Ground Source Heat Pump Leasing

The next frontier for the geothermal industry.

By Daniel Sadik

The geothermal industry stands at a pivotal turning point in 2026.

For decades, ground source heat pumps (GSHPs) have been recognized as the most efficient and environmentally friendly heating and cooling systems available. Yet despite this unmatched performance, the geothermal industry has continually grappled with a significant barrier to widespread residential adoption—the upfront installation cost.

Historically, the federal Section 25D Residential Clean Energy Credit that provided a 30% tax credit to homeowners served as a crucial mechanism to soften this financial blow. However, the landscape shifted dramatically with the passage of the One Big Beautiful Bill Act (OBBBA) in July 2025.

The legislation terminated the Section 25D Credit for expenditures made after December 31, 2025, effectively removing the direct homeowner subsidy and threatening to create a sudden affordability gap that could stall industry momentum.

But within that same legislation lay a silver lining that is now reshaping the market. While the OBBBA ended the residential credit, it preserved the Section 48 Investment Tax Credit for commercial geothermal systems through 2034.

More importantly, the law created an exemption from the longstanding IRS “limited-use property doctrine.” For the first time, this change explicitly allows commercial geothermal systems to be leased by third parties to residential homeowners.

This regulatory shift has unlocked what many in the industry are calling the “next frontier”: third-party ownership and leasing of residential GSHP systems. By transitioning from a direct-purchase model to a leasing model, the industry can finally eliminate the upfront sticker shock that has historically capped adoption, transforming geothermal energy from a luxury purchase into an accessible, utility-like service.

The Tax Law Shift: From 25D to 48

To understand the magnitude of this opportunity, it is essential to examine the mechanics of the tax law changes.

Under the old Section 25D regime, a homeowner purchasing a $35,000 GSHP system would rely on a $10,500 tax credit to bring the net cost down to $24,500. While helpful, this still required the homeowner to have either the cash on hand or secure traditional financing and had to wait until tax season to realize the benefit.

The OBBBA’s modification to Section 48 changes the equation entirely. Because third-party ownership is now permitted, a leasing company (the lessor) can own the residential system and monetize the 30% commercial investment tax credit directly.

Furthermore, qualifying systems can also capture an additional 10% domestic-content bonus credit, bringing the total potential tax benefit to 40%. The lessor then passes the value of these tax credits along with the benefits of accelerated depreciation down to the homeowner in the form of a significantly reduced monthly lease payment.

For the homeowner, the result is a state-of-the-art heating and cooling system installed with zero upfront cost, and a predictable monthly payment that is often lower than their previous utility bills. In fact, under this new third-party ownership model, we have seen real-world examples of leases as low as $100 a month for a $40,000 system, which is less than the monthly energy savings in some cases.

The Role of GRECs in Enhancing Affordability

While the federal investment tax credit provides the foundation for the leasing model, state-level incentives are acting as a powerful multiplier too.

Geothermal Renewable Energy Credits (GRECs) are emerging as a critical component in driving down lease costs and accelerating market penetration.

Momentum has grown rapidly for renewable energy credit incentives at the state level. In late 2025, Illinois passed a robust GREC program and Virginia passed SB252 earlier this year in 2026. The geothermal industry, with leadership from organizations like GeoExchange, is set to pursue dedicated GREC programs in additional states throughout 2026, including New York.

In a leasing arrangement, the lessor monetizes these GRECs to lower the monthly payments. This additional revenue is factored into the lease pricing model, further buying down the cost for the homeowner.

It is no coincidence that states with active GREC programs are seeing the earliest and strongest traction with GSHP leasing models. Much of this early activity today is concentrated within Virginia, Maryland, and Illinois, where regulatory frameworks have advanced most quickly. As more states adopt dedicated GREC programs, the economics of leasing will only become more compelling for both homeowners and contractors.

How the Leasing Model Works for Homeowners

For the leasing model to succeed, it must be simple, transparent, and highly beneficial to the homeowner. While specific terms vary by provider, the emerging industry standard centers on long-term value and peace of mind.

A typical GSHP lease features a 20-year term, aligning with the long lifespan of the indoor heat pump unit, while the underground loop system is designed to last 50 years or more. For qualified applicants, these leases require $0 down, removing the primary barrier to entry.

Maintenance and reliability are also core components of the value proposition. Leases generally include comprehensive coverage, such as a 10-year Original Equipment Manufacturer (OEM) parts warranty and a five-year labor allowance warranty.

