Abstract In ultra-low temperature district heating the supply temperature is less than required to heat the domestic hot water and a heat pump is therefore often proposed to raise the temperature. This paper investigates how this heat pump can be utilized for price based demand response to induce peak reductions and energy cost savings. A model predictive control strategy is proposed and evaluated through co-simulations where a model predictive controller is formulated in MATLAB and connected to an EnergyPlus hot water storage tank. It is demonstrated that the system is capable of reducing the district heating morning peak and the electric grid evening peak as well as providing energy cost savings for the end-user without compromising hygiene and comfort.