Updated: October 11, 2023
By Drew Schiavone
Ground Source Heat Pump Tubing in Field Trenches

Ground source heat pumps (GSHPs), also called geothermal heat pumps, provide space heating and cooling for buildings, including residences, businesses, or barns. During winter, GSHPs use electricity to operate pumps that circulate a fluid through piping to transfer heat from the ground or body of water to a structure’s interior. GSHPs can be reversed to provide cooling by transferring heat from a building into the ground or body of water. GSHPs can also heat domestic or agricultural, commercial, or industrial process water. GSHPs are considered both an energy efficiency improvement and a renewable energy system. These systems use electricity, potentially from non-renewable sources, for heating or cooling, but GSHPs also collect solar energy and geothermal energy stored in the ground.

Understanding Geothermal

How do GSHPs work?

Unlike space heaters or electric baseboard, which convert electricity directly into heat, GSHPs use electricity to collect and “step up” (i.e., concentrate) the natural heat of the ground. The heat is then transferred to a building. In the cooling mode, heat is transferred from the building to the ground. GSHPs are more efficient than other types of heating appliances, often gathering 2-6 units of usable heating/cooling from 1 unit of electricity. The efficiency factor, called the Coefficient of Performance (CoP), is possible because GSHPs, like all heat pumps, transfer heat.

Heat pump diagram with evaporator, compressor, condenser and expansion valve

GSHPs provide space heating and cooling by transferring energy between the ground or body of water and a building. They are very different from combustion appliances, such as furnaces, stoves, and boilers, which create heat by burning natural gas, propane, fuel oil, or wood. In heating mode, the heat pump removes heat from the ground or body of water through a circulating fluid and then transferring heat to a building. In cooling mode, GSHPs “dump” heat from the building’s interior into the ground, much like a refrigerator transferring heat from the inside the icebox to the outside through fluids and coils. In both cases, GSHPs use electricity to operate a compressor and pump to facilitate this heat transfer. In short, GSHPs rely on both electricity and “free” energy of the earth.

Heat pumps are considered a partially renewable energy technology. The energy available to GSHPS is a combination of heat from the sun and earth (geothermal). The energy harvested from the ground in the winter is replaced by the sun in the summer, thus the resource is renewable. Using the system for cooling also transfers heat back to the ground in the summer. The electricity used to operate the compressor and pump may not be from renewable sources unless renewable energy is purchased from a utility (i.e., renewable energy credits) or produced on-site from small wind or solar. Like other electric heating systems, an existing GSHP may become “more renewable” as utilities integrate more renewable energy into their fuel mixes.

What are the components?

    GSHPs consist of three main parts:

    • Ground loop heat exchanger embedded in the ground or a water source,
    • Heat pump/compressor, appliance inside a home, and
    • Distribution system that moves heat throughout a building.

    The ground loop component is comprised of tubing that passes through the heat source/sink. (If used for heating, then the heat source is the ground; if used for cooling, the heat source is the building and the ground is a heat sink). The loops can be buried in the ground vertically or horizontally in various configurations. Loops can also be placed in a water body. Heat is transferred to or from the ground/water to a fluid. Both closed loop and open loop designs can be used. The heat pump and compressor move heat from/to the ground and “step it up” to a temperature usable for space heating through a refrigeration cycle.

    In the cooling mode, the same refrigeration cycle is reversed to concentrate heat energy from the building interior, allowing energy transfer to the ground. Alternately, in some cooling systems, the refrigeration loop is bypassed, and the fluid transfers heat directly to the ground. The distribution system moves heat into or out of a building. GSHPs are compatible with many standard distribution systems, including some hydronic (e.g., in-floor heating) and forced air systems. In heating-dominated climates, low-temperature distribution systems are preferred.


    What types are available?

    As the number GSHP installations have increased throughout the United States, so
    have the options for installing a ground loop. The options are especially bountiful in
    many rural settings, where ample space allows for tailoring installations to local geology, ground cover, and required heating/cooling production. There are three general types of ground loops: closed, open, and hybrid.

