The on-line performance monitoring of a heat exchange process using water and steam, which is one of the key components of distributed energy supply systems, has been developed on the basis of a theoretical model. By using a steady-state model of the heat exchanger, this performance monitoring first estimates output process variables and heat exchange performance of the heat exchanger in response to the variation in measured input process variables. These estimated values are then compared with the measured ones for the on-line performance monitoring. Its effectiveness under transient state has been confirmed by the numerical analysis. The results confirm the sufficiency of the estimation accuracy of the output process variables and heat exchange performance under transient state and the detection capability of the deterioration of the heat exchange performance in a short period.