A hybrid energy system comprising the diesel generator (DG), photovoltaic (PV) panels, and battery bank is well suited for installation as a decentralized power generation system for the electrification of remote rural households in the developing countries. This paper proposes a new methodology for the components sizing of hybrid energy system based on the optimization of the power dispatch simulations. The optimization of the power dispatch with the operation of hybrid system is implemented by minimizing the cost of energy (COE) with consideration to the capital depreciation cost, fuel cost, emissions damage cost and maintenance cost. A hybrid system applicable to Alaminos, Philippines was studied using the proposed methodology. The simulation results show that the proposed sizing search method can lead to the convergence of the optimal objective solutions with reduction to its computational load. Two sizing solutions for the hybrid energy system are presented. The optimized power dispatch schedules and cost compositions of COE are analyzed in detail. (C) 2013 Elsevier Ltd. All rights reserved.