Abstract: A cogeneration system that is particularly suited to residential use comprises an internal combustion engine, preferably diesel, coupled to a generator, preferably of the induction type. The generator and the engine are thermally isolated from each other so that the engine can run hotter (and thus more efficiently) without adversely affecting the generator. A supplemental electric heater supplies additional heat when the thermal output of the engine is insufficient. A dual stage controller for the heater controls its operation for enhanced efficiency. A generator controller enables the generator to serve the additional function of starting the engine when heat is called for, thus obviating a separate starting motor and related equipment. The system provides a high operating efficiency.