Geo-exchange pumps: Ground Source Heat Pumps (GSHP's) use the earth's relatively constant temperature (instead of the outside air) between 16 - 240C at a depth of 20 feetto provide heating, cooling, and hot water for homes and commercial buildings. GSHP harvests heat absorbed at the Earth's surface from solar energy. The basic principle on which the GSHP works is the "refrigeration cycle". So, option 2 is correct. The refrigerant carries the heat from one "space" to another. The heat pump's process can be reversed. The earth is the main source and sinks of heat. In winters, it provides heat, and in summers it takes the heat.