    Traditional closed ground loop systems consist of installing pipe, usually made from high density polyethylene, into horizontal trenches, vertical wells, or directionally-drilled boreholes. In a horizontal trench configuration, lines or loops of pipe are placed in trenches excavated near the building. The depth of trenches varies based on soil type, water table, frost depth, and solar radiation incident on the ground, but the pipe is typically buried between 4-12 feet underground.

    Horizontal trenches involve considerable excavation work, as a medium-sized residence will often require a ground loop configuration of at least four trenches, with each being at least 100 feet long. This type of layout is often constrained by lack of space for trenches and maneuvering room for excavation equipment. When horizontal trenches are either infeasible (e.g., inadequate space) or not preferred (e.g., mature landscaping), vertical wells can be drilled. Boreholes are typically drilled to around 100 to 400 feet deep (depending on local geologic conditions). With a u-bend at the bottom of the hole, fluid is circulated in the pipe from the surface to the bottom and back to the surface, transferring heat energy between the fluid and the earth. The surface area required is considerably less than for a horizontal ground loop, and there is more flexibility with the surface covering. For instance, vertical wells can be drilled beneath an existing parking lot or mature landscaping.

    Open and Closed Loop Geothermal Diagrams
    Open and closed loop geothermal designs (Assad et al., 2021).

    Another closed ground loop option involves placing the loop coils in a body of water, such as a pond, lake, or even an ocean. Water provides an excellent heat conduction medium for the piping, but this option presupposes a nearby body of water that does not freeze solid in the winter. In the rare conditions where available, a loop in water is often the most economical design option. The most recent innovation in closed ground loop designs uses horizontal directional drilling. This configuration layout consists of straight horizontal pipes installed by using a directional drilling machine rather than excavation equipment. There is minimal disturbance to the surface landscaping. To install a directionally drilled ground loop, header and footer trenches are dug to connect the pipes, and then a drill is used to install underground pipes in a shallow
    arc between the two trenches.

    Open-loop systems pull water directly from a well or surface water, circulates through the heat pump, and then discharges it. Open-loop systems can often be less expensive to install than closed-loop systems, as they require less pipe and excavation; however, local, state, and federal regulations regarding groundwater discharge must be met. Water quality (e.g., hardness and mineral content), seasonal
    water temperature, and variations in the flow must also be considered.

    Implementing Geothermal

    How to design geothermal?

    The optimal type of ground loop system is site dependent. Open loop systems require a well or a large water body to extract and discharge fluid. Horizontal loop systems require a large plot of open land to dig trenches and place the loops. A directionally drilled loop needs less open space but still requires a fairly large yard/field/parking lot. If space is limited, vertical wells can have an acceptably small footprint and can even be installed under a driveway. The geologic characteristics, land area, tree cover, and water table depth affect what type of drill can be used and how well heat is conducted between the ground and loops.

    Another consideration is how the ground loop will be recharged with heat. In heating-dominated climates, there is potential to extract more heat energy from the ground in winter than is returned in summer, thereby depleting the heat source. Using a GSHP for cooling in summer will return some heat to the ground, but the rejected heat may not be enough to fully “recharge” the heat source. The summer sun also helps recharge the ground, so a horizontal loop should ideally be in a location with limited shading. Additionally, in winter, snow pack on top of a ground loop will reduce heat loss, as snow helps insulate the ground from cold winter air temperatures.

    Depending on the type of ground loop installed, permits may be required from municipalities, counties, or states. In general, closed loop systems do not require significant permitting, although a loop field placed in a body of water often requires a permit; additionally, an open loop system can require state and federal permits. Local installers should be well-versed in permitting requirements.

    How to size geothermal?

    GSHPs are typically sized based on “tons” of cooling. A ton of cooling is equal to extracting 12,000 BTU/hr of heat from a space. For example, a 5-ton heat pump will be capable of extracting 60,000 BTU/hr of heat from a space. That doesn’t necessarily mean it supplies 60,000 BTU/hr of heat to a space, though. The heat delivered to the space is dependent on the temperature of the fluid from the ground loop – the higher the temperature, the more heat that can be delivered. Thus, a 5-ton GSHP might deliver 53,000 BTU/hr or 65,000 BTU/hr depending on the temperature of the incoming fluid. Understanding the local ground temperature is vital to ensuring the GSHP can deliver adequate heating and cooling to a structure. In heating-dominated climates, GSHPs are typically sized based on the amount of space heating needed for the building. In cooling-dominated areas, the cooling needs would dictate sizing.

