The literature emphasizes the important role of industrial excess heat (IEH) and heat pumps (HP) in future 4th generation district heating and smart energy systems. However, they can potentially have negative or positive effects on the integration of renewable energy sources (RES). It is necessary to find a trade-off between IEH and HP in the transition towards a 100% renewable energy system yet has not been discussed in the literature. This paper presents a comprehensive techno-economic analysis for the optimal district heating (DH) strategy in a 100% renewable energy system. It is conducted based on a novel hybrid methodology framework that couples hourly smart energy system simulation, multi-objective optimization, and multiple-criteria decision making. The optimal share between IEH and HP and associated RES capacity can be determined considering the preferences of policymakers. A scenario for 2050 for Aalborg Municipality in Denmark is used as a case study. Results show that an appropriate mix of IEH and HP, 40% and 20% respectively in the DH supply, should be employed to obtain a balanced near carbon–neutral system with the least cost. Also, the cross-sector effective interactivities between the DH network, power grid, and gas grid are revealed in the smart energy system context. The proposed framework is designed in a general way that can be used in other cities, regions, or countries.