This study uses optimization modeling to study efficient ways to integrate renewable energy systems to provide electricity and heat in rural Japan. The model provides minimum cost system configuration and operation taking into account hour-by-hour energy availability and demand. Grid electricity is available to rural areas of Japan, but it is relatively expensive. Local renewable energy generation can be economic while using grid electricity to compensate for the intermittency of the renewable generation. In the model, renewable electricity can be provided by a combination of wind, photovoltaic, and biomass. Heat can be provided by petroleum, LPG, and geothermal heat pumps (GHPs). We find that due to the relatively high cost of grid electricity, there is significant penetration of wind generation. In turn, the penetration of wind creates economic conditions that encourage GHP penetration. The integrated renewable system reduces the annual cost of the entire system by 31% and reduces the carbon emissions by 50%. (C) 2003 Elsevier Ltd. All rights reserved.