In this paper, a municipality with district heating supplied via boilers and combined heat-and-power (CHP) plants is studied. The electricity load in the municipality is provided for by the CHP plant and electricity bought from the Nordic electricity market. It is therefore desirable to produce as much electricity as possible during periods when the price of electricity is high. The variations in the price of electricity over a 24-h period are significant. The idea presented in this paper is that heat storage can be used to maximise the amount of electricity produced in the CHP plants during peak-price periods. It can also be used to minimise the use of plants with higher operational costs. For storing heat, both a hot-water accumulator at the CHP plant and storage in the building stock are suggested. The situation is analysed using a mixed integer linear-programming model and a case study is presented for the city of Linkoping, a City of approximately 130,000 inhabitants, situated 200 km south of Stockholm in Sweden. A simple model for forecasting the electricity price on the Nordic electricity market is also presented. (C) 2004 Elsevier Ltd. All rights reserved.