Fuel cell is an environmental friendly cogeneration system with the capability of producing electricity and thermal energy. Thermal energy emitted during the production of electricity can be used to meet the heating loads. The purpose of this study is to analyse the feasibility of the fuel cell based system to be used in Malaysia. The cost effectiveness of using cogeneration system was compared to the conventional grid energy system. Two models of grid-independent and cogeneration system are developed and simulated using HOMER® software to determine the energy required meeting the hourly average electric and thermal loads of the residence. These two models were simulated with and without battery pack options to optimize the utilization of electricity generated by the fuel cell system. The results include a comparison between the energy used in cogeneration systems and the conventional residential energy system. Comparisons of the life cycle cost and the payback period of the cogeneration system to the conventional residential energy systems were also presented. The results indicate that cogeneration systems can reduce the primary energy use by 30–40%.