The conventional method of electric power generation in diesel power plants involves running of a generator directly coupled to an engine which releases exhaust gases at high temperature to the atmosphere. This is wasteful as recoverable heat energy is wasted to the environment through exhaust heat and the engine cooling and lubrication system. In this, a study performance analysis was done to determine the performance of the 120 MW Kipevu III power plant and feasibility of developing a cogeneration plant using a Rankine cycle steam turbine with exhaust gas boiler for waste heat to steam conversion. It was established that about 10 MW extra electric power can be generated by developing a Rankine cycle cogeneration plant from the combined 119.7 MW Kipevu III diesel engine power plant hence 8.4% extra electric power. This will lead to dual benefit more power output and hence revenue, reduced impact on the environment by avoiding use of extra oil to generate up to 8 MW power and reduced cost of power because of lower specific fuel generation and profits on fuel energy consumed.  Therefore, cogeneration is a more efficient use of fuel in diesel engine power plants with financial, energy and environmental benefits