Photovoltaic (PV) panels are experiencing significantly reduced performance and lifespan because of the harsh operating conditions in desert locations. This study presents a novel approach for implementing a closed-loop hydronic PV cooling method, integrated with an underground water tank functioning as a ground heat exchanger in soil, to address the challenges of overheating of PV cells during operation time and the associated reduction in PV efficiency. Thus, the cold energy accumulated in circulation water at night is utilised to actively cool the PV module during the day, effectively lowering the rapid rise in PV temperature during the daytime. In this work, the proposed design is evaluated utilising a 3D transient mathematical model established using COMSOL software and verified against experimental data. The model evaluates the daily and annual change in PV surface temperature using typical meteorological data and transient weather conditions in Basra, Iraq. A parametric analysis is conducted on an underground water tank cooling system to examine the influence of different factors on PV performance. Key parameters such as the shape and size of the water tank, back insulation of PV panel, and the depth at which the tank is buried are evaluated. The study also includes a detailed comparison of the annual degradation rates, as well as the power efficiency of PV modules employing underground and above-ground systems, as opposed to common PV. The proposed PV cooling system with the underground water tank achieves a considerable increase in the net PV power output by 1.78% compared with a common PV system. In addition, the proposed system largely extends the PV lifespan by 13.39% (4.3 years) and 54% (8.9 years) compared with the above-ground water tank and common PV systems, respectively. Consequently, the findings suggest that the proposed closed-loop hydronic system coupled with an underground water tank is an efficient solution for PV cooling, offering both compact installation space and enhanced performance. • A novel closed-loop hydronic PV cooling system with an underground water tank is proposed. • A 3D dynamic prediction model is built and validated using experimental data. • The proposed PV-UGWT system generates 4.55% more power than the common PV system. • The PV-UGWT system extends the PV lifespan by 54% compared to common PV system. • The PV-UGWT system extends PV lifespan by 13.39% compared to PV-AGWT system.