Cities account for approximately two-thirds of global primary energy consumption and have large heat and power demands. CHP (combined heat and power) systems offer significant primary energy-efficiency gains and emissions reductions, but they can have high upfront investment costs and create nuisance pollution within the urban environment. Urban planners therefore need to understand the tradeoffs between limitations on CHP plant size and the performance of the overall energy system. This paper uses a mixed-integer linear programming model to evaluate urban energy system designs for a range of city sizes and technology scenarios. The results suggest that the most cost-effective and energy-efficient scenarios require a mix of technology scales including CHP plants of appropriate size for the total urban demand. For the cities studied here (less than 200,000 people), planning restrictions that prevent the use of CHP technologies could lead to total system cost penalties of 2% (but with significantly different cost structures) and energy-efficiency penalties of up to 24% when measured against a boiler-only business-as-usual case.