A mixed integer linear programming model combined with a more traditional design by scenarios is proposed to optimize facilities size and operation mode of a municipal energy system involving significant civil centres and a hospital. Moving from the need of a new heat and power station for the local hospital due to the construction of new pavilions, the opportunity of involving other centres in the neighbourhood in a distributed cogeneration system is analysed, increasing system complexity step by step. Smaller cogeneration units tailored to hospital needs are rewarding ventures with relatively low risks but, in a country whose traditional power generation systems heavily rely on fossil fuels and where energy policy and market conditions can make it profitable to sell surplus power, district heating systems foster the installation of larger cogenerators and lead thereby to higher profits and to better performance as for primary energy savings and greenhouse gases emission reduction. Copyright (C) 2006 John Wiley & Sons, Ltd.