    A heating system should be sized to meet the heating demand of a building on the coldest day of the year (or, the cooling demand on the hottest day if sized based on cooling). During the coldest day, the GSHP should be running continuously. An oversized GSHP will increase initial costs and operate less efficiently, as the unit will cycle on and off for much of the heating season. A properly sized heating appliance will have long runs with steady state efficiency. As described in step 5, if planning to make energy efficiency improvements to a building envelope (for instance, adding insulation in an attic, replacing windows, or sealing air leaks), these should be completed before buying the heat pump to reduce the building’s heating load, while allowing the purchase of a smaller, less-expensive heat pump.

    The heating demand of a building is a complex calculation that takes into account the size of the building, the amount of insulation, the number of windows and doors, and the local environment. There are several ways to calculate this heating demand, but these complex calculations are typically performed using computer models. Energy-raters or heat pump installers often can perform a heating load calculation. Both of these professionals should use a robust calculation method or software, such as the Air Conditioning Contractors of America Manual J, to size a heating appliance – methods much more accurate than following typical “rules-of-thumb” that were often used in the past.

    To estimate the heating demand, calculate the heat loss of the buildings being considered by estimating the insulation level (R-value) of the walls, floor, roof, and windows and the indoor and outdoor temperatures. Heat loss through the building envelope is calculated based on the R-value of each component and the difference in temperature across the envelope. The heat loss from the envelope is equal to the change in temperature divided by the R-value of the envelope (then multiplied by the area).

    For example, a wall with R-21 fiberglass batt insulation on a day that is 10°F outside with an interior temperature of 70°F will lose 3 BTU/hr of heat energy through each square foot of the wall (not counting windows that usually have an R-value of 3 or 4.) Each component of a building has a different R-value, and structural members, like studs, have a lower R-value than the rest of the wall. The sum of all the heat loss across the varying components of the envelope will give you the conductive heat loss of the home. If the building is leaky with cold air entering through windows and doors, then the convective heat loss needs to be added to all of the conduction losses in order to determine heating demand. The overall heat loss from the building at the coldest outside temperature for your area should be used to determine the size of the heat pump. 

    What does geothermal cost?

    A GSHP will cost more to install than traditional heating and cooling appliances, such as a boiler, furnace, or air conditioner. The initial cost of GHSPs is higher than traditional heating and cooling systems, but reduced operating costs and environmental impacts can justify the cost for building owners. The relatively high initial investment cost of GSHPs is primarily for the ground loops, which require extensive excavation or drilling work. Also, when paired with low carbon electricity sources, such as on-site photovoltaics or utility-provided wind energy, GSHPs can reduce emissions associated with non-renewable energy consumption. The cost of the installation will also depend on the size of the system, as larger systems often require a more expensive appliance and a larger ground loop. 

    As described earlier, GSHPs are typically sized by the ton, where 1 ton is equivalent to 12,000 BTUs of heating/cooling per hour. Larger heat pumps that need to provide more space conditioning will have a higher number of tons. The heat pump unit itself costs roughly $2,500 per ton, depending on the manufacturer and model. This price is an investment for the pump alone and does not include the cost of installation or the ground loop. The ground loop can run from $10,000 to $30,000 depending on the type of ground loop and other site requirements. Thus, a 3-ton vertical well system could cost from $17,500 to $37,500 for the unit and ground loop. This rough estimate does not include the heat delivery system to the building. For retrofits, the delivery system will already be in place, and the price should be adjusted appropriately.

    To determine if a GSHP will be cost-effective, an understanding of local energy costs, both electricity and heating fuels, is vital. For example, what is the cost per gallon of heating oil? What is your price per delivered gallon of propane? What is the electricity rate per kWh? What about natural gas price per therm? In heating mode, a GSHP uses electricity to transfer energy from the ground to a higher temperature for delivery to the interior of a building. Consider the local price of electricity and other fuels over time – are prices expected to rise or stay the same? If the cost of electricity is relatively high compared to the cost of heating oil, natural gas, or propane, a GSHP might not be the most cost-effective option.

