A distributed energy system refers to an energy system where energy production is close to end use, typically relying on small-scale energy distributed technologies. It is a multi-input and multi-output energy system with substantial energy, economic and environmental benefits. However, distributed energy systems such as micro-grids in residential applications may not be able to produce the potential benefits due to lack of appropriate system configurations and suitable operation strategies. The optimal design, scheduling and control of such a complex system are of great importance towards their successful practical realization in real application studies. This paper presents a short review and an energy systems engineering approach to the modeling and optimization of micro-grids for residential applications, offering a clear vision of the latest research advances in this field. Challenges and prospects of the modeling and optimization of such distributed energy systems are also highlighted in this work. (C) 2013 The Institution of Chemical Engineers. Published by Elsevier B.V. All rights reserved.