A vital measure for industries when redirecting the energy systems towards sustainability is conversion from electricity to district heating (DH). This conversion can be achieved for example, by replacing electrical heating with DH and compression cooling with heat-driven absorption cooling. Conversion to DH must, however, always be an economically attractive choice for an industry. In this paper the effects for industries and the local DH supplier are analysed when pricing DH by marginal cost in combination with industrial energy efficiency measures. Energy audits have shown that the analysed industries can reduce their annual electricity use by 30% and increase the use of DH by 56%. When marginal costs are applied as DH tariffs and the industrial energy efficiency measures are implemented, the industrial energy costs can be reduced by 17%. When implementing the industrial energy efficiency measures and also considering a utility investment in the local energy system, the local DH supplier has a potential to reduce the total energy system cost by 1.6 million EUR. Global carbon dioxide emissions can be reduced by 25,000 tonnes if the industrial energy efficiency measures are implemented and when coal-condensing power is assumed to be the marginal electricity source. (C) 2008 Elsevier Ltd. All rights reserved.