AbstractRecent deployment of distributed generation has led to a revolution in distribution systems and the emergence of “smart grid” concepts. The smart grid mainly intends to facilitate integration of renewable energy sources and to achieve higher system reliability and efficiency. Different distributed generation types found in modern distribution systems can be classified into two main categories: intermittent- and dispatchable-based distributed generation; the latter has a unique capability of enabling successful islanding operation, thus improving system reliability. This article proposes a methodology for allocating dispatchable distributed generation units in distribution systems to economically improve system reliability. Distributed generation installation and operation costs are to be optimized against the reliability value, expressed as customers’ “willingness to pay” (WTP) to avoid power interruptions. Therefore, the main goal of this research work is to determine the optimal combination betw...