•Application of a MILP tool for optimal sizing and location of heating and CHP plants to serve residential energy demand.•Trade-offs between local vs centralized heat generation, district heating vs natural gas distribution systems.•Assessment of the key factors influencing the use of biomass and district heating in residential areas. The paper presents the application of a mixed integer linear programming (MILP) methodology to optimize multi-biomass and natural gas supply chain strategic design for heat and power generation in urban areas. The focus is on spatial and temporal allocation of biomass supply, storage, processing, transport and energy conversion (heat and CHP) to match the heat demand of residential end users. The main aim lies on the assessment of the trade-offs between centralized district heating plants and local heat generation systems, and on the decoupling of the biomass processing and biofuel energy conversion steps. After a brief description of the methodology, which is presented in detail in Part I of the research, an application to a generic urban area is proposed. Moreover, the influence of energy demand typologies (urban areas energy density, heat consumption patterns, buildings energy efficiency levels, baseline energy costs and available infrastructures) and specific constraints of urban areas (transport logistics, air emission levels, space availability) on the selection of optimal bioenergy pathways for heat and power is assessed, by means of sensitivity analysis. On the basis of these results, broad considerations about the key factors influencing the use of bioenergy into urban energy systems are proposed. Potential further applications of this model are also described, together with main barriers for development of bioenergy routes for urban areas.