Biomass‐based micro‐combined heat‐and‐power (CHP) systems could play an important role in future renewable energy systems by providing net stability and balance electricity fluctuations from wind and solar systems by demand‐driven and base load operations. A biomass boiler‐steam engine micro‐CHP system was investigated via exergy‐based analysis methods to evaluate the optimization potential concerning exergy, environmental, and economic aspects. It was shown that the system has low exergy efficiency compared to systems from the literature and that the boiler is mainly affected by capital cost. Major improvements in terms of exergy efficiency as well as economics should therefore be focused on the boiler.