In Latvia, approximately 70 % of the heat supply is provided by municipal DH systems, with about 60 % of the dwellings connected to these systems. The programme of switching small boiler houses, from imported fossil fuel (coal, heavy fuel oil) to local fuel (biomass) was developed by the Latvian Government in early 90-s, after restoration of the state independence. Active use of biomass for heat supply started in 1993 -1995. In the beginning this proceeded through reconstruction of old boilers for wood fuel firing and using imported technologies from Europe. International programmes financially supported by the governments of Denmark and Sweden favoured the introduction of modern technologies in Latvia for heat production from wood. In order to ensure efficient and environment-friendly heat production it is very important to have a financing mechanism, to design new financing schemes and to find modern technological solutions that will promote the switching to environment-friendly fuel and also will ensure sustainability of the system taking into account real socio-economic situation.