Cogeneration technology (combined heat and power-CHP) is a master term for onsite power generation technologies that simultaneously produce heat and electricity. Technological potential of reducing energy consumption of CHP results in severe rate of decrease in energy costs. Cogeneration is currently achieving a great level of acceptance in industrial and domestic applications globally and thus in Turkey due to its high overall cost efficiency and technical reliability. The economic evaluation of a CHP system is usually performed through an investment criteria examination. Among numerous available economic criteria, payback time is a very useful and popular one. This paper outlines a specific method for determining the payback time of installing and operating a combined heat and power system. This payback time calculation method is applied to a textile factory cogeneration application by taking the factory’s electricity and heat consumption rates into consideration in order to decide on the type and size of the CHP system. The effects of operation parameters such as partial electricity load operations, on-grid and off-grid applications and varying annual operation times on the payback time are determined. All different operation cases are technically and economically evaluated.