The aim of this paper is to present a feasibility analysis of the application of fuel cells for a combined heat and power system with grid connection in the tertiary sector. Although the analysis considers Spanish data, the methodology proposed is developed to be applicable at the EU level. The current legislative framework is analysed in order to establish the suitability of the payment scheme considered for the sale of surplus electricity from these systems. The paper also establishes criteria for the optimal design of distributed generation systems based on fuel cells from a technical, economic and environmental point of view, presenting the strategies that should be implemented to promote the future implantation of these systems and their progressive introduction to the market. (c) 2006 International Association for Hydrogen Energy. Published by Elsevier Ltd. All rights reserved.