A combined heat and power (CHP) system can convert low cost fuel, such as gas or fuel oil, into high value electricity and heat. It can generate "home-made" electricity more cheaply than it can be purchased. The term CHP is used to define the process of utilising the plant to generate both electricity and heat simultaneously, thereby extracting a greater benefit from the fuel used. In this work, a feasibility study of a CHP system for a hotel application is presented. The Cyprus energy scene is presented, followed by an energy analysis of the hotel. A description of the CHP system is also presented. The method of economic analysis adopted in this study is the discounted cash flow method, which takes into account the time value of money. The analysis is conducted with the use of a spreadsheet program. The economic analysis of the CHP system shows that the annual net saving of the system is around Cy pound 26,500, while the capital investment is Cy pound 85,000. The payback period of the system is found to be 3.2 years, which is very satisfactory. Based on the findings presented in this paper, it is believed that CHP is viable for the Cyprus hotel industry. (C) 2000 Elsevier Science Ltd. All rights reserved.