In this chapter, a bottom-up energy system optimization model is extended and enhanced to assist the decision making for the sustainable use of energy in the local area, while accounting for both supply-side (distributed generation) and demand-site (energy efficiency) measures. By aiming to reduce total system cost (or environmental emissions), the optimization model can provide feasible generation settlements between utility energies and distributed generations, as well as optimal diffusion of energy efficiency measures. As an illustrative example, a residential area is employed for analysis. The simulation results suggest that the combination of distributed generation and energy efficiency measures may result in better economic, energetic and environmental performances.