Unlocking Geothermal

Geothermal heating and cooling has rapidly gained traction among multifamily developers in Canada. Why hasn’t it taken off in the US?

Thesis Driven dives deep into emerging themes and real estate operating models by featuring a handful of operators executing on each theme. This week’s letter is a deep dive into geothermal heating and cooling, a technology with plenty of potential but little adoption in the United States.

In Canada, every week seems to bring the announcement of a new condo tower with heating and cooling powered by geothermal exchange. While they’ve been popular for decades in government buildings and some single-family homes, “geoexchange” systems have rapidly gained traction among Canadian multifamily developers over the past several years due to a combination of regulatory, consumer, and financial shifts. The Ontario Geothermal Association estimates that 5% of all condo units in the province are now using geothermal, more than double the number five years ago—a statistic that understates the share of new developments using geothermal.

Geothermal heating and cooling systems are considered one of the most energy-efficient and environmentally friendly HVAC options available. By drilling 600’ to 800’ deep, they use Earth's consistent temperature to provide heating in the winter and cooling in the summer, leading to significant energy savings. According to the EPA, geothermal systems can be 48% more efficient than traditional gas furnaces and 75% more efficient than oil furnaces, driving 30% to 80% utility cost savings. 

Geothermal borehole drilling underway at a Subterra Renewables project in Canada

Despite their benefits and popularity north of the border, geothermal systems haven’t gained meaningful traction among multifamily or commercial developers in the United States. Despite many institutional investors increasingly putting a high priority on ESG initiatives, geoexchange systems have been largely isolated to token implementations at university or government buildings.

Today, we’ll dive into:

1. The success of geothermal systems in Canada;

2. The economics of geothermal and why Canadian developers have embraced it;

3. Some of the reasons geothermal has yet to gain traction among US multifamily developers, and

4. Why that might be changing in the coming years.