Initially a large, ground loop is installed deep in the ground (from 5 to 300 feet deep) and installed in such a way that it has good thermal conduction to the Earth. This loop is filled with water and methanol (an anti-freeze) which is then circulated down into the ground and back up again. 

In the winter time, the heat from the ground (56 degrees) is transferred to the fluid in the loop and then transferred again into a refrigerant loop inside the heat-pump. According to the laws of thermodynamics, when the pressure is increased in a closed system, its temperature will rise. A compressor raises the pressure of the refrigerant which causes its temperature to also rise. The now hot refrigerant is fed through a heat exchanger where a blower transfers the heat from the refrigerant into the air, sending it throughout the house in the heat ducts. Once the heat has been removed from the fluid, the pressure of the now cooler refrigerant is released. This causes the refrigerant to become super cool. The refrigerant then cools the fluid in the ground loop which is then pumped back down the loop where the Earth warms it back up to 56 degrees. 

The only energy required to make the whole thing work is whatever it takes to operate the compressor and to circulate the fluid. All that extra heat being “borrowed” from the Earth is just free energy. This in effect gives an overall efficiency well above 100%. 

This diagram also includes the optional hot-water generator (HWG) that provides free domestic hot water whenever the compressor is running.  

In the summer time the process is reversed where the hot side expels heat into the ground. When the pressure is released the super cool refrigerant cools the air flowing across the heat exchanger. The now cool air is circulated throughout the house.