Energy Secretary Chu pays a visit to WaterFurnace.

From left: Tom Huntington, President and CEO; DOE Secretary Steven Chu; and Tim Shields, Chairman of the Board, at WaterFurnace International headquarters in Fort Wayne, IN.

On June 2, U.S. Energy Secretary Steven Chu toured the Fort Wayne, IN, headquarters ofWaterFurnace International, a manufacturer of geothermal and water source heat pumps. His visit also included the announcement of a $50 million grant program that will encourage the installation of geothermal heating and cooling systems.

The city of Fort Wayne recently recognized WaterFurnace as the first business in town to achieve Green City Business certification. As part of the process, WaterFurnace attended a training session sponsored by the Fort Wayne Environmental and Energy Department. The program helps businesses save money on energy costs and adopt more environmentally friendly business practices as it targets pollution prevention, solid waste reduction and energy and water conservation.

Secretary Chu visited the city to discuss federal recovery efforts for auto communities and workers. As part of his visit, President Obama’s cabinet member participated in a roundtable discussion with WaterFurnace executives, Fort Wayne Mayor Tom Henry, a WaterFurnace employee and a WaterFurnace dealer. Following the discussion, Secretary Chu toured the WaterFurnace facility with company President and CEO Tom Huntington, Chairman of the Board Tim Shields and Mayor Henry.

According to Secretary Chu, the $50 million fund will support three programs. The largest of the three will fund competitive grants open to companies like WaterFurnace that manufacture geothermal heating and cooling systems. These grants will apply to cost-shared technology demonstration projects that retrofit or incorporate a minimum of 50 tons of heating and cooling capacity. Another program will provide grants to improve geothermal system technology, and a third will create a national certification process to increase consumer confidence.

In the wake of Secretary Chu’s visit, I interviewed WaterFurnace CEO Tom Huntington, who had just been appointed to the post in May, as follows.

Tom Huntington

Supply House Times: Congratulations on your new appointment. You were only on the job a few weeks when you somehow finagled a visit from the Secretary of Energy! How did Secretary Chu’s visit come about?
Huntington:It came about through the Obama Administration’s focus on areas hardest hit by the automotive sector where blue collar jobs in their estimation can be transformed to green collar jobs, and on the companies that have an influence on that policy. We were at the top of the list.

Fort Wayne is our headquarters and manufacturing site, and also a wonderful demonstration site because we heat and cool the factory with a pond-loop installation. We have a showcase building that’s energy efficient and aesthetically pleasing, and I think the Secretary left here wowed.

Q: How does your business break down in terms of commercial vs. residential?
Huntington:More than 50% of our business comes from residential, although the commercial market is now looking at us differently because of tax incentives on the commercial side and also because of the cost of energy. Schools especially are taking a closer look at these systems, and in some cases looking at life cycle costing and ROI, where they see the first cost as an investment in lower energy costs in the future.

Q: Is yours mostly a new construction marketplace or are there serious retrofit possibilities?
Huntington:You probably need to divide that question into two pieces. If we’re talking commercial, it’s certainly easier to do an installation in a new construction mode, but if space is available for drilling vertical loops, or if there’s a generous amount of land to do a horizontal loop and if a commercial site is fortunate enough to have a pond available, retrofit is worth examining. Geothermal can be installed as either a supplemental energy source or to provide 100%.

That’s where a good engineer can really assist a building owner, because it doesn’t always have to be an all-or-nothing application. Geothermal could do 20% of the load or 100%, and an optimal point for investment may be somewhere in between. This is an interesting dynamic based on fuel costs. It involves some guessing as to what will rise faster, natural gas or electricity, and I would bet natural gas prices will be outpacing cost increases in electricity.

On the residential side, an interesting statistic for this year is because of tax incentives, our business is up dramatically in replacements vs. new construction. Homeowners with traditional HVAC systems that have broken down are now finding they can retrofit with geothermal as a good investment for future savings. That’s a new wrinkle, along with tax incentives, which makes us bullish for replacement business on the residential side. If we relied totally on new construction under these market conditions, certainly we’d be hurting.

