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Virtual prototyping of power electronic modules aims to allow rapid evaluation of potential designs without the need to resort to building and testing physical prototypes. A key requirement for this process is the ability to quickly generate small, compact models describing the thermal performance of a potential design and this study presents a novel approach for this model generation process. The approach starts with a finite-difference mesh of the proposed design and applies a fast sparse matrix solver (GMRES) to determine the steady-state response to a particular power input. In doing this, approximations for the eigenvalues of the system can also be obtained from the same algorithm. It is shown that these two results can then be used to create small compact models describing the dynamic thermal properties within the design. The method is validated against an analytical solution for 1-D heat conduction and against experimental results for a simple power module. This process can be automated and it is shown that compact models can be generated in around 12 s per power input from the finite-difference mesh of the power module containing 14 623 nodes on a standard desktop PC.