The paper is focused on analysis of the current situation for the solar thermal system market in Latvia. Solar energy potential and solar thermal market development in Latvia is compared with those in the countries, where solar irradiation is equivalent to that of the Latvian climate. This research also includes a description of the solar and pellet combisystem installed for a demonstration pilot project; the main parameters of this system are identified and the performance data for the first month of operations is analysed. An economic analysis for different heat supply scenarios from simulation data and real performance of the system is shown.