Abstract In view of the urgent need for energy efficiency measures, renewables-based district heating (R-DH) can prove an efficient approach to meet the heating demand in cities whereby locally-available renewable resources are exploited. Yet, the renewables experience intermittency, which might lead to seasonal mismatch between heat supply and demand. Therefore, large-scale seasonal thermal energy storage (STES) systems are often envisioned as key elements in R-DH. Given their large volumes, these systems are often installed underground whereby groundwater tables are expected to lead to twofold impacts due to the TES-groundwater interaction. This work reports the development of models for the planning and optimization of STES and, then, conducts a calibration study to attain credibility in the models. Next, it examines the planning of STES under such unfavorable hydrogeological conditions whereby a groundwater flow is anticipated. The results indicate that Darcy flow plays a significant role in increasing the thermal losses that result in increasing groundwater temperature. Therefore, it becomes crucial to provide protective measures to maintain acceptable groundwater quality prescribed by national standards. Hence, the work investigates the role of cut-off wall distance and TES insulation quality to mitigate the TES thermal losses, increase the TES efficiency and reduce the groundwater temperature.