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Thermoelectric generator (TEG) is a promising technology for low-grade heat recovery, whereas the scalability of TEGs remains challenging. Modular design with an ideal thermal design provides a potential solution for large scale application of TEG system in harvesting low-grade thermal energy. In this paper, a concept of modular design with a compact thermal design was proposed for the cold and hot sides of TEG system. A compact heat exchanger was fabricated by using diffusion welding technique for the TEG system. The inlet and outlet of the heat exchanger are designed with a tapering geometry to achieve a uniform fluid flow and temperature distribution among the flow channels, and the inlets of the hot-side heat exchangers and the outlets of cold-side heat exchangers can be arranged at the same side to realize a counter-flow thermal design. With the design of compact heat exchanger, the modularization assembly of a TEG system can be achieved and the TEG system can be scaled up by alternately arranging hot- and cold-side heat exchangers. To evaluate the TEG performance with current design, a single unit with five TEG modules was tested at various temperature differences. Despite that a thermoelectric conversion efficiency of 1.64% was obtained at a temperature difference of 96.4 °C, the unit exhibited a high volumetric power density (86.4 kW/m3) and a negligible power consumption (0.64% of the total power output). Furthermore, the measurements were also carried out to evaluate the temperature distribution across the contacting surface of the heat exchanger and the flow resistance between inlet outlet of the heat exchanger. A low temperature variation (