heating systems.

Should you shift from the traditional to the more modern system? Let us help you differentiate fossil fuel and geothermal costs through the table and explanations below.

Table of Comparison: Geothermal Energy vs. Fossil Fuel

Variable	Geothermal Heat Pump	Fossil Fuel (Furnace)
Installation	$10,000 to $80,000	$2,500 to $6,500
Electricity per kWh	$0.05 to $0.09	$0.030 to $0.036
Maintenance	$150 to $350	$80 to $120/year
Heat Source	Free	Varies and changes
Levelized Cost of Energy (LCOE) Outlook	44,000 kWh	54,000 to 100,000 kWh

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Why is geothermal energy expensive? What the Table Means

Generally, a furnace will require a minimal amount of electricity but a significant amount of energy load from a fossil fuel source for it to work.

On the other hand, geothermal technologies require a good amount of electricity to move the (free) heat from the ground to the property. Thus, you can expect a gradual increase in your electricity bills.

This difference is why most people wonder if geothermal resources are better than conventional power generation sources in terms of cost.

On that note, we must remember that there is a non-stop rise in fossil fuel prices globally. Even if and when there’s a decrease, it’s only very minimal. This constant increase also gradually affects your utility bill.

This is for the obvious reason that you would need to spend more on a gallon of gas, oil, propane, or fuel or a pound per cubic foot of coal. On the contrary, there will be little to no expenditure on heating fuel sources once you start using geothermal resources.

How about LCOE?

To give you an idea, LCOE is a more comprehensive energy generation measurement since all fixed and variable costs have been considered. It measures the lifetime costs of building and operating power plants divided by the energy produced. Therefore, it can effectively compare several technologies, even with differences in features.

The resulting number refers to the average revenue per electricity unit generated that one would need to recover the costs throughout the system or technology’s lifetime.

Although this works more for companies and investors, it’s still worth noting. The numbers might change when you consider a home, which is smaller than a power plant, but whichever is lower or higher remains the same.

From the data obtained from the U.S. Energy Information Administration (EIA), geothermal has the lowest LCOE. Meaning, you can experience a return on investment within a shorter period than when you use a furnace system.

Table – Compare geothermal energy emissions to fossil fuels

Generating Plant – energy used	CO2 Emmissions
Geothermal	38 gms CO2/kWh
Solar	50 gms CO2/kWh (includes solar panel manufacture)
Wind turbines	11 gms CO2/kWh
Hydropower	27 gms CO2/kWh
Nuclear	4 gms CO2/kWh
Coal	915 gms CO2/kWh
Gas	190 gms CO2/kWh

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Is Geothermal Energy Cost-Effective?

From the above data and explanation, we can say that geothermal energy isn’t cost-effective for most homeowners because of the high initial installation and geothermal heat pump cost. However, it is cost-efficient.

The amount you will save through the years of using a geothermal unit ensures you will have a good return on investment. After all, these systems have a long lifespan, which is approximately 20% longer than other heating and cooling systems. Plus, a geothermal system will increase the value of your property.

As of writing, you’ll enjoy incentives from the government when you have a geothermal unit installed. Those are extra monthly cost savings that you can use for your mortgage, investments, necessities, and more.

Why is geothermal energy more cost-effective?

For example, the U.S. offers a 26% federal tax credit for those installing ENERGY STAR-certified geothermal systems in their properties until 2022. In 2023, this tax credit decreases to 22% and will no longer be available in 2024 unless the government decides to reinstate it.

There is also an available mortgage loan to cover the cost of installation. Lastly, some states and cities have specific incentives for installing and using energy-efficient and renewable energy systems.

The UK also doesn’t fall short when it comes to geothermal grants through their Renewable Heat Incentive (RHI) program. The specific amount or percentage isn’t as straightforward as the USA’s because it will depend on several factors.

Are Geothermal Systems Worth It?

Like any other energy source to power your home or office heating and cooling units, geothermal energy systems have pros and cons. That said, they are definitely worth it when installed, used, and maintained properly.

Make sure you choose the right company to work with, one with accreditation and a professional and experienced team. A unit with an ENERGY STAR rating is also an ideal choice, helping lower your electricity consumption when you run it.

If you have enough budget, you can also consider adding solar energy for your geothermal system to use instead of your traditional electricity source. Doing so will help you save more on your overall utility bills; after all, there has been a steady decrease in solar-powered electricity bills in the past years.