Distributed and decentralised energy systems coupled with district heating networks are promising concepts for achieving less carbon-intensive urban energy systems. This paper investigates the optimal design and operation of distributed energy systems as well as optimal heating network layouts for different economic and environmental objectives. A mixed integer linear programming model was used for multi-objective optimisation to minimize total cost and carbon emissions. Improvements include the coupling of equipment and network modelling across many buildings, detailed CHP operational constraints, the inclusion of network heat losses, and improved modelling of thermal storage. The model was used on a case study consisting of eleven residential buildings and one commercial building for various design scenarios (available technologies, network layout limitations, operating constraints). Design results (capacities, network layouts) and operational results (energy supply breakdowns) are presented. The results show that district heating can deliver emissions savings of 23% over a standard solution for the same cost. The optimal number of heating network links increases as more stringent carbon emissions targets are implemented. Limits on possible network routes have significant impacts on the optimal technology capacities and on operational schedules. Also, commonly neglected constraints on CHP operation cause noticeably more reliance on district heating networks. (C) 2016 Elsevier Ltd. All rights reserved.