There is a significant need to reduce and eventually eliminate our reliance on non-renewable energy sources. Although renewable energy technologies are promising, current sources cannot fulfil the increasing demands of industrialized countries. As a result, renewable solutions must involve significant reductions in energy consumption. Space heating is the largest single contributor to residential energy use in Canada at 60% of the total. Minimizing envelope heat losses is one approach to reducing this percentage. Preliminary research investigated the energy-saving potential of an innovative design, referred to as Nested Thermal Envelope Design (NTED (TM)). The concept involves one insulated building inside another with a heat pump operating between the dual thermal zones. Conservative modeling results from this work showed heating energy reductions of 74%. This research developed a new NTED (TM) simulation model to provide increased accuracy and gain a more complete understanding of the potential heating energy savings. The working performance was also investigated by modeling occupied-building operation. The resulting model has shown that the NTED (TM) design yields savings of 85% relative to a benchmark building. These results improve on the conservative preliminary values and reinforce the merit of the design as a means of achieving significant reductions in residential energy use. (C) 2012 Elsevier B.V. All rights reserved.