Nowadays, cities and districts are becoming more and more interconnected in terms of energy supply systems, and the transition towards smart connected thermal and electrical grids is inevitable. While single building-level modelling has demonstrated numerous technical and economic benefits, it is vital to scale up the approach and consider the larger picture of cluster of buildings, districts, and cities. The island of AErø in Denmark has an ambitious goal to become the first CO 2 neutral and renewable energy self-sufficient Danish Island by 2025, as well as becoming a fossil-fuel free island by 2030. With the ambitious energy and environmental aims of AErø island, this work aims to investigate the capability of establishing part of the island as the first Danish positive energy district (PED) and assess various design scenarios and possibilities of upgrading/modifying the current scheme and composition of energy supply and distribution. An open-source urban scale modelling tool is used, City Energy Analyst (CEA), where the district is modelled considering all specifications and characteristics of buildings and the corresponding energy supply systems. The base case scenario is simulated, and the performance is calibrated using actual data. Then, multiple energy improvement measures targeting the buildings envelope as well as the energy generation and supply systems are developed and simulated to assess the impact on the overall energy consumption for heating and electricity. The results show that a PED can be established employing an improvement package of envelope-targeting measures, energy systems upgrades and renewable energy systems expansion.