The paper deals with analysis and optimization of the performance of the combustion process in a biomass furnace at a biomass cogeneration plant. For the purpose a thermodynamic model for the biomass burning process in a grate furnace was developed. The mathematical model describes both, the thermal decomposition of the fuel on the grate as well as gas phase combustion in the secondary zone. The presented approach is based on energy equations for each individual step of the biomass combustion process.Measurement results from a biomass-fired cogeneration plant were used to validate the model. Comparison between simulation and measurement results shows good agreement. The model predicts accurately the temperature profiles in the combustion chamber.The presented approach is suitable for model based analysis and optimization of control strategies. The developed model was used to optimize the performance of the recirculation system of the combustion appliance. The simulation based analysis showed, that the flow rate of the recirculated exhaust fumes can be significantly reduced which results in energy savings of 17% of the auxiliary electrical power demand.