An advanced cogeneration system based on biomass direct combustion was developed and its feasibility was demonstrated. In place of the traditional single heat source (extraction steam), the extraction steam from the turbine, the cooling water from the plant condenser, and the low-pressure feedwater from the feedwater preheating system were collectively used for producing district heat in the new scheme. Hence, a remarkable energy-saving effect could be achieved, improving the overall efficiency of the cogeneration system. The thermodynamic and economic performance of the novel system was examined when taking a 35 MW biomass-fired cogeneration unit for case study. Once the biomass feed rate and net thermal production remain constant, an increment of 1.36 MW can be expected in the net electric production, because of the recommended upgrading. Consequently, the total system efficiency and effective electrical efficiency augmented by 1.23 and 1.50 percentage points. The inherent mechanism of performance enhancement was investigated from the energy and exergy aspects. The economic study indicates that the dynamic payback period of the retrofitting project is merely 1.20 years, with a net present value of 5796.0 k$. In conclusion, the proposed concept is validated to be advantageous and profitable.