Storage-enhanced heat recovery room air-conditioner (SEHRAC) is considered one of the most effective measures to curb energy use in residential dwellings. However, little has been done on optimal design of the storage tank. For application in dense living environment like Hong Kong, another concern is whether or not the amount of recoverable heat can meet the household water heating demand. In this study, a typical residential estate in Hong Kong was chosen for supply and demand analysis. The analysis was based on hour-by-hour simulations using actual building characteristics and previously identified utilization patterns. It was found that with the use of SEHRAC, the daily cumulative recoverable heat far exceeds the daily household water heating demand. For optimal design of the storage tank, an air-conditioner model (REFMOD) was developed to enable ascertaining the operating parameters at the refrigerant side of SEHRAC. Other design requirements of the storage tank including the minimum required heat storage capacity and heat transfer effectiveness were determined. The potential energy and energy cost savings, as well as CO2 emission reduction for wider application of SEHRAC were estimated as 9.3% of the overall contribution of the residential sector in Hong Kong. (C) 2014 Elsevier B.V. All rights reserved.