The growing economy and changing lifestyle have increased the demand for modern energy, like electricity. Globally 1.3 billion people are without access to electricity. In India, 289 million people do not have access to electricity. Decentralized distributed power generation using renewable energy is a competitive alternative for energy supply to all, with a sustainable growth. The performance of an internal combustion engine fueled with 100% producer gas was studied at variable load conditions. The engine was coupled with a 75 kW(e) power generator. Producer gas generated from a downdraft gasifier system was supplied to the engine. The overall power generation efficiency of 21% was achieved above 85% load. The power generation efficiency of the producer gas engine was estimated at variable load conditions. The influencing factors of the power generation efficiency of a producer gas engine, such as volumetric efficiency, energy density of the fuel mixture, adiabatic flame temperature, compression ratio and expansion ratio were studied in detail. A relation between volumetric efficiency, expansion ratio, compression ratio and thermal efficiency was established and verified. The efficiency of the engine estimated using the new method has a correlation coefficient of 0.99 with the efficiency estimated using the energy input and output. (C) 2013 Elsevier Ltd. All rights reserved.