The optimal design of hybrid power generation systems (HPGS) with diesel backup generators can significantly improve the economical and technical performance of power supply at remote locations. However, the discrete-time simulation with logical disjunctions involved in HPGS design usually leads to a nonsmooth optimization model, to which well established techniques for smooth nonlinear optimization could not be directly applied. In addition, the introduction of diesel backups requires the determination of the diesel generator's operation, which increases the size of the problem. This paper proposes a multistage optimization with complementarity constraints approach for HPGS design, which introduces a complementarity formulation of the nonsmooth logical disjunctions, as well as a multistage decomposition framework, to ensure a fast local solution. A numerical study of a stand-alone hybrid photovoltaic (PV)/wind/diesel power generation system is presented to demonstrate the effectiveness of the proposed approach.