Integrating thermal energy storage with building energy systems can enable flexible building electric demands at buildings to help mitigate the mismatch between electricity supply and demand. A novel building heating and cooling system that integrates a dual-source heat pump with hybrid thermal storage named dual-purpose underground thermal battery (DPUTB) has been developed for reshaping building electric demands. The proposed DPUTB integrated geothermal heat pump system is an original innovation that enables Grid-interactive Energy Efficient buildings. This paper focuses on the study of the novel DPUTB. The DPUTB works as both a thermal storage tank (an inner tank) and a ground heat exchanger (an outer tank separated from the inner tank by the insulation material). High fidelity and computationally effective models are needed to predict the performance of the novel DPUTB. This study has developed a simplified dynamic model for the DPUTB according to heat transfer and energy conservation principles and validated it by using experimental data obtained from testing a small-scale DPUTB apparatus. A parametric study was conducted to identify a design that can achieve the target thermal storage performance of load shift and energy efficiency. The parametric study results show that the inner tank shell thermal conductivity and the phase change material's melting point are the two most influencing factors on the performance of the DPUTB. One single full-size DPUTB with the identified design could provide 1-ton cooling (3.51 kW) with the supply temperature lower than 11 °C for 4 hours in summer after being fully charged in 8 hours. The inner tank filled with phase change material is for cooling thermal storage as a latent tank in the design. However, its capacity can be as high as 60 MJ as a sensible water tank for heating storage in winter. In the future study, the DPUTB model will be incorporated into the dual-source heat pump system for evaluating the overall system performance of demand side management in the long term.