Article
Energy solutions for higher education institutions: Understanding feasibility and benefits of geothermal opportunities
March 24, 2026 · Authored by Gideon Gradman, Michelle Isenhouer Hanlin, Valerie Nubbe and Shristhi Negi
Introduction
Escalating utility prices are placing additional strain on the budgets of higher education institutions. At the same time, concerns about the reliability of the electrical grid are growing, leading campus energy leaders to reassess their operational priorities. There is also increasing pressure from institutional stakeholders to adopt more sustainable practices. In response, energy leaders are now recognizing that onsite power generation, energy storage solutions and investments in resilient infrastructure are no longer optional; they have become mission-critical strategic assets. This shift in perspective is particularly urgent as many campuses contend with aging energy infrastructure that requires significant and costly upgrades to maintain reliable service and support future growth.
Escalating energy costs and limited funding
Energy prices have become a significant burden on institutional budgets. With utility and natural gas rates rising and utility demand charges increasing, some campuses are struggling to manage operational costs while maintaining reliable service across sprawling facilities. Many institutions are experiencing lower student enrollment combined with reduced public funding, which introduces new constraints on overall budgets and potential budget limits on clean energy procurement. This can limit their ability to make large capital investments in energy infrastructure, even when long-term savings are clear.
Given these challenges, institutions are encouraged to explore alternative financing models such as energy-as-a-service, performance contracting and public-private partnerships. Operational audits and resource reallocation can also help streamline administrative functions and prioritize core academic and infrastructure needs. Exploring options for long-term utility cost savings is even more vital during these times.
Aging campus infrastructure
Much of the energy infrastructure on U.S. campuses was built decades ago. Older, outdated systems are often costly to maintain, inefficient and sometimes ill-suited for integrating modern energy technologies. Deferred maintenance and limited capital budgets further complicate efforts to modernize. Most campuses operate like small cities with diverse and interconnected systems. Central utility plants, combined with incremental utility add-ons to serve local loads and distributed generation assets, result in a mix of old and new systems to manage and maintain. The result is not just higher energy bills but also increased safety risks and barriers to integrating modern clean energy technologies. Universities can adopt phased upgrade strategies and modular retrofits.
As institutions continue striving toward net‑zero goals and broader decarbonization goals amid rising energy costs, constrained capital, and aging infrastructure, it is becoming increasingly important to pursue practical, cost‑effective strategies that deliver measurable savings and strengthen campus resilience.
Geothermal systems stand out as an increasingly popular solution, offering long‑term operational stability, predictable energy costs, and a pathway to deep decarbonization without relying on volatile fuel markets. Geothermal investments also provide universities with the flexibility to phase upgrades over time, aligning system‑level improvements with available funding and broader campus master‑planning efforts.
These pressures make it essential for campuses to consider solutions that reduce energy use at the system level and geothermal, in particular, offers the scale, longevity and efficiency needed to deliver significant long‑term value.
A geothermal heat pump system uses the stable temperature beneath the earth’s surface to provide efficient, all-electric heating and cooling for campus buildings. For colleges and universities, these systems function at a district scale, replacing or supplementing conventional boilers, chillers and cooling towers with a network of underground borefields and campus distribution piping. Water circulating through the borefields absorbs heat from the ground in winter and rejects heat back into the ground in summer. Because subsurface temperatures remain relatively constant year-round, geothermal heat pump systems deliver reliable, low-carbon and energy-efficient thermal conditioning across multiple campus facilities.
Geothermal heat pump projects tend to be more feasible (economically and technically) when:
- There is sufficient land available for borefields or underground piping, such as open fields/lawns or underutilized parcels and the campus has favorable ground conditions that support efficient drilling and heat exchange.
- Locations that have high heating demands, especially in cold climates or on campuses with laboratory or research facilities.
- Having higher natural gas and heating costs increases the financial benefit of geothermal heating.
- Existing or planned district energy systems that can absorb and distribute geothermal energy efficiently and at large scales.
Benefits of geothermal:
- Geothermal heat pumps consistently improve efficiency by leveraging the stable temperature underground, reducing heating and cooling energy use by 30–60% compared to traditional HVAC equipment. This makes them especially attractive for campuses with large, year‑round heating and cooling needs.
- Although these projects have high upfront costs, with no combustion equipment and minimal mechanical complexity in the ground loop, geothermal systems typically require less maintenance than conventional central plants. Borefields have service lives of 50+ years, improving long‑term reliability and cost stability.
