The borehole heat exchangers of today suffer from poor thermal and hydrodynamic performance. The purpose of this thesis is to improve the performance of ground source heat pump systems and thermal energy storages by increasing the energy efficiency of the borehole heat exchangers. For this reason, the annular coaxial borehole heat exchanger (CBHE) has been analyzed. This type of heat exchanger is interesting in terms of both thermal and hydrodynamic performance. A model has been set up in the program Comsol Multiphysics in order to investigate the heat transfer characteristics along the borehole. A literature survey that summarizes the analytical calculation methods developed in earlier Swedish research is presented in the report. Different geometries with or without insulation of the central pipe have been analyzed and the effective borehole resistance for each geometry has been calculated based on the simulation results. The model has been validated against a recently performed thermal response test, and shows very good correlation with reality. The results from the simulations show that by using the annular CBHE an increase of 2-3 °C in the evaporator of the heat pump can be achieved. Calculations show that the pump work (head loss) can be reduced to 1/6 of the corresponding case with a single U-pipe. There arises a vertical temperature gradient in the bedrock when recharging and extracting heat with the annular CBHE. This means that the annular CBHE acts like a counter-flow heat exchanger which is thermally optimal. In total, the simulation result shows that the annular CBHE geometry in this thesis can increase a system's seasonal performance factor (SPF) with 10-19 % in comparison with a U-pipe BHE. This is equivalent to 10-19 % lower electrical power consumption every year.