District heating plays a crucial role in future energy systems due to its beneficial impacts on the overall flexibility and efficiency of the energy system as a whole. In order to fully utilize its benefits, the sizing and operation of said systems needs to be optimized. This is a computationally difficult task due to a large number of parameters that need to be considered and calculated. Another issue is a need for long optimization horizons of at least one year, in order to capture seasonal, and a small time step of 1 h or less, to capture intraday variations. The goal of this work has been the development and demonstration of an optimization model capable of handling both the sizing and the operation of a district heating system based on a heat only boiler, solar thermal collectors, electric heaters, heat pumps and thermal energy storage units while considering building refurbishment. The model has been implemented on nine scenarios. The results of the analysis have demonstrated the economic and environmental benefits of the utilization of highly efficient and renewable energy sources in the proposed system.