A grid-independent micro-combined heat and power system supplies heat and electricity to a building or a small number of buildings and can operate completely independently of a central-type electrical power grid. The system includes a variable speed liquid-cooled engine and a liquid-cooled generator that is configured to output an electrical supply of between approximately between 0.5 kW and 40 kW, a coolant loop, and a water circuit. The coolant loop heats a liquid using claimed heat from the genset to heat water that can be utilized as a domestic hot water source for cooking or cleaning or for a hot water source for heating. The speed of the engine may be controlled to control the output of the genset to meet prevailing electrical loads. The system may be part of a microgrid incorporating several such systems that are in electrical communication with one another and that collectively supply electrical power and heat to from a few buildings to about one hundred buildings.