The application of a decomposition methodology to the synthesis/design optimization of a stationary cogeneration proton exchange membrane (PEM) fuel cell system for residential applications is the focus of-this paper Detailed thermodynamic, economic, and geometric models were developed to describe the operation and cost of the fuel processing subsystem and the fuel cell stack sub-system. Details of these models are given in an accompanying paper by the authors. In the present paper the case is made for the usefulness and need of decomposition in large-scale optimization. The types of decomposition strategies considered are conceptual, time, and physical decomposition. Specific solution approaches to the latter namely Local-Global Optimization (LGO) are outlined in the paper Conceptual/time decomposition and physical decomposition using the LGO approach are applied to the fuel cell system. These techniques prove to be useful tools for simplifying the overall synthesis/design optimization problem of the fuel cell system. The results of the decomposed synthesis/design optimization indicate that this system is more economical for a relatively large cluster of residences (i.e. 50). Results also show that a unit cost Of power production of less than 10 cents/kWh on an exergy basis requires the manufacture of more than 1500 fuel cell sub-system units per year Finally, based on the off-design optimization results, the fuel cell system is unable by itself to satisfy the winter heat demands. Thus, the case is made for integrating the fuel cell system with another system, namely, a heat pump, to form what is called a total energy system.