This study deals with the exergetic performance assessment of a combined heat and power (CHP) system installed in Eskisehir city of Turkey. Quantitative exergy balance for each component and the whole CHP system was considered, while exergy consumptions in the system were determined. The performance characteristics of this CHP system were evaluated using exergy analysis method. The exergetic efficiency of the CHP system was accounted for 38.16% with 49 880 kW as electrical products. The exergy consumption occurred in this system amounted to 80 833.67 kW. The ways of improving the exergy efficiency of this system were also analysed. As a result of these, a simple way of increasing the exergy efficiency of the available CHP system was suggested that the valves-I-III and the MPSC could be replaced by a 3500 kW-intermediate pressure steam turbine (IPST). If the IPST is installed to the CHP system (called the modified CHP (MCHP) system), the exergetic efficiency of the MCHP system is calculated to be 40.75% with 53 269.53 kW as electrical products. The exergy consumption is found to be 77 444.14 kW in the MCHP system. Copyright (C) 2006 John Wiley & Sons, Ltd.