Application of individual distributed generators can cause as many problems as it may solve. A better way to realize the emerging potential of distributed generation is to take a system approach which views generation and associated loads as a subsystem or a "microgrid". During disturbances, the generation and corresponding loads can separate from the distribution system to isolate the microgrid's load from the disturbance (providing UPS services) without harming the transmission grid's integrity. This ability to island generation and loads together has a potential to provide a higher local reliability than that provided by the power system as a whole. In this model it is also critical to be able to use the waste heat by placing the sources near the heat load. This implies that a unit can be placed at any point on the electrical system as required by the location of the heat load.