Distributed generation (DG) systems are gaining popularity because they generate electricity closer to the point of consumption. This reduces transmission and distribution losses and enhances system reliability. For the efficient and cost-effective use of these systems, optimal sizing and siting of DGs is crucial. This paper introduces a Water Flow Optimization (WFO)-based method for the optimal placement and sizing of DG systems capable of injecting both active and reactive power simultaneously. This study assesses both the technical and economic facets of the system, taking into account power losses and the comprehensive annual economic costs, including capital investment, deployment, operation, and maintenance. A significant aspect of this research is the DG units’ capability to enhance voltage and minimize losses, factoring in the reactive power tariff. The findings show that the WFO method surpasses other optimization techniques, such as particle swarm optimization, whale optimization algorithm, genetic algorithm and gray wolf optimization. Furthermore, the study emphasizes the cost advantages of injecting reactive power. The minimum annual economic losses (AEL) recorded in this study are $19,207 and $13,852 for IEEE-33 and IEEE-69 bus systems, respectively. In comparison, for DGs only injecting active power, the AEL increases to $24,749 and $41,381 for the corresponding systems.