Q: Isn’t there a lot of regional variation in the effectiveness of your products?
Huntington:There’s a difference in how to lay out the loop. In some areas horizontal loops will be the lowest cost advantage, in other areas they may have to drill and drill through rock. So the cost of installing the loop is the big variable.

Our markets do vary, due in part to tradition, to be honest. The Midwest has been a very good market for us, some of it due to traditional distribution channels. But our fastest growing areas are outside the Midwest where market penetration is lowest.

Q: My career goes back to solar tax credits of the 1970s, and when the federal government pulled them back the solar market collapsed and remained moribund until recent years. If the government took geothermal tax credits away, what would happen to your business?
Huntington:That’s a very speculative question. We know we’re being helped by tax incentives, but also know we’re being hurt by a bad economy. We have to assume the economy will come back to some level of normalcy, and if that occurs, along with tax incentives, we’ll be in tall cotton. If we don’t have tax incentives and energy prices remain at a steady increase, that too will propel the market in our direction. If we lost the tax incentives and energy costs dropped - which I don’t think anyone believes will happen - then probably it would result in flat sales.

I think the best testimony is to go back a year to 2008, when our sales grew dramatically and tax incentives were not very significant. Maybe that answers the question.

DOE Secretary Steven Chu (right) joins WaterFurnace International President/CEO Tom Huntington and other executives, employees and dealers, for a roundtable discussion following a tour of the company's Fort Wayne, IN, headquarters on June 2, 2009.

Q: Besides a lousy economy, what are other obstacles you face as a geothermal heat pump manufacturer?
Huntington:Secretary Chu brought with him some personal observations that are right on. I think because he is a scientist himself, some of his research was done personally. He said that what we need to do is instill confidence in consumers that this is a proven technology, and he asked us as a management team how to promote it. He was particularly focused on a certification process to ensure high quality installations that are hugely reliable.

Here’s a key point: in his mind, this technology is not only for creating green collar jobs, but money homeowners save on energy bills is money that can be reinvested to spur the economy. He was very focused on his vision of why he should promote this energy.

What are stumbling blocks? Public awareness is something we need to foster, getting people to acknowledge the fact that this technology has been proven over decades and is not high-risk. With a quality installation, people must know they’ll save money.

Q: These systems are complex. What kind of training do you have to make sure installers know what they are doing? Also, you sit on the NATE Board of Trustees, so will we see this market covered by NATE certification?
Huntington:We do training ourselves for any contractors that install the equipment, because we believe that training is imperative. Rex Boynton, who is president of NATE, has been very cooperative in looking over what they can do to further support this initiative. So I think we’ll see a day in the not-too-distant future when NATE will become a very important partner with geothermal.

Q: Who do you regard as your main competition - other ground source manufacturers or the forced air companies?
Huntington:Geothermal represents only about 1% of installations, so we would be shortsighted to focus only on other geothermal manufacturers or any competing technologies that offer the same savings. We always will have the inherent benefit of Mother Earth and the laws of physics, so our operating characteristics are always going to be more favorable to the refrigerant cycle as compared to the air-to-air guys. Yet today they are the biggest competitors.

Q: What about other forms of alternative energy? Do you foresee a time when you will be selling the merits of your system against solar and wind power?
Huntington:I don’t think we’ll be selling against them. I think what we’ll find is that the manufacturers of solar and wind systems will embrace geothermal. Because of the high capital costs of solar and wind, they’ll have to find solutions to reduce energy consumption of devices that pull power from them. Costs of generation for solar and wind are very high, equivalent to around 24 cents per kilowatt hour, so key for them is to find technologies that use less power and allow them to compete against today’s installed power sources.

Q: Is there any significant foreign competition in your field?
Huntington:You’d have to be naïve to say they’re no factor. We’ve got a watchful eye on all of them, though there hasn’t been any significant move I would attribute to a foreign competitor. But the market in Europe is exceptionally mature and it would be foolish to think they don’t have eyes on the North American market. They just haven’t made aggressive moves yet.

Q: Any final comments you’d like to say to our audience?
Huntington:We have a proven technology that’s been effective over many years and has been endorsed at the highest levels. It represents a great opportunity.