The building sector is responsible for a great share of the final energy demand and national CO2 emissions in countries like Germany. Nowadays, low quality thermal energy demands in buildings are mainly satisfied with high-quality sources (e.g. natural gas fired in condensing boilers). Exergy analysis, pursuing a matching in the quality level of energy supplied and demanded, pinpoints the great necessity of substituting high-quality fossil fuels by other low quality energy flows, such as waste heat. In this paper a small district heating system in Kassel (Germany) is taken as a case study. Results from preliminary steady-state and dynamic energy and exergy analysis of the system are presented and strategies for improving the performance of waste-heat based district heating systems are derived. Results show that lowering supply temperatures from 95 to 57.7 degrees C increases the final exergy efficiency of the systems from 32% to 39.3%. Similarly, reducing return temperatures to the district heating network from 40.8 to 37.7 degrees C increases the exergy performance in 3.7%. In turn, the energy performance of all systems studied is nearly the same. This paper shows clearly the added value of exergy analysis for characterising and improving the performance of district heating systems. (C) 2010 Elsevier B.V. All rights reserved.