Abstract In this study, performance experiments and economic analysis of a horizontal ground source heat pump (GSHP) system have been performed. The horizontal GSHP system connected to a test room, Elazig (38.41°N, 39.14°E), Turkey, was designed and constructed for space heating. The heating and cooling loads of the test room were 2.5 and 3.1 kW at design conditions, respectively. The performance was determined experimentally under real operational conditions. The experimental results were obtained from 7 November 2002 to 3 May 2003 in the heating season of 2002–2003. A detailed cost analysis was presented and payback periods when substituting for different local fuel/power sources were determined. The GSHP system was compared to conventional heating methods (electric resistance, fuel oil, liquid petrol gas, coal, oil and natural gas) in the economical analysis using an annualised life cycle cost method. It was shown that the GSHP system offers economic advantages over the mentioned first five conventional heating methods. However, it is not an economic alternative system to natural gas.