A hybrid heat pump is under development with the goal of utilizing 120% of primary energy resources. A plate heat exchanger is added between the compressor and air-cooled condenser of an ordinary heat pump to heat water. For successful operation of the heat pump, it is necessary to develop a control algorithm under various operating conditions. As a virtual test bed for that purpose, a dynamic model has been developed, to simulate its dynamic behavior. It was modeled in transient one-dimensions, with varying phase lengths considered. The model was implemented in Matlab and Simulink. Simulation results were effectively applied to design a control algorithm. They also provided physical insight into how to design and operate the system.