Abstract The paper discusses alternatives for biofuel-based district heating using simulation analysis in a real-life case example. First, the paper illustrates the current supply chain structure of forest chips from harvest to the heat energy plant. Usually the chips are naturally dried, chipped on the roadside and transported to the heating plant based on the orders. Second, the study demonstrates how a regional bioenergy system could be developed with the help of a simulation model for evaluating the feasibility of different wood fuel supply chain options. The model mimics a real-life example of an industrial area in a small Finnish municipality planning to invest in a CHP plant. The results show that the investment in a CHP plant and use of artificially dried wood fuel can be profitable in the circumstances where local demand exists for heat energy. The simulation-based vision can be compared with the presently dominant concept of highly decentralized supply chains for wood chips that is widely used among energy suppliers. However, to optimize the transportation costs and the moisture content of the chips changes are needed in the supply chain processes and structure. The results of this study are useable for practical decision-making and offer useful ideas for continuing research on alternative ways to produce energy wood biomass in the future.