    Each energy source has a certain amount of heating content per unit that can be measured by a BTU. For instance, heating oil is typically 138,000 BTU/gallon, natural gas is typically 100,000 BTU/therm, and electricity is 3,413 BTU/kWh. Since each source has a different unit of measurement, look at the cost of heat in terms of dollars per 1 million BTUs of useful heat from each fuel. By “useful heat,” we mean the amount of heat delivered to a space – this depends on the heating fuel source and the efficiency of the heating appliance in utilizing the given fuel. Fuels with a higher heating content will mean more heat is delivered to a building. Also, appliances with higher efficiencies will mean more useful heat is delivered.

    Converting heating fuels
    Heating content of fuels  
    1 gallon heating oil 138,000 BTU
    1 therm natural gas 100,000 BTU
    1 kWh electricity 3,413 BTU
    1 gallon propane 90,000 BTU

    When thinking about installing a GSHP, consider the simple payback on the installation cost. The simple payback indicates the number of years for the operational savings of the GSHP to equal the additional installation cost compared to the alternative. Other more advanced measures, including return on investment, levelized cost of energy, and net present value, can provide a more accurate evaluation, but the simple payback is easily understood. For example, consider a residential 3-ton heat pump that costs $25,000 for the equipment and ground loop. (This would not include the heat delivery system, but a heat delivery system would cost approximately the same regardless of what heating appliance is chosen). The residential federal tax credit rebates 30 percent of the installed cost of the heat pump. Now let’s compare that to a traditional boiler or furnace. An average boiler/furnace with air conditioner will likely cost about $9,000 installed. Since the homeowner would have to spend at least $9,000 to get a heating/cooling appliance, the value can be subtracted from the additional cost of a GSHP. After federal rebates and deducting a traditional system, the actual additional cost of the GSHP, over that of getting a traditional system, is $8,500 as determined based on:

    • Traditional heat/cooling appliance cost: $9,000
    • Additional cost of GSHP: $25,000 - $7,000 - $9,000 = $8,500

    Comparing the operational cost of four heating sources to a GSHP allows for an informed decision on economic viability. The table below displays general energy costs for Maryland. The table assumes efficient appliances (such as a GSHP with a COP of 3.5 and a furnace/boiler with an AFUE of 85 percent). These calculations show that a GSHP has the least cost per million BTUs ($9.20); however, this cost is not that much less than natural gas ($12.78). The annual heating cost calculation (middle column) addresses the size of a building’s heating load. This estimate assumes a heating load of 40 million BTUs for the year (for an “average” U.S. 2,000 ft2 residence). The GSHP can meet the annual heating load at the lowest cost. The savings is calculated by finding the difference between the operational costs of the GSHP and other fuels (third column).

    Example calculations for Maryland
    Energy Calculations for Maryland Annual Heating Cost for 40 MMBTU Annual Savings for Using a GSHP
    Heating Oil $32.98*40=$1,319.13 $1,319.13-$487.60=$831.53
    Natural Gas $12.78*40=$511.23 $511.23-$487.60=$23.63
    GSHP $9.20*40=$487.60 --
    Propane $38.70*40=$1,548.00 $1,548.00-$487.60=$1,060.40

    In this example, the GSHP pays itself off after seven years when compared with an oil-fired appliance. The return is enhanced if maintenance costs are considered (which can be about $160 a year for oil appliances). If planning to use ranch buildings and a residence for that long, a GSHP might be a good option over fuel oil, especially if electricity prices are predicted to remain stable. On the other hand, the payback over natural gas is considerably longer – longer than the life of the heating appliance. So in this scenario, a GSHP is not cost-effective to install. There may be other reasons to install a GSHP, such as environmental concerns or the volatility in natural gas prices. Still, the relatively low cost of natural gas makes the GSHP a challenging investment. Of course, the amount of annual savings depends on several constraints, which are different for each building. Also, the higher the cost of heating fuel alternatives, including natural gas, propane, and heating oil, the more attractive a GSHP will be. To understand yearly operating costs of a GSHP in your area, repeat the calculations and compare the values to other alternative fuels. Many installers have software that can run comparisons of different heating systems for you, so don’t hesitate to ask questions about the payback period of a GSHP.

