Here we show that the production and use of heating on an area must be distributed in clusters organized such that the losses associated with centers of production are balanced by the losses associated with distribution lines. The energy needs increase in time because the population density and the individual need increase. We consider only the increase in the individual need in time. We illustrate the "distributed energy systems" concept with the production and distribution of hot water on an area. Four classes of designs are analyzed and compared: (0) individual, i.e., one water heater for one user, (r) radial, i.e., N users supplied via radial pipes from a central heater, (2) dendritic network constructed by pairing N users around a central heating, and (4) dendritic network constructed by quadrupling the elemental areas occupied by the users. We show that there is an optimal cluster size (N) as a tradeoff between central losses and distributed losses. We also discover that several distinct (abrupt) design "transitions" must exist: the recommended design changes through designs 0, r, 2, and 4, as the amount of water used by each individual increases in time with the standard of living. © 2010 American Institute of Physics.