A large proportion of greenhouse gas emissions come from heating and hot water supply and developed district heating systems will play an important role in meeting climate targets. The research presents a methodology for the study of the influence of combined factors on future thermal energy demand. System dynamics modeling has been applied to residential buildings in terms of renovation, new building construction, subsidy fund and assessment of reducing future thermal energy and greenhouse gas emissions. Changes in the consumption of thermal energy of district and decentralized thermal supply, under the influence of energy efficiency and financial factors were studied. Renovation of old buildings has a great impact on achieving the goals set on the way to climate neutrality by reducing heat energy consumption. As shown by the simulations carried out with the existing funding and legislation, by 2050 the expected reduction for users of district heat supply in Riga is 3 % and for users of alternative heating 2 %, from the existing 2023 consumption.