The integration of distributed generation (DG) into the power grid has increased in recent years due to its techno-economic benefits for utilities and consumers. However, due to the fact that distribution systems were not originally designed to accommodate such DG units, many challenges are being faced by utilities to seamlessly integrate them into their systems. One of the critical challenges is their effect on protection system settings and coordination. The DG units will affect the pickup current settings of the protection relays, coordination between the primary and secondary relays, and even the direction of the fault current. Failing to consider DG’s effect on the protection system may lead to serious equipment damage or system failure, causing huge financial setbacks for utilities. To that end, this work proposes a new dynamic approach to optimally allocate different types of DG units over the planning horizon. The objective is to minimize the overall costs of the system while taking into consideration the intermittent nature of renewable DG and the impacts on the protection system. Simulation results have been developed on a typical distribution system to prove the effectiveness of the proposed approach.