Due to the complex configuration and control framework, the conventional microgrid is not cost-effective for engineering applications with small or medium capacity. A stand-alone modular microgrid with separated AC bus and decentralized control strategy is proposed in this paper. Each module is a self-powered system, which consists of wind and solar power, a storage battery, load and three-port converter. The modules are interconnected by three-port converters to form the microgrid. Characteristics, operation principle, control of the modular microgrid and the three-port converter are analyzed in detail. Distributed storage batteries enable power exchanges among modules to enhance economic returns. Economic dispatch of the stand-alone modular microgrid is a mixed-integer programming problem. A day-ahead operation optimization model including fuel cost, battery operation cost, and power transmission cost is established. Because there are so many constraints, it is difficult to produce a feasible solution and even more difficult to have an improved solution. An improved simplified swarm optimization (iSSO) method is therefore proposed. The iSSO scheme designs the new update mechanism and survival of the fittest policy. The experimental results from the demonstration project on DongAo Island reflect the effectiveness of the stand-alone modular microgrid and the economic dispatch strategy based on the iSSO method.