The ability of combined heat and power (CHP) to meet residential heat and power demands efficiently offers potentially significant financial and environmental advantages over centralised power g neration and heat-provision through natural-gas fired boilers. A solid oxide fuel cell (SOFC) can operate at high overall efficiencies (heat and power) of 80-90%, offering an improvement over centralised generation, which is often unable to utilise waste heat. This paper applies an equivalent annual cost (EAC) minimisation model to a residential solid oxide fuel cell CHP system to determine what the driving factors are behind investment in this technology. We explore the performance of a hypothetical SOFC system-representing expectations of near to medium term technology development-under present UK market conditions. We find that households with small to average energy demands do not benefit from installation of a SOFC micro-CHP system, but larger energy demands do benefit under these conditions. However, this result is sensitive to a number of factors including stack capital cost, energy import and export prices, and plant lifetime. The results for small and average dwellings are shown to reverse under an observed change in energy import prices, an increase in electricity export price, a decrease in stack capital costs, or an improvement in stack lifetime. (c) 2005 Elsevier B.V. All rights reserved.