In fifth generation district heating and cooling (5GDHC), the temperature range of the heat source is wider then in current common heat pump systems. The results of this study show that the heat pumps and chillers that are available in the market are not well adapted to 5GDHC applications due to the wide working range of 5GHDC. In order to maintain a high efficiency, current design parameters should be adjusted. This affects the dimensioning of all components in the refrigerant circuit and the required volume of refrigerant. An operational challenge specific to 5GDHC occurs when there is a low power demand at a relatively low temperature (eg. 35 °C) on the condenser side that coincides with a relatively high temperature (eg. 25 °C) on the evaporator side, resulting in a high thermal power during times with limited demand. Since the 5GDHC distributes both cooling and heating, it is also a challenge to successfully control the local heat pump in order that it fulfils the demands on both the hot and cold side. The heat pumps connected to 5GDHC systems have the potential to reach a high coefficient of performance (COP), due to the high temperature of the heat source. The challenge is to maintain a high COP throughout operation. At the ends of the heat pumps operational temperature range, the efficiency tends to drop considerably, resulting in a low System Efficiency Index compared to operations well within the operational range. This research seeks to address these challenges by highlighting better design principles in order to realize the untapped potential of 5GDHC systems. This is performed by investigating the influence of individual components on the performance of a local heat pump installed in a 5GDHC grid, assessed through theoretical simulations, field tests and laboratory measurements.