Fuel cells for domestic purposes have been recently launched in the commercial markets of Japan. They comprise fuel cell stacks, fuel processors that generate hydrogen from natural gas, heat recovery equipment, and hot-water tanks. These systems do not require additional infrastructure and can influence consumer acceptance, however, there are limitations in terms of efficiency and flexibility. This paper proposes the implementation of a regional hydrogen energy interchange network among energy consumers for the interchange of energy comprising hydrogen, electricity, and heat (hot water) in residential areas. In order to achieve an efficient and flexible operation of the network, the fuel processors should be separated from the fuel cell stacks. In addition to the proposed concept, a concrete design of the system for a group of eight homes was presented. The effect of the system on CO2 mitigation and cost reduction for the homes was analyzed using a mathematical model. The outcomes of various cases where the number of fuel cells and fuel processors were varied with or without energy interchange were compared. The result of this analysis revealed that the proposed system contributes simultaneously to the improvement of both the objectives. (c) 2006 International Association for Hydrogen Energy. Published by Elsevier Ltd. All rights reserved.