When thermoelectric generator (TEG) modules are attached to a rectangular chimney plate for venting hot flue gases, the power generated per unit surface area (power density) is strongly dependent on the TEG module spacing. The thermoelectric module consists of a hot plate, a spreader, a thermoelectric generator and a cold plate based on water cooling. In this study, the optimization of TEG module spacing and its spreader thickness as used in a waste heat recovery system is investigated and solved numerically using the finite difference method along with a simplified conjugate-gradient method. The power density for a thermoelectric module is the objective function to be maximized. A search for the optimum module spacing (S) and spreader thickness (Hsp), ranging from 40 mm < S < 300 mm and 1 mm < Hsp < 30 mm, respectively, is performed. The effects of different operating conditions, including the temperature difference between the waste gas and the cooling water (ΔT = 200–800 K), and effective waste gas heat transfer coefficients (hh = 20–80 W/m2 K) are discussed in detail. The predicted numerical data for the power vs. current (P–I) curve are in good agreement (within 8%) with the experimental data. ► We provided a 3D numerical model of a TEG module used in a waste heat recovery system. ► The effects of temperature difference and waste gas heat transfer coefficients were investigated. ► The power density for a TEG module is the objective function to be maximized. ► The numerical data are in good agreement (within 8%) with the experimental data. ► The optimum TEG module spacing and spreader thickness are strongly dependent on the waste gas heat transfer coefficient.