Standalone diesel generating system utilized in remote areas has long been practiced in Malaysia. Due to highly fluctuating diesel price, such a system is seemed to be uneconomical, especially in the long run if the supply of electricity for rural areas solely depends on such diesel generating system. This paper would analyze the potential use of hybrid photovoltaic (PV)/diesel energy system in remote locations. National Renewable Energy Laboratory's (NREL) HOMER software was used to perform the techno-economic feasibility of hybrid PV/diesel energy system. The investigation demonstrated the impact of PV penetration and battery storage on energy production, cost of energy and number of operational hours of diesel generators for the given hybrid configurations. Emphasis has also been placed on percentage fuel savings and reduction in carbon emissions of different hybrid systems. At the end of this paper, suitability of utilizing hybrid PV/diesel energy system over standalone diesel system would be discussed mainly based on different solar irradiances and diesel prices. (C) 2010 Elsevier Ltd. All rights reserved.