The present work is an attempt to conserve energy in coal based sponge iron industry incorporating certain design modifications without disturbing the process technology. A typical sponge iron plant has been investigated to find out the potential areas where energy is being wasted. To recover heat from these areas two design modifications, Case-1 and Case-2, are proposed. Case-1 accounts for preheating of air using waste gas exiting from ESP. However, for Case-2 initially water is heated using hot sponge iron exiting rotary kiln and further hot water is used to preheat air. To compute coal demand of modified designs a model is developed based on heat of reactions, feed preheating, sensible and radiation losses, etc. Preheating of air up to 170 degrees C for Case-1 reduces coal consumption by 8.7%. Consequently, waste gas generation reduces by 16.7%. Thus, for Case-1 profit is Rs 9.6 million/year. However, for Case-2 preheating of air to 80 C before entering the kiln reduces coal and water consumption by 7.2% and 96.3%. Consequently, cooling lower capacity is reduced by 37.2%. Due to 27.8% less profit for Case-1 in comparison to Case-2 Case-1 offers higher payback period than that of Case-2. Thus, Case-2 is selected as best proposed design. (C) 2012 Elsevier B.V. All rights reserved.