This study estimates the cost of heating and domestic hot water (DHW) with wood chips, under climatic conditions and forest biomass availability in Valdivia, a middle size city in central-southern Chile. The demand for heating and DHW is established for a typical residential building with different thermal insulation conditions. Results of wood chip technology were compared with conventional firewood, liquefied petrol gas (LPG) and diesel technology. Likewise, it is analyzed the profitability of replacing firewood boilers in use by wood chip and LPG boilers. Under almost all scenarios, the higher investment costs of the wood chip solution are more than offset by lower fuel costs, resulting in lower heating and DHW costs than LPG and diesel. The higher automation and combustion efficiency of the wood chip system also results in a lower heating and DHW cost than a firewood system, even if this latter system is already in opera lion. The thermal insulation significantly reduced the investment and fuel supply costs, financially justifying its inclusion as part of the project to replace the heating and DHW system with wood chips. The alternative with LPG appears to be more attractive only for low levels of heating and DHW demand. The connection of four identical buildings (7680 square meters) in a heating network allows to reach the lowest cost of heating and DHW per dwelling, balancing economies of scale in the boiler investment with the cost of expanding the distribution network. (C) 2020 International Energy Initiative. Published by Elsevier Inc. All rights reserved.