For the past month, I’ve examined various home energy improvements for which one can earn a 30% federal tax credit. The last of these opportunities I’ll cover is ground-source heat pumps. A ground-source heat pump (GSHP) is also referred to as a “geothermal” heat pump, though I prefer the former terminology, to avoid confusion with true geothermal energyHot water or steam extracted from reservoirs beneath the Earth's surface; can be used for heat pumps, water heating, or electricity generation. The term may also mean the use of near-constant underground temperatures by ground-source heat pumps to provide heating and cooling. systems that rely on elevated temperatures deep underground from the Earth’s mantle. GSHPs are eligible for the 30% tax credit with no cap on the dollar amount that can be received. But this system may not be the best choice for home heating, and I’d like to offer some warnings about the potential for exaggerated claims and outright scams.

GSHPs are pretty amazing systems. Like all heat pumps, they extract heat from one place (in this case, underground) and deliver that heat--at a higher temperature--to your house. That may sound impossible, but it’s how your kitchen refrigerator works. In the summer, heat pumps can be reversed to remove heat from your house, providing air conditioning.

While electric resistance heat is 100% efficient at converting electricity into heat, a heat pump provides at least two to three units of energy for every one unit of energy consumed. This is often measured as the annual “coefficient of performance” or COPEnergy-efficiency measurement of heating, cooling, and refrigeration appliances. COP is the ratio of useful energy output (heating or cooling) to the amount of energy put in, e.g., a heat pump with a COP of 10 puts out 10 times more energy than it uses. A higher COP indicates a more efficient device . COP is equal to the energy efficiency ratio (EER) divided by 3.415. ; a COP of 3.5 means an effective efficiency of 350%. (Note that if you consider the “source energy” that a power company uses to generate that electricity, the true efficiency numbers are significantly lower.)

In cold climates, a GSHP has higher efficiency than an air-source heat pumpHeat pump that relies on outside air as the heat source and heat sink; not as effective in cold climates as ground-source heat pumps. (which extracts heat from the outside air), because temperatures underground are considerably warmer in the winter than the outside air. Installing a GSHP involves digging a trench or series of wells into which tubing is embedded. Either refrigerant, water, or antifreeze solution is circulated through this tubing. Another version pulls groundwater from a well as the heat source (or heat sinkWhere heat is dumped by an air conditioner or by a heat pump used in cooling mode; usually the outdoor air or ground. See air-source heat pump and ground-source heat pump.), and then returns the water to the well.

To earn the 30% federal tax credit, a GSHP must be Energy StarLabeling system sponsored by the Environmental Protection Agency and the US Department of Energy for labeling the most energy-efficient products on the market; applies to a wide range of products, from computers and office equipment to refrigerators and air conditioners. listed. The Energy Star requirements vary by type and are currently as follows: a closed-loop GSHP has to have an energy efficiency ratio (EEREnergy-efficiency rating or energy-efficiency ratio. As most commonly used, EER is the operating efficiency of a room air conditioner, measured in Btus of cooling output divided by the power consumption in watt-hours; the higher the EER, the greater the efficiency.) of at least 14.1 or a COP of at least 3.3; an open-loop GSHP must have an EER of at least 16.2 or a COP of at least 3.6; and a direct-exchange (DX) GSHP must have an EER of at least 15 or a COP of at least 3.5.

The reason I’m not a huge proponent of GSHPs is that they’re really expensive. Most of the expense is due to the cost of digging trenches and laying tubing. In addition, field experience shows that these systems often aren’t meeting performance expectations. Sometimes the annual COP turns out to be only slightly higher than 2.5.

Meanwhile, performance of air-source heat pumps--in particular, the ductless mini-splitA type of small-capacity heat pump (as little as a ton or even less) with a closely-associated outside compressor and inside evaporating coil (often through-the-wall in design). These heat pumps often come with variable-speed compressors and blowers,giving them excellent modulation for thermal comfort. These features also contribute to COPs of around 4 for ductless min-split heat pumps. They are also well-suited for ultra-high performance, small-volume homes. heat pumps that have been popularized by such companies as Mitsubishi, Sanyo, and Daikin--have been improving dramatically in recent years, especially at low temperatures.

In the past, air-source heat pumps only made sense in warmer climates, because the efficiency would drop dramatically at lower temperatures; at about 40°F, these systems would usually switch over to electric-resistance heating. New mini-split heat pumps, by comparison, especially “inverter” models, can function pretty well down to about 0°F. And they cost a whole lot less than GSHPs.

It is not unusual to hear about GSHPs in Vermont costing as much as $35,000 for typical homes. For the same investment, one could spend $30,000 reducing heating loads (insulating, air sealing, replacing windows, etc.) and install a state-of-the-art mini-split heat pump.

The 30% tax credit that’s available for GSHPs allows homeowners to recover some of that very high cost. Air-source heat pumps also earn the tax credit, but only up to $1,500 and only through the end of 2010 (while the GSHP tax credit isn’t scheduled to expire until the end of 2016).

Here’s my concern: Because GSHP dealers can show homeowners how much money they can get back from Uncle Sam (over $10,000 for that $35,000 system), they can make a pretty compelling argument. A few unscrupulous companies might also be tempted to inflate the price of the system--allowing you to earn an even higher tax credit--and then offer you a special rebate or pyramid-marketing inducement of some sort so that both you and the company benefit--at the expense of the rest of us taxpayers.

I don’t have a problem with subsidizing energy improvements through tax credits and other incentives, but if my tax dollars are being spent on these improvements I’d like to be sure that the money is spent wisely. I don’t believe a GSHP costing tens of thousands of dollars is nearly as cost-effective as combining energy conservation and a far less expensive mini-split air-source heat pump.

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