The first-principle modeling of a feedwater heater operating in a coal-fired power unit is presented, along with a theoretical discussion concerning its structural simplifications, parameter estimation, and dynamical validation. The model is a part of the component library of modeling environments, called the Virtual Power Plant (VPP). The main purpose of the VPP is simulation of power generation installations intended for early warning diagnostic applications. The model was developed in the Matlab/Simulink package. There are two common problems associated with the modeling of dynamic systems. If an analytical model is chosen, it is very costly to determine all model parameters and that often prevents this approach from being used. If a data model is chosen, one does not have a clear interpretation of the model parameters. The paper uses the so-called grey-box approach, which combines first-principle and data-driven models. The model is represented by nonlinear state-space equations with geometrical and physical parameters deduced from the available documentation of a feedwater heater, as well as adjustable phenomenological parameters (i.e., heat transfer coefficients) that are estimated from measurement data. The paper presents the background of the method, its implementation in the Matlab/Simulink environment, the results of parameter estimation, and a discussion concerning the accuracy of the method.