The authors present a non-linear, optimization model supporting the planning of local energy systems development. The model considers two forms of final energy heat and electricity. The model reflects both private and external costs and is designed to show the social perspective. It considers the variability of the marginal costs attributed to local renewable resources. In order to demonstrate the capacity of the model, the authors present a case study by modelling the development of the energy infrastructure in a municipality located in the south of Poland. The ensuing results show that a swift and significant shift in the local energy policy of typical central European municipalities is needed. The modelling is done in two scenarios with and without the internalization of external environmental costs. The results confirm that the internalization of the external costs of energy production on a local scale leads to a significant improvement in the allocation of resources. (C) 2016 Published by Elsevier Ltd.