This paper describes an analysis of a variable speed heat pump (VSHP), which responds to direct load control (DLC) signals to provide grid frequency regulation (GFR) ancillary service, while ensuring the comfort of building occupants. A data-driven dynamic model of the VSHP is developed through real-time experimental studies with a time horizon ranging from seconds to hours. The model is simple, yet still sufficiently comprehensive to analyze the operational characteristics of the VSHP. The DLC scheme is then experimentally applied to the VSHP to evaluate its demand response (DR) capability. Two control methods are considered for a practical implementation of the DLC-enabled VSHP and a further improvement of the DR capability, respectively. Additionally, a small-signal analysis is carried out using the aggregated dynamic response of a number of DLC-enabled VSHPs to analyze their contribution to GFR in an isolated power grid. For experimental case studies, a laboratory-scale microgrid is then implemented with generator and load emulators. We show that the DLC-enabled VSHP can effectively reduce grid frequency deviations and required reserve capacities of generators.