Implementing innovation and sustainable development of district heating requires sound energy planning at the national and local levels. However, a research gap still exists on technically and economically viable solutions for developing fully decarbonized heat supply systems and assessing their environmental impact to provide a holistic analysis. Therefore, the case study-based research includes in-depth analyses of the current situation and existing operating conditions of the solar field, biomass and natural gas boilers, and thermal storage tank. The future fossil-free scenarios analyze the additional thermal storage capacity, and integration of heat pumps and local waste heat sources to reduce fossil fuel consumption, increase energy efficiency and minimize heat production costs. The results show that the waste heat utilization and heat pump integration allow to phase-out of natural gas for the peak load coverage. However, increasing thermal storage capacity by more than 50 % is crucial to store the thermal energy for peak demand-supply. The increased thermal storage tank volume allows higher biomass production rates and aligns the heat production with the available waste heat sources. The total heat production costs in a low-temperature heat pump scenario decrease by 5 %. The environmental impact assessment shows that the low-temperature heat pump scenario decreases the resource category by 61 % and the climate change category by 17 % in comparison with the Reference scenario due to higher solar yield and higher overall efficiency.