The Norwegian Building Research Institute (NBI) has completed a study of the performance of balanced residential ventilation systems with heat recovery (HRVs) in Norway. The study involved both a national questionnaire survey and thorough laboratory tests of 10 HRVs on the market. The overall conclusion is that balanced ventilation with heat recovery provides very good air quality, and has a payback time of 4~6 years for the most profitable systems despite Norways cheap hydropower (0.09 /kWh in 2002). Todays European standards for HRV performance testing (EN 308:1997, prEN 13141-7:2003) do not explicitly define net recovery efficiency, i.e. how to account for system losses such as fan energy, air leakage, defrosting, etc., when calculating net annual energy savings or net air exchange rate. Furthermore, the specified test conditions are not entirely realistic, nor fair for different HRV types. NBI has therefore developed an improved new test method that has now been accepted as a Nordtest method in the Nordic countries. This paper describes some of the philosophy behind the new test method, focusing in particular on the definition of heat recovery efficiency, and issues related to total enthalpy and moisture recovery.