Abstract In the article, a possibility to introduce the 4th generation district heating (4GDH) in Latvia is analyzed with the system dynamic modeling. Three policy instruments were included into the system dynamic model: subsidies, instrument for risk reduction and instrument for efficiency increase, and their impact on the system operation was analyzed. Six development scenarios are examined in the article, two of which are supplemented with the transition of heat network to the low-temperature regime at a different share of the renewable energy (60%, 80%, 95%). The heat tariff was used as the main indicator determining the pace and structure of the technology change. In the model the existing natural gas technology was included and three technologies of the renewable energy – biomass combustion equipment, solar collectors with the accumulation and heat pumps. Results of the modeling shows that scenario, at which no policy instruments are used, reduce CO2 emissions for 58.6% until 2030; but it is possible to achieve a zero emission level, in case political instruments are used.