The integration of renewable energy sources into existing energy systems has emerged as pivotal in the context of sustainable energy planning. However, despite their appeal, the diffusion rate of eco-innovative technologies in the energy sector varies considerably among countries, mainly due to the lack of attractive policy schema that would leverage the decision-making process for related investments. Among other renewable energy applications, the deployment of biomass heating systems by residential users is hindered both by economic and non-economic influence factors and in many regions remains below expectations, despite the readily available supply of feedstock and the positive impact on the environment. In this paper, a simulation-based framework for managing the diffusion of biomass-based technologies in the residential heating sector is proposed. More specifically, first a review of state-of-the art literature on fostering the integration of biomass in energy systems from a policy-making perspective is provided, while special focus is given on research efforts that investigate the adoption of biomass-based systems for residential heating. Following that, a System Dynamics modeling framework that could be employed as a tool for assessing the impact of various interventionary policies on promoting the deployment of biomass heating systems in residences is proposed, taking into account a system perspective tailored to accommodate new product diffusion. The application of the proposed framework to a real-world case study is further illustrated, that of Greece, and results and managerial insights of significant interest both for the research community and the energy regulatory authorities are presented. Finally, conclusions and suggested promising areas for future research are discussed. The provided analysis reveals that without any intervention, 85% of the total projected adoptions is expected to take place until 2030 in Greece, with only 12% being attained by 2021. However, low budget policy interventions on initial investment cost, consumers’ environmental awareness and direct access to biomass, as well as imposed oil taxes, could contribute significantly in accelerating the adoption of biomass heating systems, besides reaching timely the national targets on CO2 emissions reduction.