In this work a parametric cost–benefit analysis concerning the use of distributed generation (DG) technologies for isolated systems, such as in the case of Cyprus is carried out. In particular, the potential market and the different technologies of various DG options are presented and a parametric study is carried out with variations in capital cost of the various candidate DG technologies. The results are compared on a cost–benefit basis and indicate that small gas turbines have higher production costs than internal combustion engines and that wind energy can be a competitive alternative to internal combustion engine (or to a small gas turbine) provided the capital cost is less than 1000 € / kW (with a wind turbine capacity factor of 18%). Fuel cells using hydrogen from natural gas reforming can be a competitive alternative to photovoltaic systems for all the range of capital cost examined. The most expensive option is the use of green hydrogen in fuel cells.