What Is a Geothermal System? Parts, Types, and How to Choose

A geothermal system is an electrically powered heating and cooling system that moves heat between your house and the ground instead of making heat by burning fuel. In winter it pulls heat out of the earth and delivers it indoors; in summer it runs the same process in reverse and pushes your home's heat back underground. Many systems also help heat your domestic hot water.

That's the whole idea. The confusion starts because "geothermal system" is one name covering several different builds. The ground exchange is a closed loop, an open loop, or direct exchange, which skips the water loop entirely. The buried pipe lies horizontal in trenches, drops down vertical boreholes, or sits coiled in a pond. Indoors, the heat arrives as ducted air or as hydronic water. The ground-exchange choice and the indoor-delivery choice together determine which efficiency category the equipment is certified in. Pipe geometry does not; a horizontal loop and a vertical loop feed the same rated machine. The right combination depends on your lot, your water access, and your house.

The six efficiency categories below are ENERGY STAR's residential certification taxonomy. The specification excludes commercial three-phase products, and a designer can build arrangements outside it.

What a Geothermal System Is

ENERGY STAR's formal definition is short: "A geothermal heat pump uses the thermal energy of the ground or groundwater to provide residential space conditioning and/or domestic water heating."

The load-bearing term is heat pump: a machine that moves heat rather than generating it, the same trick your refrigerator performs when it moves heat from the food compartment to the coils on the back. What makes it geothermal is the heat source and sink: the ground, groundwater, or surface water, whose temperature stays far more stable across the year than the outdoor air. And "space conditioning" covers heating and cooling both, with domestic water heating added in some configurations.

You'll also see the term "ground-source heat pump," usually from engineers and utilities. DOE confirms the two names refer to the same technology. Same machine, and not to be confused with geothermal power plants, which generate electricity from deep, hot resources. A residential geothermal system doesn't need volcanic heat; it works with the ordinary ground under an ordinary yard.

ENERGY STAR also defines the complete system as more than the box with the compressor: it's the heat pump equipment plus the ground heat exchanger, the air or hydronic distribution system, temperature controls, and any thermal-storage tanks. When you buy "a geothermal system," you're buying all of that, including the part that ends up underground and never appears in the equipment brochure.

The Parts of a Geothermal System

Not every architecture uses every component below. Here is what each one does.

The heat pump unit

The indoor cabinet, usually in a basement, garage, or utility closet where a furnace would sit. It contains the compressor and the refrigerant heat exchangers, and its job is to concentrate heat and move it in the right direction: from the ground side into the house in winter, from the house into the ground side in summer. The refrigerant cycle inside it is the machinery that makes low-grade ground heat useful, and it's worth understanding on its own; our guide to how geothermal heat pumps work walks through the cycle step by step.

The ground heat exchanger

The buried, submerged, or groundwater-connected piping that trades heat with the earth. ENERGY STAR's definition is deliberately broad: "horizontal, vertical, or submerged surface water closed loops; open loops using ground water, reclaimed water, or surface water; or direct refrigerant-to-ground or refrigerant-to-water heat exchange." That one sentence contains every configuration this article covers. The pipe, fluid, and fittings that make up a conventional loop have their own published standards, covered in our guide to ground loop components.

The circulating pump

In a conventional closed-loop system, one or more pumps move the water or water-antifreeze solution between the heat pump and the ground heat exchanger, running when the heat pump's controller calls for it. DOE's technical documentation describes this pumping function; installers typically deliver it as a packaged pump-and-valve cabinet, and "flow center" is the trade's name for that package, not a term you'll find in the federal definitions.

The distribution system

How the conditioned heat actually reaches your rooms. In a water-to-air system, ducts and a blower distribute conditioned air, exactly like a furnace or central AC. In a water-to-water system, hydronic piping distributes heated or chilled water to emitters such as radiant floor tubing. More on this choice below.

Controls and thermal storage

Temperature controls are part of ENERGY STAR's formal system definition, and so are thermal-storage tanks where fitted. The definition treats them as system components, not accessories.

The desuperheater (optional)

A heat-recovery exchanger that uses excess compressor heat to assist with domestic hot water production. It is not present in every geothermal system; it's an option worth asking about at quote time. ENERGY STAR's definition scopes it to hot water produced while the heat pump is providing space conditioning, so what it actually recovers depends on water temperature, controls, and demand, not simply on the compressor running.

Closed Loop, Open Loop, or Direct Exchange

A geothermal system exchanges heat with the ground in one of three ways.

Closed loop

ENERGY STAR's definition: a ground heat exchange method in which "the heat transfer fluid is permanently contained in a closed piping system. Also called a ground-loop system." A sealed circuit of buried plastic pipe carries water, or water mixed with antifreeze, around and around. Nothing is consumed, nothing is drawn from the ground but heat. It is the architecture that needs no water supply and no discharge permission, which is what makes it viable on a lot that has neither.

