Increasing production of poultry litter, and its associated problems, stimulates the need for generating useful energy in an environmentally friendly and efficient energy system, such as the use of shell-and-tube heat exchangers (STHE) in a fluidized-bed combustion (FBC) system. A holistic approach which involves the integration of the First Law of Thermodynamics (FLT) and Second Law of Thermodynamics (SLT) is required for conducting effective assessment of an energy system. In this study, the STHE designed by the CAESECT research group, which was integrated into the lab-scale FBC, was investigated to determine the maximum available work performed by the system and account for the exergy loss due to irreversibility. The effects of varying operating parameters and configuration of the space heaters connected to the STHE for space heating purposes were investigated in order to improve the thermal efficiency of the poultry litter-to-energy conversion process. Exergy and energy analysis performed on the STHE using flue gas and water media showed higher efficiency (75−92%) obtained via energy analysis, but much lower efficiency (12−25%) was obtained when the ambient conditions were factored into the exergy analysis, thus indicating huge exergy loss to the surroundings. From the obtained experimental data coupled with the simulation on parallel arrangement of air heaters, it was observed that exergy loss increased with increasing flue gas flow rate from 46.8−57.6 kg/h and with increasing ambient temperature from 8.8 °C to 25 °C. To lower the cost of STHE during final design, a larger temperature difference between the hot and cold flue gas is needed throughout the exchanger, which further increases the exergetic loss while maintaining an energy balance. In addition, this study also found the optimal conditions to reduce exergy loss and improve energy efficiency of the designed STHE. This study shows the possibility to evaluate energy systems using integration of exergy and energy analysis.