The paper brings new evidence on the impact of separate mechanical ventilation system on the annual energy and exergy performance of several design alternatives of residential heating systems, when they are designed for a house in Montreal. Mathematical models of residential heating, ventilation and domestic hot water (HVAC-DHW) systems, which are needed for this purpose, are developed and furthermore implemented in the Engineering Equation Solver (EES) environment. The Coefficient of Performance and the exergy efficiency are estimated as well as the entropy generation and exergy destruction of the overall system. The equivalent greenhouse gas emissions due to the on-site and off-site use of primary energy sources are also estimated. The addition of a mechanical ventilation system with heat recovery to any HVAC-DHW system discussed in the paper increases the energy efficiency; however, it decreases the exergy efficiency, which indicates a potential long-term damaging impact on the natural environment. Therefore, the use of a separate mechanical ventilation system in a house should be considered with caution, and recommended only when other means for controlling the indoor air quality cannot be applied. (c) 2006 Elsevier Ltd. All rights reserved.