A new comprehensive techno-economic analysis method for power generation systems with CO2 capture is proposed in this paper. The correlative relationship between the efficiency penalty, investment increment, and CO2 avoidance cost is established. Through theoretical derivation, typical system analysis, and variation trends investigation, the mutual influence between technical and economic factors and their impacts on the CO2 avoidance cost are studied. At the same time, the important role that system integration plays in CO2 avoidance is investigated based on the analysis of a novel partial gasification CO2 recovery system. The results reveal that for the power generation systems with CO2 capture, the efficiency penalty not only affects the costs on fuel, but the incremental investment cost for CO2 capture (U.S.$ kW(-1)) as well. Consequently, it will have a decisive impact on the CO2 avoidance cost. Therefore, the added attention should be paid to improve the technical performance in order to reduce the efficiency penalty in energy system with CO2 capture and storage. Additionally, the system integration may not only decrease the efficiency penalty, but also simplify the system structure and keep the investment increment at a low level, and thereby it reduces the CO2 avoidance cost significantly. For example, for the novel partial gasification CO2 recovery system, owing to system integration, its efficiency can reach 42.2%, with 70% of CO2 capture, and its investment cost is only 87$ kW(-1) higher than that of the reference IGCC system, thereby the CO2 avoidance cost is only 6.23$ t(-1) CO2. The obtained results provide a comprehensive technical-economical analysis method for energy systems with CO2 capture useful for reducing the avoidance costs. Copyright (C) 2009 John Wiley & Sons, Ltd.