We develop a framework to assess and quantify the sustainability and reliability of different power production scenarios in a regional system, focusing on the interaction of microgrids with the existing transmission/distribution grid. The Northwestern European electricity market (Belgium, France, Germany and the Netherlands) provides a case study for our purposes. We present simulations of power market outcomes under various policies and levels of microgrid penetration, and evaluate them using a diverse set of metrics. This analysis is the first attempt to include exergy-based and reliability indices when evaluating the role of microgrids in regional power systems. The results suggest that a power network in which fossil-fueled microgrids and a price on CO2 emissions are included has the highest composite sustainability index. (C) 2011 Elsevier Ltd. All rights reserved.