Urban housing consumes the most energy in European countries accounting for up to 43% of final energy consumption. The aim of sustainable society is to increase the energy efficiency of the building and residential heating systems, targeting to implement the zero-energy building with energy supply from renewable sources. To achieve this, the existing buildings should be efficiently modernized. The present paper proposes the approach for renovation of residential heating system in the conditions of limited investment funds. The proposed mathematical model is based on the of building’s energy system analysis and consolidates the producer and consumer of thermal energy into an integrated system. It enables to analyze the state of the building using economic, environmental and economy key indicators, with proposing the suitable innovative actions. The method of selection the effective innovative actions for the examined building and the optimization of investment in time is proposed. The case study for the renovation of the heating system of 36 typical buildings in Ukraine is presented, allowing to save up to 60% on energy sources, 39% reduction on environmental emissions. The implementation of proposed actions during two years with recommended sequence will reduce the investments by 19.1%.