Within five years from now, Lithuania is going to close down Ignalina, the only nuclear-power plant in the country. Since Ignalina generates more than 75% of the Lithuanian electricity production, new generation capacities are needed. Traditional steam-turbines, fuelled with fossil fuels, would mean further imports of fuel as well as a rise in CO2 emissions. At the same time, several small district-heating companies one suffering from high heating-prices. Typically, the price in small towns is 20-50% higher than the price in large urban areas. Consequently, alternative strategies should be considered. This article analyses the conditions for one such strategy, namely the replacement of boilers in the existing district-heating supplies with combined heat-and-power production (CHP). Compared with new power stations, fuel can be saved and CO2-emissions reduced. Also this strategy can be used to level the difference between low heating prices in the large urban areas and high prices in small towns and villages. (c) 2004 Elsevier Ltd. All rights reserved.