Expectations on wastewater sludge treatment and recovery of its energy and material contents are increasing because of the tightening legislation and the obligation to reduce environmental impacts of sludge disposal. The objective of this study was to analyze the performance of a heat and power generating sludge combustion plant from technical and economical viewpoints and to compare the studied concept to optional sludge treatment technologies. The plant performance was modeled for sewage sludge produced by approximately 200 000 inhabitants. Two plant sizes below 1 000 kWe range were investigated, the smaller plant using sludge as the only fuel and the larger plant with wood chips as the additional fuel. The plants were compared with heat-only plants of similar size. The payback periods for heat-only plants are typically shorter than with the cogenerating plants because the changes in plant investment affect stronger the economy than do the revenues from selling electricity. The gate fee of sludge treatment has the strongest effect on the payback period. The selection of the plant concept (cogeneration, heat only or pure electricity generation) is, however, affected more by the local demand of heat and electricity than pure economy. The selection of the optimal technology for sludge treatment is a complicated task. The studied concept can be the optimal choice, for example, if there is no cement kiln or co-combustion possibility near the source of sludge, if there is no land enhancement demand for the digested sludge, or if the energy surplus from combustion compared to anaerobic digestion is considered more valuable than nutrient recovery possibility from digestion. If the new technology concept is found competitive, it still has to meet the challenge of acceptability from the business, social and cultural points of view.