Distributed generation units are desirable from an environmental point of view but also have an impact on the costs of electricity grids at the distribution and transmission level. Therefore, investment planning has to consider all benefits and costs of DG to build DG sources at sites where they are economically efficient. Unfortunately, this is not an easy task in an unbundled industry where distribution and generation of electricity are not planned by one single institution. For this reason, this article analyses possible policy options for giving incentives to distributed generation and focuses on the long-term investment signals related to DG. (C) 2009 Elsevier Ltd. All rights reserved.