Article is about development scenarios for the Latvian district heating system in which a policy instrument for energy efficiency improvement is used to achieve a higher share of renewable energy. The system dynamics model was used to determine whether it is possible to use energy efficiency policy to accelerate a shift from fossil fuels to renewables in district heating. In addition, the task was to determine measures which would help to remove barriers for renewable resource technology implementation. Six different development scenarios were viewed in the article. Results reveal that increased energy efficiency at heat source have no direct impact on fossil energy and renewable energy ratio. By increasing energy efficiency it is only possible to vary renewable energy share between different renewable technologies. It is possible to reach 40% biomass energy share and 30% solar energy share in 2030 when policy is used only for biomass technologies, but 20% biomass energy share and 50% solar energy share could be achieved by implementing policy only for solar technologies. The main barrier for switching from fossil energy to renewable energy is a lot of new gas boilers which were installed during reconstructions at many heat sources in the past few years. It is possible to reach even 97.47% renewable energy share in district heating in 2030 if the service life for gas boilers is reduced to 5 years.