This paper demonstrated an optimal hybrid system with diesel generator (DG), photovoltaic (PV), micro-hydro and energy storage system (ESS) for an indigenous village located at the rural area using HOMER Pro software. This paper study the cost of electricity of a standalone hybrid system for an indigenous village by modeling the load profile, solar irradiation, and streamflow of the site. According to the local electric utility company, the maximum demand of the rural resident house is 1.5kW. To meet the maximum demand, a hybrid system with DG, PV, micro-hydro, and ESS is required. However, it is difficult to transport diesel fuel to the village because it is located in the remote area in the forest. Hence, an alternative solution is to allow a certain percentage of capacity shortage to reduce the maximum demand. The COE of the hybrid system with a capacity shortage of 0%, 10%, 20%, 30%, 40% and 50% are RM0.586, RM0.432 RM0.388, RM0.381, RM0.325 and RM0.293 respectively. Elimination of the DG from the hybrid system results in a lower COE, zero emission of carbon dioxide and the transportation of diesel fuel. It is found that the electrification for the village has a cost of electricity lower than the utility electricity cost when the capacity shortage more than 20%.