As one of the most significant measures to improve energy utilization efficiency and save energy, cogeneration or combined heat and power (CHP) has been widely applied and promoted with positive motivations, in many countries. A rational cost allocation model should indicate the performance of cogenerations and balance the benefits between electricity generation and heat production. Based on the second law of thermodynamics, the present paper proposes an entropy change method for cost allocation by choosing exhaust steam entropy as a datum point, and the new model works in conjunction with entropy change and irreversibility during energy conversion processes. The allocation ratios of heat cost with the present and existing methods are compared for different types of cogenerations. Results show that the allocation ratios with the entropy change method are more rational and the cost allocation model can make up some limitations involved in other approaches. The future energy policies and innovational directions for cogenerations and heat consumers should be developed. (C) 2013 Elsevier Ltd. All rights reserved.