Open loop

Here the heat transfer fluid is "part of a larger environment": groundwater, reclaimed water, or surface water passes directly through the heat pump and is then returned to a well, a recharge well, an aquifer, or a permitted surface discharge. ENERGY STAR also calls this a ground-water system. It requires an adequate, clean water supply and a legal place to return the water, which makes it a site-specific option rather than a default. Water quality, permits, and why the efficiency numbers differ are all covered in our open loop vs. closed loop comparison. If you already have a well and want the detail — how much flow the equipment needs, which water chemistry disqualifies a site, and who issues the permit where you live — see our guide to open loop geothermal systems.

Direct exchange (DX or DGX)

The third architecture removes the water loop entirely: refrigerant circulates directly through buried or submerged metal tubing, which eliminates the separate water/antifreeze circuit and its circulating pump. The two federal programs classify it differently. ENERGY STAR treats DGX as its own product category with its own certification rows, while DOE's research roadmap calls DX a niche form of closed-loop system. Both descriptions are current. Under either label, direct exchange is an alternative ground-exchange architecture, not a fourth pipe shape: a contractor proposing DX is proposing metal tubing and refrigerant underground rather than plastic pipe and water.

The Shapes Pipe Takes in the Ground

For a conventional closed loop, the second decision is geometry: what shape the pipe takes and how it gets into the earth. This is mostly a question of land, not preference.

DOE's homeowner guide counts four types of loop system, and open loop is one of them: "Three of these — horizontal, vertical, and pond/lake — are closed-loop systems. The fourth type of system is the open-loop option." The three closed-loop arrangements below are DOE's three, and slinky is a variant of the horizontal arrangement, not a fourth type.

Horizontal

Pipe laid in comparatively shallow trenches. DOE's homeowner guide specifies trenches at least 4 feet deep; its technical roadmap describes typical trenches of 4 to 6 feet and about 125 to 300 feet of trench per ton of capacity. Horizontal loops need yard: enough open, diggable area to run those trenches, which is why they suit rural and larger suburban lots.

Vertical

Pipe travels down a drilled borehole and back up, which shrinks the surface footprint dramatically. DOE's roadmap gives a typical range of one 150-to-300-foot borehole per ton of capacity. Vertical loops are the answer when the lot is small, the landscaping is precious, or the shallow soil is wrong for trenching. They involve a drilling rig, which is a large part of why loop type moves the price; our installation cost guide breaks down where the money goes.

Pond or lake

If the property has a suitable body of water, a supply line runs from the building to heat-exchanger coils submerged in it. DOE's homeowner guide specifies coils at least 8 feet below the surface to prevent freezing.

DOE's two publications categorize this option differently. The homeowner guide presents pond/lake systems as a closed-loop type, but the technical roadmap says pond/lake systems may use either open- or closed-loop architecture. A pond installation is not automatically closed loop. Ask which architecture your design actually uses, because the answer changes the permitting and water-quality questions that apply.

Slinky

The slinky is a pipe-layout variant rather than a separate category. The pipe is formed into overlapping coils instead of straight runs, normally within a horizontal trench or as a submerged pond/lake exchanger. The fluid cycle is identical to a straight horizontal loop's, and the coils exist to pack more pipe into the available space.

How the Heat Gets Into Your House

The third choice is independent of everything underground: how the system delivers heating and cooling indoors. There are two answers, and they correspond to the two kinds of heating infrastructure American houses already have.

Water-to-air systems transfer energy from the ground-loop fluid to an indoor air coil; a blower and ductwork then distribute the conditioned air. If your house has a furnace and central AC today, this is the drop-in-shaped replacement; the geothermal unit takes over the ductwork.

Water-to-water systems use an indoor refrigerant-to-water heat exchanger to supply a hydronic system instead: radiant floors, pool heating, or domestic water heating. If your house heats with a boiler and radiators or in-floor tubing, or you want geothermal to do jobs beyond space conditioning, this is the branch to study. Our water-to-water geothermal heat pumps guide covers what these units can and can't feed.

This choice isn't cosmetic. As the next section shows, ENERGY STAR certifies water-to-air and water-to-water equipment against different efficiency minimums, so the distribution type follows the equipment all the way onto the label.

What the Efficiency Labels Require

Geothermal efficiency is stated two ways: EER for cooling and COP for heating. Higher is better in both, but they are not the same kind of number. EER is cooling capacity in Btu/h divided by electrical input in watts, so it carries units of Btu per watt-hour. COP is a pure ratio of heat delivered to energy consumed, and is dimensionless. Because the two are measured in different units, the same numeral means different things on each scale; they are not interchangeable and should never be compared to one another. But there is no such thing as "the ENERGY STAR minimum" for geothermal: the current specification, Version 3.2, sets six separate minimums, one for each combination of distribution type and ground-exchange architecture. Here is the full table:

The qualifiers do real work in that table. An open-loop water-to-air unit must certify at 21.1 EER while a closed-loop water-to-air unit certifies at 17.1 EER, a gap of 4 full EER points for the same distribution type. That gap is why an efficiency claim that doesn't say which row it belongs to is incomplete: the number means nothing until you know both the loop and the distribution behind it.

