Combining heat and power generation is one solution that might help close the gap between supply and demand for electricity more quickly, and the industry's existing power issues validate this idea. The depletion of conventional supplies has made environmentally friendly sources and conservation of energy imperative to satisfy the world's energy needs. Bagasse appears to be an environmentally friendly energy source, and cogeneration is a viable technique for energy conservation. This research looks at a potential combining heat and power generation concept for the Bahir Dar Textile Industry as well as the economic viability of cogeneration. This thesis also discusses the interface of combined heat and power production (CHP)-generated electrical power to the current grid, and in this context, pulse width modulation (PWM) is explained in detail. Numerous plants that make up the textile industry collectively need a substantial quantity of energy. Textile plants should prioritize increasing energy efficiency. While the average efficiency of traditional power plants is roughly 40%, the total efficiency of CHP systems is typically above 80%. Many of the issues surrounding energy consumption, such as the use of finite fuel resources, energy pricing, electrical grid congestion, and pollutant emissions, may be resolved by this incredibly efficient technique of generating energy. However, due to several barriers, such as regulations regarding the environment, rules from electric utilities, and the initial cost of purchasing CHP equipment, its current usage is restricted. The feasibility of a number of sample facilities with technical potential for CHP was then assessed through an economic analysis. The outcome demonstrates that substantial savings are achievable with CHP, with 0.53 birr/KWH and a back pay of two and a half years. However, the economics of each system are heavily reliant on other factors, such as local fuel and electricity prices and other electric utility charges. The price of birr/KWH will drop, and the issue of greenhouse gas emissions may be resolved if carbon-free fuels, such as biomass or industrial products, are utilized to power CHP power plants. Finally, the simulation of a grid-connected inverter system was carried out in MATLAB. Keywords: Combined heat and power (CHP), Pulse width modulation (PWM), Phase locked loop (PLL), three-phase inverter, distributed generation (DG)