- By eliminating the need for fossil‑fuel‑based boilers, geothermal systems support full‑campus electrification and help institutions meet their decarbonization and climate‑action commitments.
- Geothermal heat pumps offer highly reliable heating and cooling by drawing on stable underground thermal energy, making them resilient to extreme weather, fuel disruptions and energy‑market volatility. When paired with on‑site renewables, they help campuses stay operational during grid outages and strengthen long‑term energy security
Despite their advantage, geothermal heat pump systems come with real considerations that institutions must plan for:
- These projects are characterized by high upfront costs and long payback periods. The capital required for drilling, distribution piping and HVAC retrofits can be substantial, making early financial analysis critical, particularly for campuses with constrained budgets. The best time to consider geothermal is during upgrades and expansions.
- Universities often have diverse building types and legacy infrastructure. Designing a geothermal system that supports current loads while aligning with future campus expansion requires advanced engineering and careful phasing.
- These projects often have longer development timelines due to the drilling process and the need for state and local permits, groundwater reviews and environmental approvals, all of which can extend implementation schedules. Early engagement with geothermal experts is essential to understand subsurface conditions, potential risks, drilling costs and long-term thermal performance.
- Universities also need to account for temporary disruptions as drilling and trenching activities may impact campus operations, especially in high‑traffic areas like quads, athletic fields, and utility corridors. For example, a borefield installation can involve drilling for 5-10 months, followed by an additional 6-9 months of site restoration before these spaces return to full use.
Tax credits
Federal policies, tax credits and utility incentives play a critical role in improving the economic feasibility of geothermal heat pump projects by reducing upfront costs, accelerating payback and helping institutions overcome the initial capital investment associated with these long-lived infrastructure systems.
Federal Policy Shifts Under the One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduced major changes to the clean‑energy tax credit framework originally established under the Inflation Reduction Act of 2022. Importantly for universities, OBBBA preserves the Direct Pay option, allowing tax‑exempt institutions to continue receiving the federal Investment Tax Credit (ITC) as a refundable cash payment. Some geothermal projects may qualify for up to 50% back, depending on bonus credit eligibility.
While the Section 48 ITC has been terminated for the most part, the one exception is geothermal heat pumps, which remain eligible as long as construction begins before 2035. There are, however, domestic content requirements for direct pay entities (not-for-profit organizations). For example, direct pay projects must comply with the following domestic content percentages for manufactured products to receive the full tax credit for an eligible project:
- 40% – Construction begins before Jan. 1, 2025
- 45% – Construction begins in 2025 (after Dec. 31, 2024 and before Jan. 1, 2026)
- 50% – Construction begins in 2026
- 55% – Construction begins in 2027 or later
Baker Tilly’s team can help universities through this maze of restrictions and deadlines before and during construction to optimize project planning and maximize credit eligibility.
Utility and state grants and incentives
State and utility incentives can significantly improve the financial viability of geothermal heat pump systems for colleges and universities by helping offset the higher upfront capital costs associated with borefield installation and system conversion. Many electric utilities offer rebates for ground-source heat pumps based on system capacity or energy savings, along with beneficial electrification incentives.
Examples include programs in:
- New York NYSERDA Clean Heat Program, offering incentives for geothermal and heat‑pump technologies as well as New York state tax credit
- Massachusetts Mass Save programs offer high-efficiency rebates for geothermal projects as well as additional funding options for feasibility studies
- Colorado offers state grants for feasibility studies and for capital costs for geothermal projects, a statewide Heat Pump Tax Credit and many Colorado utilities also offer efficiency rebates
Public and not-for-profit institutions can often layer these state and utility incentive programs with federal direct-pay tax credits to reduce lifecycle costs and improve project economics. However, availability varies greatly by service territory. The DSIRE national database remains the most comprehensive tool to identify utility‑specific geothermal and electrification incentives.
Baker Tilly's experience
Baker Tilly helps colleges and universities navigate the technical and financial complexities of clean energy initiatives, including geothermal heat pump projects. From feasibility studies and development support to securing utility incentives, tax credits and specialized energy contracts, our team provides end-to-end support to optimize energy resilience and cost savings.
For example, Baker Tilly is engaged with a university providing IRA/OBBBA tax consulting services for two of their expansive geothermal projects on campus, each greater than 5 megawatts (MW) in capacity and totaling approximately $1 billion in total cost.
With Baker Tilly’s expert guidance and strategic use of incentives and financing structures, educational institutions can confidently transition to geothermal heat pumps systems, ensuring long-term costs savings and achieving decarbonization goals.
