Microgrids (MGs) are essential in the distribution system by utilizing widely dispersed generation sources. Due to their economical and environmentally friendly attributes, Islanded AC MGs are commonly used to supply electricity to isolated locations independent of the primary grid. This study focuses on optimizing the configuration of an islanded AC MG to meet the electrical requirements of an international school in the New Administrative Capital, New Cairo, Egypt. Hybrid Optimization of Multiple Energy Resources (HOMER) software is employed to obtain the optimal size of the sources in the MG by minimizing the Levelized Cost of Energy (LCOE) and Total Net Present Cost (TNPC). According to the HOMER simulation results, a 200 kW PV system, a 180-kW wind turbine, a 50 kW FC, a 50 kW electrolyzer, a 50 kg hydrogen tank, a 180 kW DG, and a 686-kWh lead-acid battery form the optimal configuration of the islanded AC MG. The results reveal the contribution of each energy component to meeting the electricity demand, yielding an LCOE of $0.153/kWh and a TNPC of $1,775,300.00. The dynamic performance of the islanded microgrid is examined, introducing a Model Reference Adaptive Control based PI controller (MRAC-PI) to enhance transient response across all operational conditions. A comparative analysis is performed against traditional PI-PSO and PI-WOA controllers under load variations and changing weather conditions. The results indicate that the proposed control strategy effectively maintains system frequency and voltage amid various disturbances, improves dynamic performance, and achieves a balanced power generation and load demand. Additionally, the proposed controller demonstrates superior dynamic response, featuring reduced overshoot, undershoot, ITAE, and settling time compared to the others.