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. The results of 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.