At present there is a huge gap between the demand and supply of electrical energy and is still growing at higher rates. This ever increasing demand of electricity supply cannot be fulfilled by existing power generating units. Moreover, large network of single power supply has the disadvantage of high cost and operation difficulty. In this paper, the concept of distributed generation is analyzed for future distribution networks. Distributed generation is a concept of small-scale electric power generation that is operated and installed near to the customer's site.