During the past few years, there has been increasing interest to find a replacement for gas consumption in Iranian small towns and cities. The government believes delivering cheap gas to small towns is not economical and can be replaced with recent technological solar–geothermal hybrid energy system. In this paper, we present an empirical study to calculate internal rate of return (IRR) for a small town located near the city of Qom, Iran. We consider three scenarios of population, namely 1000, 1500 and 2000 households and various rates for gas price from 7 to 40 cents. The results show that a gas distribution unit yields 2% to 20% in terms of return. This brings us to conclude that gas distribution for small towns far from major cities is not economically justified for government. Therefore, we need to use alternative methods such as solar–geothermal hybrid energy system. We use TOPSIS method, as a multi criteria decision making approach, to prioritize ten small towns in Qom province and the results are analyzed.

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