From NachiWiki

One of the greatest differences in geothermal versus conventional heat pumps is that you are absorbing heat from groundwater (or other source of water) which is generally much warmer than the outdoor air. The more heat you need in the wintertime to heat the house, the less there is any care to absorb. Groundwater remains the same temperature for the most part throughout the year. It is easier to absorb heat from 54° water then 17° air. Also holds true for air conditioning. You're trying to reject heat to 95° outdoor air versus cooling the condenser with 54° water.

Another obvious bonus is that a defrost cycle is not necessary to clear ice from the outdoor coil every 45 minutes. When a heat pump goes into defrost, the electric resistance heat comes on and the heat pump goes into air-conditioning!

Geothermal requires no auxiliary heat during normal operations or for defrost cycles.

Just before a conventional heat pump goes into defrost, the outdoor coil is generally restricted and is not absorbing very much heat (that's why it must go into defrost). The air being discharged during these conditions is cooler than normal. Also, under this condition there is a two-stage thermostat that operates both the heat pump refrigeration circuit and the auxiliary heat. Under extreme cold conditions, the auxiliary heat brings the house temperature up to set point and shuts off. The refrigeration circuit continues to run, blowing cooler air until the artillery heat turns back on.

Geothermal units are much more expensive initially, but are much cheaper to run. Water source is often a big problem and requires specialized maintenance. Restricted water flow causes the unit to cycle off on high pressure controls, and you have no backup heat. Circulating pumps are also a maintenance requirement and are much more expensive than fans to replace.

This article was originally based a post by David Andersen on the NACHI message board.