In the past decade significant progress has been made in the technological development of fuel cells. This is especially true in the area of high-temperature fuel cells, the molten carbonate fuel cell (MCFC) and the solid oxide fuel cell (SOFC). Sub-scale systems with high-temperature fuel cells producing 100 td 250 kW of electrical power are being built and operated. A scaling-up to systems delivering several megawatts of electrical power is planned before the turn of the century. The operation of a fuel-cell system requires not merely one or more fuel-cell stacks, but also sub-systems to condition the process flows and utilise the residual heat. Earlier studies have shown that a high degree of integration significantly improves the efficiency of fuel-cell systems; at the same time, however, it makes systems more complex. Calculations of the efficiency of Various configurations and system options can be made, but they offer only limited insight into losses and the possibilities of raising system efficiency. Based on the system calculations, therefore, an exergy analysis has been made to determine the cause of losses and to assess the potential for improving the system. A 1 MW system with solid oxide fuel cells for the production of heat and power was modelled. The analysis shows that heat-transfer is the cause of large losses. Exergy losses are greatly reduced if the amount of heat transferred in the system is reduced-for example by the use of internal reforming.