In the Croatian economy, the wood-processing industry is among the country's strategic export branches. The energy costs have a partial impact on the final price of wood products. The goal of this work paper is to minimize energy costs in this sector, using a mathematical formula that computes the lowest heat capacity as the cogeneration system starts to be more payable than a non-cogeneration system. A thermo-economic analysis of both systems, cogeneration and non-cogeneration, is necessary to define the lowest heat capacity. These include the payback period of the capital invested in the cogeneration system and harmonization of heat production and disposable wood waste as fuel. The mathematical formula was applied to a Croatian wood-processing company. The impact of quantities on the payback period was examined. This work presents results related to a decision on which system, cogeneration or non-cogeneration, is optimal for this wood-processing company. (c) 2005 Elsevier Ltd. All rights reserved.