A dominant share of Croatian cogeneration capacity and future cogeneration potential belongs to district heating systems currently operating in almost all bigger mainland and coastal towns. Since public cogeneration and public heating plants cover only 10% of heating requirements of households and services sectors it is reasonable to assume that in future energy supply district heating could take a bigger relative and absolute share even in conditions of reduced heat demand imposed by implementation of Energy Performance of Buildings Directive. However, development of future district heating projects will inevitably depend on capability to bridge financing barriers usually manifesting in large investment costs and long pay-back time. The public involvement will be necessary either at state or/and at municipal level since private companies are focused on short-term profitability. In this paper comparison of various concepts of district and individual buildings heating has been performed with respect to efficiency and environmental indicators. Taking a midsize town as an example profitability of operation of both biomass and of natural gas fired district heating cogeneration plants have been analysed. Calculated results indicate levels of financial support required for sustainability of district heating projects in specific conditions of Croatian energy market. (C) 2012 Elsevier Ltd. All rights reserved.