In large thermal systems, which have many design variables, conventional mathematical optimization methods are not efficient. Thus, exergoeconomic analysis can be used to assist optimization in these systems. In this paper a new iterative approach for optimization of large thermal systems is suggested. The proposed methodology uses exergoeconomic analysis, sensitivity analysis, and structural optimization method which are applied to determine sum of the investment and exergy destruction cost flow rates for each component, the importance of each decision variable and minimization of the total cost flow rate, respectively. Applicability to the large real complex thermal systems and rapid convergency are characteristics of this new iterative methodology. The proposed methodology is applied to the benchmark CGAM cogeneration system to show how it minimizes the total cost flow rate of operation for the installation. Results are compared with original CGAM problem. (C) 2010 Elsevier Ltd. All rights reserved.