    Next Steps

    How can I get started with geothermal?

    Proper installation of a GSHP involves numerous considerations, such as system sizing, integration with the distribution system, ground loop installation, and refrigerant work. Hiring a qualified installer is essential and may be required to keep warranties valid. As with any construction project, be sure to obtain more than one bid, remembering that the cheapest option may not be the one with the highest quality installation or most comprehensive warranty. The following checklist will help evaluate available contractors.

    Referrals and License

    • Referred by a friend, coworker, or neighbor?
    • Does the contractor have experience installing GSHPs in the site area?
    • Was the contractor able to provide names of past customers?
    • Check the appropriate state’s website to see if mechanical contractors need to be licensed for installation of GSHPs. To check if a contractor is licensed, ask the contractor, or search the state database of licensed
      contractors. Are they bonded and insured?
    • All contractors should carry insurance for liability and workers compensation. Ask the contractor to see a copy of his or her insurance and verify it’s up to date.
    • GSHP contractors should be certified by the International Ground Source Heat Pump Association (IGSHPA) or by a heat pump manufacturer. This guarantees they have had training in installing GSHPs. Is the chosen contractor certified?

    Building Evaluation and Sizing

    • Will the contractor inspect the building and current system to evaluate any needs? This inspection should take at least an hour.
    • Does the contractor use the Air Conditioning Contractors of America Manual J or a similar calculation to size the heating system? Algorithms that use characteristics of the building to size the heating system will be more
      accurate than using a rule-of-thumb estimate.
    • When replacing a system, did the contractor ask to see the information about the previous system, such as maintenance records or fuel bills?
    • For existing distribution systems, will the contractor test for leaks before AND after improvements are made? Results of both tests should be given to residents.


    • Does the contractor install EPA ENERGY STAR-rated GSHPs?
    • Will an appliance manual and warranty information for the heat pump be left with the building residents or operator?
    • Is the contractor willing to incorporate extra features, such as zoning or a programmable thermostat, and demonstrate how to use them? Note: All features, such as zones, may not apply to all situations.
    • Will the contractor demonstrate what maintenance the owner can do and help residents set up a maintenance schedule for professional check-ups?


    • Does the written proposal contain a timeline for installation and payment?
    • Does the written proposal have itemized estimates?
    • Does the contractor know about potential rebates available?
    • Will the contractor obtain the proper permits for the system?

    Ground source heat pumps require less operation and maintenance tasks than combustion heating appliances. Additionally, since heat pumps have no on-site combustion or fuel storage, they are safer to operate than combustion appliances. In a sense, a GSHP is similar to a refrigerator – the appliance operates quietly in the background but does require some small tasks to ensure peak operating efficiency.

    Both the system owner and the installation contractor are essential for the correct operation and maintenance of a GSHP. The contractor who installs the system should explain needed maintenance and how the owner can ensure the GSHP is operating properly. The contractor can set up a maintenance schedule for self-administered tasks, such as changing the filters for a forced air distribution system or switching controls to change from heating to cooling mode. The contractor can perform periodic tasks, such as a regular check-up of the heat pump components and connections. Next, the appliance manual will list maintenance tasks, operation tips, and will also help troubleshoot if there is a problem.

    In general, a heat pump has an estimated lifespan of about 25 years. The ground loop can be used for 50-plus years. The high-density polyethylene pipe used in the typical ground loop installation is durable, and leaks are uncommon; however, a leak in the ground loop will need to be corrected, either by finding and fixing the leak or closing off a portion of the ground loop. The solution to an in-ground leak will depend on the type of system. Additionally, some installers may warranty their ground loops for leaks; this is good information to know when choosing an installer. Refurbishing may be an option at the end of these life spans, yet with advances in monitors, circuitry, and software buying a new unit may be cheaper and more efficient.

