A promising way to increase the energy efficiency and reduce costs of biofuel production is to integrate it with heat and power production in polygeneration plants. This study treats the retrofitting of a Danish combined heat and power plant by integrating lignocellulosic ethanol production based on wheat straw with the aim of minimizing specific ethanol production cost. Previously developed and validated models of the facilities are applied in the attempt to solve the design optimization problem. Straw processing capacities in the range of 5-12 kg/s are considered, while plant operation is optimized over the year with respect to maximal income and with the limitations that the reference hourly district heating production has to be met while reference hourly power export cannot be exceeded. The results suggest that the specific ethanol production cost increased continuously from 0.958 Euro/L at a straw processing capacity of 5 kg/s to 1.113 Euro/L at a capacity of 12 kg/s, indicating that diseconomies-of-scale applies for the suggested ethanol production scheme. A thermodynamic evaluation further discloses that the average yearly exergy efficiency decreases continuously with increasing ethanol production capacity, ranging from 0.746 for 5 kg/s to 0.696 for 12 kg/s. This trend results from operating constraints that induce expensive operation patterns in periods of high district heating loads or shut-down periods for the combined heat and power plant. A sensitivity analysis indicates that the found optimum is indifferent to major variations in fossil fuel prices. The results question the efficiency of the suggested retrofitting scheme in the present energy system, and they further point toward the importance of taking operating conditions into consideration when developing flexible polygeneration plant concepts as differences between design-point operation and actual operation may have a significant impact on overall plant performance. (C) 2014 Elsevier Ltd. All rights reserved.