THE OBJECTIVE OF THIS PROJECT IS TO DEVELOP A MODULAR, PLUG-AND-PLAY, LOAD-FLEXIBLE HEAT PUMP WITH LOW-COST THERMAL ENERGY STORAGE (TES) FOR SPACE CONDITIONING AND WATER HEATING, CAPABLE OF IMPROVING THE PERFORMANCE OF A TYPICAL RESIDENTIAL HEAT PUMP BY: 1) A 40% REDUCTION IN INSTALLATION COST AND 50% REDUCTION IN INSTALLATION TIME 2) 4-HOUR PEAK-LOAD REDUCTION: 50% IN SUMMER; 40% IN WINTER 3) A TES MODULE COST OF LESS THAN $40/KWHTH, (INCLUDING CONNECTING HARDWARE) 4) 25% LOWER ELECTRICITY USE, INCLUDING THAT USED FOR CHARGING. 5) PAYBACK PERIOD OF 2-3 YEARS BASED ON SIGNIFICANT ENERGY AND DEMAND SAVINGS.