New concepts and technologies are needed to upgrade conventional energy systems and cope with environmental challenges. However, while emerging new technologies may serve to improve energy efficiency at the local level, they might also have disruptive effects at the system level. This paper investigates the potentially disruptive impacts of upscaling local wastewater heat recovery at the building level on the performance of the wastewater treatment and district heating systems in Stockholm. A hybrid model based on data-driven and process-driven mathematical models was developed to simulate the performance of the wastewater system and interlinkages among different actors. Two types of technologies (heat exchanger and heat pump) and different technology penetration scenarios (10%, 20%, and 40%) are considered for heat recovery in buildings. If 20% of the buildings install heat exchangers, the amount of heat demand in buildings decreases by 3% and total heat losses in the sewerage network decreases by 2%. In the case of local heat recovery using heat pumps in 20% of the buildings, there is a 4% reduction in the heat demand in buildings and 3% decrease in total heat losses in the network. Meanwhile, the heat demand in the wastewater treatment plant increases by 2% (with heat exchangers) or 4% (with heat pumps). Moreover, the district heating company recovers 5% and 9% less heat from the wastewater treatment plant, respectively, as compared to current conditions. These findings indicate that enhanced heat recovery in buildings could have disruptive impacts on currently centralized energy and water service provision over time. This justifies closer consideration of the balance between local and system-level solutions as policymakers define goals for energy efficiency, and evaluate potential societal and economic implications of different alternatives.