Energy costs will continue to rise as the societally imposed scarcity of fossil fuels continues. For Canada, and the world, to meet the energy demand of the population, measures need to be taken to reduce energy demand while increasing the use of renewable energy. This thesis investigates the feasibility of innovative domestic hot water technology. A heat pump water heater was instrumented and installed to test Canadian Standards Association standard CSA-F379.1 draw profiles under various set-point conditions while drawing heat from the surrounding indoor space at the evaporator of the heat pump. Several set-point conditions were tested using the experimental apparatus to characterize the performance of both the heat pump and the electric booster heater. This data was then analyzed and used to calibrate a TRaNsient SYstem Simulation (TRNSYS) model. The TRNSYS model used a series of basic hydronic components to simulate the thermal and electrical conditions experienced by the HPWH unit, and was designed to facilitate an extension of the physical setup to conditions that would be difficult to timely and cost effectively test. The Generic Optimization Program software was then coupled with TRNSYS to run parametric black box simulations that optimized a characteristic equation to find the optimal design and operational parameters. The results of these simulations indicated that the operating costs for HPWH units in basement installations would not be heavily affected by the local climate, but instead strongly dependent on local utility cost ratios between electricity and heating fuel. It was found that minimal and similar set-points between the heat pump and booster heater, as well as a utility ratio near the nominal coefficient of performance, would provide the best cost performance for HPWH units.iii Acknowledgements I would like to thank my colleagues within the Solar Energy Systems Laboratory and Delta Controls Laboratory who have provided friendship, guidance, and mentorship over the duration of my thesis. These people include, but are not limited to, Adam Wills,