Abstract-A cost optimization scheme for a microgrid is presented. Prior to the optimization of the microgrid itself, several schemes for sharing power between two generators are compared. The minimization of fuel use in a microgrid with a variety of power sources is then discussed. The optimization of a small power system has important differences from the case of a large system and its traditional economic dispatch problem. Among the most important differences is the presence of a local heat demand which adds another dimension to the optimization problem. The microgrid considered in this paper consists of two reciprocating gas engines, a combined heat and power plant, a photovoltaic array and a wind generator. The optimization is aimed at reducing the fuel consumption rate of the system while constraining it to fulfil the local energy demand (both electrical and thermal) and provide a certain minimum reserve power. A penalty is applied for any heat produced in excess of demand. The solution of the optimization problem strongly supports the idea of having a communication infrastructure operating between the power sources.