Increasing renewable-based district heating could contribute significantly to the renewable target achievements of Central and Eastern European Member States with significant shares of district heating in their heat markets. These countries face dual challenges: high competition with other heating sources (including individual heating) and decreasing heat consumption due to building-related energy efficiency improvements in the sector. Our paper is based on a Hungarian case study, attempting to contribute to identifying the most efficient options to achieve these targets in the district heating sector. We apply a district heating model covering all district heating systems in the country and assess the available policy instruments with the potential for increasing renewable energy sources deployment and competitiveness in the sector. The assessment shows that investment grants and operational support are efficient instruments to increase renewable energy sources shares and also improve efficiency in the sector, while end user price and renewable co-generation support in the electricity market lead to non-optimal outcomes.

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