For a distillation system, in which relative volatility is large in low composition range and small in high composition range, using separate heat pump distillation (SHPD) can markedly save energy. In this paper, vapour flow rate to compressor is proposed as a parameter for system optimization; from the viewpoint of system energy balance. This parameter can be used for both optimal design and optimal operation of SHPD. Mathematical models for optimal design and optimal operation are formulated to minimize total annual cost and annual operating cost respectively. Optimal design of SHPD is performed and evaluated through process simulation, for, a typical case study for the distillation Of ethanol-water system. The results show that SHPD has notable energy saving and economic benefit when compared with conventional distillation. Optimal operation of SHPD is also evaluated for changes in feed composition which is an operating variable.