    What incentives are available?

    There are several financial incentives to help businesses, agricultural producers, and homeowners install a GSHP, including those made available through the Inflation Reduction Act (IRA) passed in 2022. See our IRA page for more information.

    Tax Credit

    Beginning now, in 2023 through 2032, the overall total limit for an efficiency tax credit in one year is $3,200. The federal government offers a tax credit of up to 30% (for residential) for the purchase (Jan 1, 2023 through Dec 31, 2032) and installation of any combination of heat pumps, heat pump water heaters, and biomass stoves/boilers are subject to an annual total limit of $2,000.This breaks down to an annual limit of $1,200 for any combination of home envelope improvements (windows/doors/skylights, insulation, electrical) plus eligible furnaces, boilers and central air conditioners.  


    In addition, there will be a new point-of-sale rebate through the IRA for people earning up to 150% of area median income that will apply to heat pumps, heat pump water heaters, and heat pump clothes dryers. Home Efficiency Rebates (also called HOMES) rebate program that low- and moderate-income households will be able to access for rebates. These will be based on the estimated energy savings from energy updates, and will be doubled for households with low income. Home Electrification and Appliance Rebate (also called HEAR, formerly HEEHRA) will provide point-of-sales rebates for qualified electrification projects for low- or moderate-income households. Guidance on how home energy rebates will be implemented through the IRA isn't expected until late 2024. Up to $14,000 in rebates per household will be available.


    USDA's Rural Energy for America Program (REAP) is undergoing big changes due to new funds from the IRA. REAP will host six quarterly competitions throughout the remainder of FY 2023 and FY 2024 to distribute the allocated funding ($1.05 billion): June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024, June 30, 2024, and September 30, 2024. Now 50% grants for rural businesses, farms and agricultural producers, with the maximum grant size increased to $500,000 for energy efficiency projects and to $1 million for renewable energy systems. Businesses must be located in rural areas with populations of 50,000 residents or less. Agricultural producers may be in rural or non-rural areas, must have at least 50% of their gross income coming from agricultural operations. Eligible projects include renewable energy (e.g., solar, wind, biomass) and energy efficiency upgrades (e.g., high efficiency HVAC, insulation, refrigeration, switching from diesel to electric irrigation motors).

    Other State Programs

    The Maryland Energy Administration (MEA) offers the Residential Clean Energy Rebate Program to eligible Maryland homeowners who have installed a qualified clean energy system at their homes. Eligible system types include solar PV panels, solar shingles, solar hot water, geothermal heating and cooling systemsPlease note that geothermal system replacements are no longer eligible​ for rebates. ​​The BeSMART Home Loan Program also provides financing to improve the energy efficiency and comfort of your home. By replacing and upgrading appliances, heating, ventilation and cooling systems, and whole house envelope improvements – homeowners can save on the utility bill. Eligible energy saving measures include insulation and air sealing, ENERGY STAR® heating and cooling systems, ENERGY STAR® hot water heating equipment, geothermal heat pumps, and more.

    Where can I learn more about GSHPs?

    Explore other topics in this series:

    • Wind turbines and solar panel

      Alternative Energy

      Overview of alternative energy sources in Maryland.

    • Smog coming from Power Station

      Carbon and Climate

      The impact of energy on greenhouse gas emissions.

    • Coal Generation Plant near bay

      Conventional Energy

      Overview of conventional energy sources in Maryland.

    • Electrical Outlet

      Energy Defined

      Types of energy generated and used in Maryland.

    • Energy Policy Word Cloud

      Energy Policy

      Maryland's energy goals and Renewable Portfolio Standard.

    • Energy Hierarchy Pyramid

      Energy Priorities

      Decision-making tool for energy saving measures.

    • Ground Source Heat Pump Tubing in Field Trenches


      Explore geothermal heat pumps for your home, farm or business.

    • Water flowing in creek


      Explore micro-hydropower for your home or farm.

    • Inflation Reduction Act Paperwork Stamped

      Inflation Reduction Act

      Save money and energy through the IRA.

    • Wind turbine in overcast sky


      Explore wind power for your home, farm or business.