Heat pump water heaters (HPWH) are ideally suited for water heating in restaurant applications, since restaurant kitchens have both a high demand for hot water and a nearly year round space cooling load. The heat pump can be used to heat the water while cooling the kitchen air. To account for the performance of the heat pump as both a water heater and an air conditioner, a fundamental model of a heat pump was developed which accounts for changes in performance caused by changes in the condenser and evaporator environments. This model was used in conjunction with a restaurant model to determine the space conditioning savings and the cost of water heating compared to conventional gas and electric water heaters.