Studies on how to promote the use of alternative energy sources (AES) typically focus on the relative efficiency and effectiveness of alternative subsidising mechanisms. Positive externalities of an increased AES utilisation are in general not explicitly taken into account. This paper analyses, over the horizon to 2020, the technical and market penetration potentials of AES in the context of the Carinthian energy system. Apart from market penetration rates, cost benefit indicators are also computed to support the decision making process in the local energy and environmental policy. These indicators comprise import dependency, employment effects, capital expenditure, carbon dioxide emissions and government revenues. The systems approach adopted, the simultaneous consideration of not only market penetration rates but also of the associated economic indicators, gives a more complete picture of AES use. Analysis of two strategies, "Subsidy" and "High Tax", shows that none of these strategies is dominant with respect to all indicators, i.e., there are conflicting objectives. (C) 1998 Elsevier Science Ltd. All rights reserved.