This paper develops a novel demand side management (DSM) approach to incorporate in optimal sizing of solar photovoltaic (PV), wind turbine (WT), and battery storage (BS) for a standalone household. The DSM strategy is based on the state-of-charge level of battery and day-ahead forecasts of solar insolation and wind speed. The core of the DSM is a fuzzy logic method which decides for efficient load shifting and/or load curtailment. The day-ahead forecasting errors, obtained by an artificial neural network technique, are considered not only in the DSM strategy but also in maintaining an operating reserve. The battery capacity degradation is calculated using the Rainflow counting algorithm to obtain a realistic battery model and estimate its lifetime. A typical household in South Australia (SA) is considered as a case study. Three different configurations (PV-BS, WT-BS, and PV-WT-BS) of the electricity supply system are optimized using the proposed method. It is found that the PV-WT-BS system is the best configuration that provides the lowest cost of electricity for both with and without applying the proposed DSM strategy. Comparison of the results of the best system configuration with an actual system in SA and two recently published articles indicates that the proposed method is very effective in lowering the electricity cost with zero-emission.