Why Geothermal Almost Got Cut Before Anyone Ran the Incentives

Geothermal almost got cut from a 24-unit project before anyone ran the real numbers. On an all-electric multifamily building in Lawrence, Massachusetts, geothermal carried the highest sticker price of any option on the board. That made it the first thing the team wanted to strike. The problem is that the sticker price and the net cost were two very different numbers, and only one of them had been calculated.

The Real Project

The building is 24 units, all-electric, in Lawrence, Massachusetts. Geothermal was one of several heating and cooling options priced during design. On the equipment bids alone, it was the most expensive system on the table.

So it got cut first. That is the reflex on every budget. The line item with the biggest number is the one that draws the red pen, and the geothermal well field and loop system made it an easy target.

What had not happened yet was a look at what the system would actually cost after incentives. The bid was a gross number. The team was making a cut decision on a figure that was going to change.

The Incentives Left Out of the Comparison

Two incentives applied specifically to the geothermal system. A federal tax credit on the system itself, and a per-unit utility rebate stacked on top of it. Across 24 units, a per-unit rebate is not a rounding error.

Together those two clawed back most of the premium that made the team want to walk away. The gap that looked real on the bid sheet mostly disappeared once the incentives were counted against it. The system that looked the most expensive was not the most expensive once its own credits were applied.

The lower-cost options captured none of that. They were cheaper on the bid, and they stayed exactly as cheap as the bid, because there was nothing extra to claim against them. The incentives were tied to the one system nobody had kept in the running.

That is the trap. Equipment bids get compared side by side in one conversation, and incentives get discussed in a different one, if at all. The two numbers that decide the real cost never sit on the same page.

Why Sticker Price and Net Cost Diverge

Every incentive-eligible system carries a wedge between what it costs to buy and what it costs to keep. The bid shows the gross number. The credits and rebates come off later, and they never appear on the mechanical bid sheet where the cut decision gets made.

The more incentive-heavy the system, the wider that wedge. Geothermal is a system built to attract credits, because it is capital-intensive and it is exactly the kind of electrification the incentives were written to move. The result is a large gap between its sticker price and its net cost, larger than the gap on a conventional system.

Compare two systems gross to gross and you systematically punish the one carrying the bigger credit. The high-incentive option always looks worse on the bid than it turns out to be on the balance sheet. On this project that distortion nearly cut the system that, net of its own incentives, was competitive with the cheaper bids.

Geothermal did not blow up the budget. Skipping the full analysis would have. High sticker price and high net cost are two very different things, and only the second one is the number that matters.

When Cutting the Expensive System Is Still Right

None of this means the highest bid should always survive. Plenty of times the expensive system is the wrong system, and the way to know is to run the net numbers rather than assume them.

When the system carries no incentive. A high bid with nothing to claim against it is high, full stop. The wedge only exists where a credit or rebate exists. If the expensive option is expensive and unsupported, cutting it is correct.

When the credit is hard to monetize. A tax credit only helps a party that can use it or transfer it. On a deal with no tax appetite and no clean path to sell the credit, the headline incentive can be worth far less than its face value, and the net cost stays closer to the sticker.

When operating cost runs the other way. Net first cost is only half the picture. A system that wins on incentives but loses on maintenance or energy over the life of the building can still be the wrong call once the operating numbers are added in.

When the schedule cannot absorb it. A geothermal well field is site work that other systems do not require. On a project where the schedule or the site cannot take that scope, the install cost is not the only reason to pass.

The Decision Framework

The lesson from Lawrence is not that geothermal always wins. It is that no system should be cut on its gross bid alone. The incentives that decide the real cost live in a different document than the equipment pricing, and if the two never meet, the most heavily subsidized option gets eliminated first for looking expensive.

Which system actually costs the least depends on the incentive stack that applies to your building, your ownership structure, and your state. The Lawrence numbers came out the way they did because of the specific credits and rebates that project could claim. Yours will have a different stack, and the only way to see the real ranking is to put every system and every incentive on the same page and let the net number decide.