This paper deals with the impact of policy decisions on optimal microgrid design. A generic system is considered consisting of solar photovoltaics, wind turbine, microturbines, electric boiler, gas-fired boiler, and a battery bank. The microgrid is grid-connected and designed to supply both heat and power. An optimal design is found to minimize the cost of energy supply over a 20 year lifespan. The optimal design is analyzed under a variety of policy scenarios such as emission taxation, emission reduction, and minimum system autonomy. (c) 2015 Elsevier Ltd. All rights reserved.