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Thermoelectric (TE) power generation technology, due to its several advantages, is becoming a noteworthy research direction. Many researchers conduct their performance analysis and optimization of TE devices and related applications based on the generalized thermoelectric energy balance equations. These generalized TE equations involve the internal irreversibility of Joule heating inside the thermoelectric device and heat leakage through the thermoelectric couple leg. However, it is assumed that the thermoelectric generator (TEG) is thermally isolated from the surroundings except for the heat flows at the cold and hot junctions. Since the thermoelectric generator is a multi-element device in practice, being composed of many fundamental TE couple legs, the effect of heat transfer between the TE couple leg and the ambient environment is not negligible. In this paper, based on basic theories of thermoelectric power generation and thermal science, detailed modeling of a thermoelectric generator taking account of the phenomenon of energy loss from the TE couple leg is reported. The revised generalized thermoelectric energy balance equations considering the effect of heat transfer between the TE couple leg and the ambient environment have been derived. Furthermore, characteristics of a multi-element thermoelectric generator with irreversibility have been investigated on the basis of the new derived TE equations. In the present investigation, second-law-based thermodynamic analysis (exergy analysis) has been applied to the irreversible heat transfer process in particular. It is found that the existence of the irreversible heat convection process causes a large loss of heat exergy in the TEG system, and using thermoelectric generators for low-grade waste heat recovery has promising potential. The results of irreversibility analysis, especially irreversible effects on generator system performance, based on the system model established in detail have guiding significance for the development and application of thermoelectric generators, particularly for the design and optimization of TE modules.