Midland, Texas is one of the fastest-growing urban population centers in the country and has one of the lowest costs of electricity. This study aims to assess the potential of a grid-connected carbon-neutral community in an oil-rich city using energy efficiency measures and hybrid distributed generation (DG) systems. The community consists mostly of residential buildings including detached homes and apartment buildings. Moreover, a cost-optimization analysis of various DG technologies is carried out to meet both electrical and thermal loads of the community in Midland. The energy efficiency measures are selected for two main objectives: (i) reduce the total energy needs and (ii) electrify most of the buildings within the community. Improvement of heating, ventilating, and air conditioning systems and their controls are the main energy efficiency measures considered for all the buildings part of the community. DG systems are constrained by the renewable energy resources identified to be prevalent within the site of the community. It is found that photovoltaic (PV) systems are the most cost-effective, while wind and combined heat and power (CHP) would not be competitive compared to the current grid energy prices. Specifically, the optimization results indicate that PV, when implemented on a large scale, can provide adequate power to meet the energy needs of the community while also meeting carbon neutrality. A PV system size of 3400 kW is found to be required for the grid-connected community to be carbon neutral. While under this scenario a 100% reduction in carbon emissions is technically feasible, the cost of energy is estimated to be $0.194/kWh, almost double the current grid electricity price. However, if the capital cost of PV is decreased by 70% from its current level, the cost of energy due to the DG addition can be reduced significantly. In particular, a 1050-kW PV system was found to reduce the cost of energy below the grid electricity price of $0.10/kWh and achieves 31% reduction in carbon emissions for the community. Moreover, the 70% reduction in PV capital costs allows the carbon-neutral design for the community to be a cost-competitive solution with the grid.