The operation of steam generators and thermal power plants is commonly evaluated on a basis of energy analysis. However, the real useful energy loss cannot be completely justified only by the First law of thermodynamics, since it does not differentiate between the quality and amount of energy. The present work aims to give a contribution towards identification of the sources and magnitude of thermodynamic inefficiencies in utility steam generators. The work deals with a parallel analysis of the energy and exergy balances of a coal-fired steam generator that belongs to a 315 MWe power generation unit. The steam generator is designed for operation on low grade coal-lignite with net calorific value 6280 to 9211 kJ/kg, in a cycle at 545 °C/177.4 bar, with feed water temperature 251 °C, combustion air preheated to 272 °C and outlet flue gas temperature 160 °C. Since the largest exergy dissipation in the thermal power plant cycle occurs in the steam generator, energy, and exergy balances of the furnace and heat exchanging surfaces are established in order to identify the main sources of inefficiency. On a basis of the analysis, optimization of the combustion and heat transfer processes can be achieved through a set of measures, including retrofitting option of lignite predrying with flue gas and air preheating with dryer exhaust gases.