Biomass has a significant potential for reduction of both CO2 emission and consumption of fossil fuels in energy production sector. On the other hand the successful implementation of biomass into regional energy systems is strongly influenced by many political, economic and technical factors. The best effects can be obtained if a proper choice of biomass plant technology has been made. The objective of this work is the analysis and discussion of technical and economic benefits of retrofitting an existing coal-fired municipal heating plant with integrated biomass gasification cogeneration block. The project leads to both local and global reduction of emission and fossil fuels consumption. An investment decision is however dependent on economic profitability, which is also examined in this work. Four design alternatives were proposed and modeled with using Cycle-Tempo simulation software. An annual mass and energy balance of the plant was calculated and economic analysis was performed. The results indicate a great energy and emission savings potential. An effective financial support, that results from local renewable energy promotion policy, can make an economic performance of the project attractive. The best technical solution for the retrofitting the analyzed heating plant was the combined cycle integrated with gasification of biomass with steam. (C) 2009 Elsevier Ltd. All rights reserved.