Flexibility is another key feature. Homeowners are not locked into the lease indefinitely without options. Standard agreements include flexible buyout provisions, allowing the homeowner to purchase the system at fair-market value at specific intervals, such as year 6 or year 12. Payments are streamlined through automated clearing house systems, offering monthly, quarterly, or annual schedules to suit the homeowner’s preferences.

By bundling the equipment, installation, tax incentives, and warranties into a single, predictable monthly payment, the leasing model transforms a complex construction project into a straightforward home improvement decision.

The “Driller First” Approach and Software Enablement

For drillers, contractors, and manufacturers who form the backbone of the geothermal industry, the shift toward leasing represents a massive opportunity for growth.

Historically, contractors have had to act as both technical experts and high-ticket salespeople, convincing homeowners to make a $30,000 to $40,000 investment. Leasing removes this burden. Instead of selling a massive capital expenditure, contractors are now selling immediate monthly savings and upgraded comfort. This dramatically expands the addressable market, turning leads that would have previously balked at the price into viable, closed projects.

Instead of selling a massive capital expenditure, contractors are now selling immediate monthly savings and upgraded comfort that dramatically expands the addressable market.

To ensure the success and longevity of these systems, leading lease providers are adopting a “driller first” approach rooted in rigorous quality assurance. This means adhering strictly to International Ground Source Heat Pump Association standards. At least one leasing program has all its internal team members IGSHPA-certified, ensuring the people investing in the projects understand the technical realities of the field.

Equipment standards are equally stringent. Lease agreements typically require the use of Energy Star-certified equipment from top-tier manufacturers such as Enertech Global LLC, WaterFurnace International Inc., and ClimateMaster Inc.

The underground infrastructure is also heavily regulated with requirements for United States-made loops from trusted suppliers like Oil Creek Plastics Inc. or Versaprofiles, and high-quality flow centers. Furthermore, all leased units must include remote monitoring capabilities, allowing for proactive maintenance and performance tracking.

The seamless execution of this model relies heavily on a robust, end-to-end software stack designed to support both the contractor and the homeowner. A modern platform typically combines four capabilities:

1. A proposal tool provides on-demand pricing for residential and commercial builds, generating instant, accurate quotes and lease rates at the point of sale, accelerating the sales cycle and allowing contractors to present options clearly
2. Customer portals handle the administrative heavy lifting, integrating soft credit checks, e-signing capabilities, and automated clearing house payment setup
3. A quality assurance portal, critical for drillers and installers, requires photographic evidence at every step of the installation process before payment is released, ensuring compliance with IGSHPA standards and including mandatory commissioning signoffs
4. A renewable energy certificate aggregation engine automates the submission, registration, and serialization of GRECs while managing revenue tracking and reporting on behalf of the system owner.

For the contractor, this streamlined process means less time spent on paperwork and financing hurdles and more time focused on drilling and installation. Moreover, because the leasing company holds the contract with the homeowner, the contractor is guaranteed payment upon successful commissioning and quality assurance signoff, improving cash flow and reducing business risk.

Conclusion

The expiration of the Section 25D residential tax credit could have been a significant setback for the geothermal industry.

Instead, the concurrent changes to Section 48 have catalyzed a necessary evolution. By enabling third-party ownership and leasing, the industry has found a sustainable path forward that bypasses the upfront cost barrier entirely.

When combined with the growing value of state level GRECs, the leasing model offers homeowners an irresistible proposition: premium, sustainable heating and cooling with zero upfront cost and immediate monthly savings.

For drillers and installers, it provides a steady pipeline of qualified projects, guaranteed payments, and the opportunity to scale their businesses without the friction of high-ticket sales.

Geothermal leasing is indeed the next frontier. As the model expands across the country, supported by robust software and a commitment to high standards, it promises to drive unprecedented growth and solidify ground source heat pumps as the standard for modern home comfort.

---

Daniel Sadik serves as the chief commercial officer at Carbon Solutions Group and Upstream Lease, one of the first third-party ownership providers in the United States. With an extensive background in origination and trading spanning more than 16 years, Sadik brings invaluable commercial expertise to the team. With Carbon Solutions Group’s expansion into geothermal technology in 2024, he is enthusiastic about leveraging the company’s prior success to scale presence in this sector. He can be reached at info@upstreamlease.com.