This paper comprises a three-level study on wood fuel utilisation for district heating in Austria. First, we discuss the framework conditions for the diffusion in Austria of rural biomass district heating (BDH) plants, an energy conversion plant type which constituted a real innovation in the 1980s. Second, we describe the diffusion of BDH systems in the Austrian province of Vorarlberg, where a variety of biomass energy systems have been promoted by capital grants since 1993, as part of a dedicated bioenergy promotion programme. Third, the paper contains a case study of a 2 MW BDH plant put into operation in 2000 in Rankweil, a small market town located in Vorarlberg on the east side of the Rhine Valley. Analysis of the plant history reveals that an oversupply of forest residues, caused by devastating storms and forest diseases, together with the more general need to rejuvenate severely over-aged forest stands, created strong incentives to form local actor networks and initiatives to push for the adoption and diffusion of centralised biomass heating systems in rural areas. In addition, intensive lobbying and strong political and public support were necessary to successfully combat interventions by both the natural gas industry and influential gas-supplied industrial enterprises. Finally, a capital grant of 45% of eligible investment costs as well as careful capacity expansion and other planning significantly improved and safeguarded the economic viability of the plant. These considerations, combined with a dedicated forest-restructuring programme, render the plant one of the most successful integrated forestry and BDH projects in Vorarlberg, and an important model for later adopters. Overall, the analysis sheds some light on the role of public policy, local actors, and economic and other framework conditions on the market diffusion dynamics of BDH in Austria. (c) 2006 Elsevier Ltd. All rights reserved.