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The techno-economic viability of a combined heat and power system (CHAPS) for urban areas in India is analyzed in this paper. This approach considers the electrical and thermal energy delivery subsystems for which the cost considerations were based on the present market values. A sensitivity study based on capacity utilization factor (CUF) was carried out to evaluate the unit cost of electricity produced. Other financial figures of merit like simple payback and internal rate of return were also calculated. It is observed that when the system utilization was 0.3, the payback of the system is attained within the CHAPS' lifetime of 20 years. Based on the economic evaluation, it is evident that favorable financial benefits for a typical system with a collector area of 4.5 m2 will occur if the system cost is limited in the range of Rs 100,000 to Rs 120,000. A comparison with the actual CHAPS system cost based on the current market price is done and the difference is off set by the carbon credits earned by the CHAPS system during its lifetime due to CO2 mitigation. The carbon credits earned by the CHAPS system caused a reduction of the unit cost of electricity generated from Rs 11.02/kWh to Rs 9.0973/kWh. This study further helps to introduce the CHAPS system in the Indian market at an acceptable price for the consumers. [ABSTRACT FROM PUBLISHER]