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The operating temperature is an important factor affecting the performance and life span of the Photovoltaic (PV) panels. The rising temperature can be maintained within certain limit using proper cooling techniques. In the present research a novel system for cooling of PV panels named as Earth Water Heat Exchanger (EWHE) is proposed and modelled in transient analysis simulation tool (TRNSYS v17.0) for the conditions of Pilani, Rajasthan (India). The various parameters which include cell temperature, PV power output and cell efficiency are observed with respect to variation in mass flow rate of fluid. Simulation results of the system without cooling show that the maximum PV panel temperature reached up to 79.31 degrees C with electrical efficiency dropped to 9% during peak sunshine hour. On the other hand, when PV panels are coupled with EWHE system, the panel temperature drops to 46.29 degrees C with an efficiency improving to 11% for a mass flow rate of 0.022 kg/s. In the end the cooling potential of EWHE is found to be in direct correlation with mass flow rate. The proposed system is very useful for the arid regions of western India which are blessed with high solar insolation throughout the year.