Nowadays, due to economic development of the country the electrical energy demand of Ethiopiarnincreases by 30% yearly. But in order to satisfy customers’ power demand the planning and expansion ofrnpower must be done using a proper load forecasting method. rnrnThis thesis is focused on demand forecasting of Bishoftu town and distribution expansion planning ofrnBishoftu substation II with the help of distributed generation. Historical energy demand data, historicalrnenergy growth rate, economic growth rate and distribution system’s reliability related data were assessedrnfrom Ethiopian electric power corporation and Bishoftu city administration. To forecast the load fromrn2019 to 2029 extrapolation simulation approach is applied. From the results of demand forecasting, it isrnfound that the energy demand and peak demand in 2028 will be 2,005,457.41 MWH and 401.64 MWrnrespectively. But the existing peak demand of the town is 54.7MW and the current total capacity of therndistribution system is 43.8 MW. The existing distribution network cannot meet not only the future demandrnbut also the existing demand. So, improving the reliability of the existing system with the help ofrndistributed generation is required to expand the system and to meet the future demand. The Substation hasrnencountered frequent power interruptions. The interruptions are caused mainly by short circuit (SC),rnearth fault (EF) and planned outages for operation and maintenance purpose. The substation’s SystemrnAverage Interruption Frequency Index (SAIFI) and System Average Interruption Duration Index (SAIDI)rnare 199.92ints/yr and 264.22hrs/yr respectively. The reliability of the substation does not meet thernrequirements set by Ethiopian Electric Agency (EEA) which set (SAIFI =20 int/yr and SAIDI= 25hrs/yr). rnrnThen three feeders of Bishoftu substation-II are selected for connecting DG due to high frequency andrnlong duration of interruptions. Distributed generation is a generation of an electric power close to thernload which has resources like mini hydro, photovoltaic Array (PV), fuel cells, wind generators and micrornturbines. In this thesis, microturbine is selected based on availability of the resource, cost factors, andrnutilization area. The size of single DG is 3.71MW but the total capacity of DG 11.13MW is fed to the gridrnas backup when there is an interruption. A simulation study for reliability analysis is carried out usingrnDigSilent software. With the presence of DG, the simulation result shows that the reliability indicesrnimproved SAIFI by 65.16% and SAIDI by 75.62%.