Krakow has an extensive district heating network, which is approximately 900 km long. It is the second largest city in terms of the number of inhabitants in Poland, resulting in a high demand for energy—for both heating and cooling. The district heating of the city is based on coal. The paper presents the conception of using the available renewable sources to integrate them into the city’s heating system, increasing the flexibility of the system and its decentralization. An innovative solution of the use of hybrid, modular heat pumps with power dependent on the needs of customers in a given location and combining them with geothermal waters and photovoltaics is presented. The potential of deep geothermal waters is based on two reservoirs built of carbonate rocks, namely Devonian and Upper Jurassic, which mainly consist of dolomite and limestone. The theoretical potential of water intake equal to the nominal heating capacity of a geothermal installation is estimated at 3.3 and 2.0 MW, respectively. Shallow geothermal energy potential varies within the city, reflecting the complex geological structure of the city. Apart from typical borehole heat exchangers (BHEs), the shallower water levels may represent a significant potential source for both heating and cooling by means of water heat pumps. For the heating network, it has been proposed to use modular heat pumps with hybrid sources, which will allow for the flexible development of the network in places previously unavailable or unprofitable. In the case of balancing production and demand, a photovoltaic installation can be an effective and sufficient source of electricity that will cover the annual electricity demand generated by the heat pump installation, when it is used for both heating and cooling. The alternating demand of facilities for heating and cooling energy, caused by changes in the seasons, suggests potential for using seasonal cold and heat storage.