It is commonly assumed that dispatch of micro-combined heat and power (micro-CHP) should be heat driven, where the unit turns on when a heat load is present, and turns off or modulates when there is little or no heat demand. However, this heat led operating strategy-typical of large-scale CHP applications-may not be economically justified as scale decreases. This article investigates cost-effective operating strategies for three micro-CHP technologies; Stirling engine, gas engine, and solid oxide fuel cell (SOFC), under reasonable estimates of energy prices. The cost of meeting a typical UK residential energy demand is calculated for hypothetical heat led and electricity led operating strategies, and compared with that of an optimal strategy. Using central estimates of price parameters, and with some thermal energy storage present in the system, it is shown that the least cost operating strategy for the three technologies is to follow heat and electricity load during winter months, rather than using either heat demand or electricity demand as the only dispatch signal. Least cost operating strategy varies between technologies in summer months. In terms of environmental outcomes, the least cost operating strategy does not always result in the lowest carbon dioxide emissions. The results obtained are sensitive to electricity buy-back rate. (c) 2006 Elsevier Ltd. All rights reserved.