Today there is a great need for alternative new energy sources at cheaper development prices than those required from a traditional power plants. The renewable generation technologies are and will become both cheaper and more beneficial for our environment than other traditional means of productions. As Renewable Energy Generation technologies advance, it is important that Power Systems Engineers investigate carefully the Smart Grid and specially the Islanded Microgrid. Microgrid System Design Solutions that seek zero Emissions are more important as pollutants from traditional plants contribute to the contamination of the environment. In this thesis we use a Systems Engineering approach to design and analyze a typical Islanded Microgrid in order to seek zero emission Microgrids at the lowest possible cost. This study designs the Microgrid as a Smart Grid; we use and follow the design by considering engineering Standards from NIST and IEEE. Then we develop initial Microgrid System design and architecture. The System then is Analyzed and simulated in HOMER. Finally, a Tradeoff analysis is performed to search design variations and their effect on system cost as well as on environmental emissions.