Solar vs. Geothermal

I get a lot of questions about when solar makes sense vs. geothermal. Both alternative energy technologies harness the power of the sun. Solar captures the energy of the sun by exciting electrons in silicon and capturing that energy in wires. Geothermal takes advantage of the solar heat stored in the ground, which is ~50-55 degrees year round just a few feet below the surface.

The four questions to ask yourself before making the plunge!

Where do you live? For many, this is the single biggest factor when deciding which alternative energy technology is right for them. While geothermal makes sense in most climates, it is an especially viable technology North of the Mason Dixon line. In these Northern parts of the United States, a home’s largest energy need is heating, not air conditioning or electrical. And geothermal systems typically operate in the 400%-500% efficiency range in heating mode during Northern winters, making them an attractive investment there.

In the Southwest part of the United States, sunny skies abound. There can be up to 300+ sunny days a year, which makes solar panels a pretty solid investment. In the Pacific Northwest or the Northeast (where I live), we count ourselves lucky to see the sun 150 days a year! In fact, as I sit and write this in my neighborhood (Wilkes-Barre) Starbucks, it’s been five days since I’ve seen the sun J And it’s all these cloudy skies that significantly reduce the benefit of installing solar panels. Little sun = little electricity.

If you’re not quite sure, the simple rule of thumb I’ve found helpful when talking to my friends and family is this: look at your bills. If your heat bill is larger than your air conditioning bill, then you’re probably better off with geothermal. If your air conditioning bill is larger than your heating bill, then you’re likely better (or just as well off) with geothermal. 

What problem are you trying to solve? Are you looking to solve for your house’s entire energy demand?  Most of it?  Or just some of it?

Every home is different, but the dominant energy uses in homes fall into four buckets: space cooling (9% of total energy use), space heating (45%), water heating (18%) and electrical consumption (28%).

Breakdown of energy usage
The chart above is provided by the U.S. Department of Energy, and shows national averages of the energy demand in US residential homes. Again, every home is different, and to estimate your home’s energy consumption, contact a qualified installer to estimate it.What does a solar installation solve? A typical solar installation will solve about half of a home’s energy needs: everything except the space heating (45%) and space cooling (air conditioning) (9%). Now, to be clear, solar CAN solve the entire energy demand for a home, but that is typically a very large (and cost prohibitive) installation.

What does a geothermal installation solve? A typical geothermal installation will solve three out of the four energy buckets, or about 73% of a total home’s energy needs: space cooling (9%), space heating (45%) and water heating (18%). What’s left is the electrical consumption (28%).

What kind of payback are you looking for? For geothermal, payback periods (the number of years it takes to recoup your initial upfront investment) can be as short as four years in the Northeast. Here the next best alternative to geothermal is often expensive fuel oil (or propane), and the winters are long which means the heating bills are large. Solar payback periods in this region are often 2-3X this length (or longer).

On the other side of the country, in the Southwestern United States, payback periods between the two technologies tend to converge more closely. As mentioned above, the extra days of sunlight make the panels more efficient, and the heating bills are also much smaller.

The best way to calculate payback periods is really by contacting a qualified installer. But the simple (and roughly accurate) way to do this yourself is this:

1)      Annual Savings. Figure out which bills are going away when you install the new technology. For solar, your electric bill will (mostly) go away. For your geothermal, all of your heating bill (fuel oil, natural gas, propane) will go away, and your electric bill will inch up slightly (it will actually go up in the winter and go down in the summer).  How much will those changes be worth to you each year?

2)      Installed Cost. How much, after the 30% tax credit, will the new installation cost you?

3)      Divide #2 by #1.

Payback Period Calculation Example



#1 -Annual Savings  $          1,200  $          4,000
#2 – Installation Cost  $        15,000  $        20,000
Payback period:                 12.5                   5.0


Now, this approach leaves a couple important things out of the financial analysis, like ongoing maintenance (which is relatively low for both technologies), and it doesn’t subtract out of the cost of installation (#2 above) the next best alternative would have cost to install. The last point is the big one here: if you’re replacing a fuel oil furnace in your basement with a geothermal system, and you would have paid $6,000 to replace it with a new furnace anyway, then the $20,000 geothermal system is only $14,000 more out of pocket. So if the savings are $4,000 a year, and you have to spend another $14,000 to get those savings, then that’s a 3.5 year payback ($14,000 / $4,000 = 3.5), and NOT a 5 year payback.

Okay, so my biz partner thinks I’m a little nuts for going into all of this… if any of this doesn’t make sense, don’t hesitate to call me!

How much do you like your current yard? This is an important question, and it is often the one that determines which technology is really right for you!  Solar is a very tidy technology. Geothermal will tear up your yard. Not a big deal in a new home, but in an existing home with a nice yard and friendly neighbors, it can cause some pain & consternation when you see the backhoe or drilling rig drive up onto your grass. My company works with local area landscapers who can return the yard to what it was before, but it definitely will make a mess!


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Comments (3)


  1. …..stop using payback!


  2. …..stop using payback! It’s a very short cited term that doesn’t consider reduced O+M, long equipment lifetime, lower cost of energy of renewable energy technologies.


  3. Mike F says:

    We live in Payson, AZ. Elevation 5,000 ft. Our winters are mild with temps of 30 to 50 degrees high and 25 to 40 degrees low. We get a few snowstorms a year but the snow only stays for a few days.

    We use propane to heat the house.

    Our summers are warm but we don’t use A/C very much, maybe 30 days a year.

    We are thinking of building a new home and are tempted to install geothermal.

    The new home will be built on a slope therefore a horizontal installation is not as practical as vertical.

    Is there a study that would show the advantages of either Solar or Geothermal by locality?

    We have over 300 days of sunshine a year but the cost of propane renders our heating cost higher than electricity.

    Any thoughts or suggestions?