This paper presents a review of the sparse district-heating research programme undertaken in Sweden between 2002 and 2006. The goal of the programme was to increase the future competitiveness for district heat in low heat density areas, e.g., suburban single-family houses and small villages. Such areas are unfavourable, since revenues from heat sold are low compared with the investment cost for the local distribution network. In Sweden, district heat has a dominant position in the heat market for residential and service-sector buildings. In order for the business to grow, it is necessary to increase the rate of expansion in the detached-house segment. This is why the programme was initiated. The extent of the programme was set at € 3.6 million with equal financing from the Swedish District-Heating Association and the Swedish Energy-Agency. The research was carried out in three phases: a state of the art survey; a development phase focused on productivity gains where new research on both technology and customer interaction was performed; and finally a demonstration phase where new methods were tested in full-scale field operation. The programme has shown that the Swedish district-heating industry needs to adjust in order to reach a higher profitability for sparse district-heating investments. Tradition from large-scale high-density district heating is hard to scale to fit sparse district-heating systems. For example, the construction becomes very labour intensive and the industry is weak when it comes to market-oriented business logic, sales and private customer interaction. Innovation seems to be a way forward and active management of innovations is a way to create increased value of the investments. Other keys to improving the profitability of sparse district-heating investments are more efficient working routines (resulting in higher productivity) and revised ways of customer communications. These seem more important than increasing efficiency in district-heating technology. © 2007.