Bioethanol is an alternative to fossil fuels in the transportation sector. The use of pellet for heating is also an efficient way to mitigate greenhouse gas emissions. This paper evaluates the techno-economic performance of a biorefinery system in which an existing combined heat and power (CHP) plant is integrated with the production of bioethanol and pellet using straw as feedstock. A two-stage acid hydrolysis process is used for bioethanol production, and two different drying technologies are applied to dry hydrolysis solid residues. A sensitivity analysis is performed on critical parameters such as the bioethanol selling price and feedstock price. The bioethanol production cost is also calculated for two cases with either 10 year or 15 year payback times. The results show that the second case is currently a more feasible economic configuration and reduces production costs by 36.4%–77.3% compared to other types of poly-generation plants that are not integrated into existing CHP plants. Copyright © 2013 John Wiley & Sons, Ltd.