District heat production systems (DHSs) are normally designed to meet the heat demand of customers at a minimum cost whilst fulfilling local and national regulations. Various factors influence the choice of district heat production units in a minimum-cost system. In this thesis, the performance of DHSs of different types were analyzed under a range of environmental and social cost scenarios. The scenarios include No tax using the bare cost of fuels without any taxes or fees, Swedish tax using Swedish taxes and fees on fuels, Social cost-550ppm using a carbon damage cost of US$30/t CO₂, Social cost-BAU using a carbon damage cost of US$85/t CO₂, and Renewable-based without using fossil fuels for energy purposes. DHSs were analyzed under varying conditions of scale, potential to co/poly-generate district heat with other products, and integration of new technologies currently being developed. The influence of end-use energy efficiency measures in district-heated buildings on DHSs was also analyzed.

The cost optimal composition of a DHS depends on several factors including the scale, the load factor of the heat demand, the technologies used in the DHS, as well as the environmental and social costs. When environmental and social costs are considered, the co-generation of electricity is more cost-efficient than other options, except for small scale systems, for which heat-only production is more cost-efficient. Also, in a minimum-cost DHS, district heat production cost is about the same for all the environmental and social cost scenarios except for the No tax scenario. The district heat production cost of a small-scale DHS under the No tax scenario is lower than that of the same scale system under the other scenarios. However, a large-scale DHS under the No tax scenario gives higher district heat production cost than the same scale system under the other scenarios. The changed environmental and social costs vary the types and amount of fuel use as well as the value of co-generated products such as electricity, which consequently balances the district heat production cost.

Renewable-based DHS using biomass is economically viable if environmental and social costs of using fossil fuels are taken into account. A fully biomass-based DHS can be as primary energy-efficient as other DHSs analyzed. Typically, biomass-based co-generation of district heat and electricity combined with stand-alone production of biomotor fuels is more cost- and primary energy-efficient than the co-generation of district heat and biomotor fuels combined with stand-alone production of electricity. The integration of non-fuel renewable technologies such as solar water heating can further reduce the use of biomass in a cost-efficient way for small-scale DHSs in combination with high fuel costs.

The characteristics of a DHS influence the effectiveness of end-use energy efficiency measures in district heated buildings. Although end-use energy efficiency measures change the final energy use, the composition and operation of the supply system determine the amount and types of fuel savings. Supply systems with different composition and operation give varying primary energy savings per unit of reduced end-use energy from an energy efficiency measure. The primary energy savings due to end-use heat saving measures in buildings is much higher for heat-only production units than for co/poly-generation units, because heat savings in co/poly-generation systems also reduce the potential production of co-products. Therefore, the analysis of both demand and supply sides of district heating systems as well as their interaction is crucial for the evaluation of the consequences of end-use energy efficiency measures in district-heated buildings. Actually, energy efficiency measures in district-heated buildings typically increase the overall heat load factor for a DHS which reduces the operating cost per unit of produced district heat in existing system and the total cost when existing district heat production units have to be renewed or changed. The connection of new energy-efficient buildings that balances the energy efficiency improvement in existing district-heated buildings appears to be an optimal option for a DHS.