On the heating side, the floors run from 3.1 COP (closed-loop water-to-water, and DGX-to-water) up to 4.1 COP (open-loop water-to-air), so certified equipment delivers roughly three to four units of heat per unit of electricity consumed at rated conditions. And for multi-stage models, Version 3.2 calculates the rated EER and COP by averaging the ratings at the highest and lowest rated capacities. A two-stage unit's label is a blend, not its best-case number.

Version 3.2 remains the current specification as of August 2026, and EPA lists no replacement under development. These are floors, not ceilings. Certified equipment runs from these minimums on up, and our guide to the most efficient geothermal heat pumps covers what the top of the market looks like and when paying for it makes sense.

ENERGY STAR's two publications do not agree on the direct-exchange rows. The consumer-facing Key Product Criteria page shows direct exchange as a single 16.0 EER / 3.6 COP line without distinguishing to-air from to-water, while the Version 3.2 specification document splits it into the two DGX rows above. The specification is the authority.

How Big a System You Need

Residential geothermal equipment is sized in tons, where one ton equals 12,000 Btu per hour of capacity. DOE states that a typical residential system is 3 tons (36,000 Btu/h) and that manufacturers offer residential products from 1.5 to 6 tons.

Treat both numbers as descriptions of the market, not instructions for your house. The correct size comes from ACCA Manual J, the residential load calculation. ENERGY STAR's sizing guidance defines it as calculating the heating and cooling your particular home requires, with equipment selection then falling under Manual S. Manual J accounts for your climate's design temperatures and the thermal characteristics of your home's envelope, which is why two homes with identical floor area can need different equipment. A contractor who sizes from square footage alone is skipping the step the standard exists to enforce; what a proper load calculation involves, and how to check one, is covered in our geothermal sizing guide.

Sizing is also where the underground and indoor halves of the system meet. The load calculation drives the equipment tonnage, and the tonnage plus your soil, geology, and groundwater conditions drive the loop design. An error in the load calculation doesn't stay on paper. It becomes the wrong tonnage, and the wrong tonnage becomes the wrong loop.

The Federal Tax Credit Is Gone

For years the strongest financial argument for residential geothermal was the 30% federal tax credit under Internal Revenue Code section 25D. That credit no longer applies to new installations. The statute now reads: "The credit allowed under this section shall not apply with respect to any expenditures made after December 31, 2025." Public Law 119-21, section 70506, enacted July 4, 2025, accelerated the termination from its former 2034 sunset to the end of 2025.

The timing rule closes the obvious workaround. Under section 25D(e)(8), an expenditure is treated as made when the item's original installation is completed; for property installed as part of construction or reconstruction, when the taxpayer's original use of the structure begins. Paying a contractor in 2025 did not preserve the credit for a system completed in 2026. A system placed in service today earns no section 25D credit under current law.

The equipment did not change when the credit did. The efficiency floors, the loop choices, and the sizing discipline above all still hold. The payback period simply runs longer without federal help, and what remains at the state or utility level differs from one program to the next, so check what your own state and utility currently offer. Our geothermal pros and cons guide sets it against the alternatives. This is not tax advice; the law described here is current as of August 2026, and a tax professional should confirm how it applies to your situation.

Frequently Asked Questions

Is a geothermal system the same thing as a ground-source heat pump?

Yes. DOE confirms "geothermal heat pump" and "ground-source heat pump" name the same technology. "Geothermal system" and "geothermal unit" are looser everyday terms for the same equipment, usually meaning the whole installation: heat pump, ground loop, distribution, and controls.

Does a geothermal system cool as well as heat?

Yes. The definition is space conditioning, both directions: the system heats in winter and cools in summer by reversing which way it moves heat. That's why certified equipment carries two ratings: an EER for cooling and a COP for heating, each specific to its category, such as 17.1 EER and 3.6 COP minimums for closed-loop water-to-air units.

Can it heat my domestic hot water?

It can, two ways. A water-to-water system can supply domestic water heating directly as part of its hydronic job, and any system fitted with an optional desuperheater uses excess compressor heat to assist the water heater. Neither is automatic; both are configuration choices to make at quote time.

What size geothermal system does a house need?

Whatever your home's calculated loads say it needs. DOE's 3-ton typical figure and the 1.5-to-6-ton residential product range describe what's sold, not what your house requires. The method is two ACCA standards, not one: Manual J calculates the heating and cooling your home actually needs, working from your climate and your envelope rather than square footage, and Manual S then selects and matches equipment to those loads. ENERGY STAR tells homeowners to confirm their contractor uses both. Before you sign anything, ask to see the Manual J report behind the tonnage.

Is the 30% federal tax credit still available?

No. Under current law the section 25D credit does not apply to expenditures made after December 31, 2025, and an expenditure counts as made when the original installation is completed, not when you pay. Public Law 119-21 enacted the accelerated cutoff in July 2025. Not tax advice; current as of August 2026.