In this paper linear programming optimisation procedure based on energy flow optimisation model (EFOM) is proposed for evaluating the contribution of distributed-generation (DG) production and energy-efficiency actions. The proposed methodology details exploitation of primary energy sources, power and heat generation, emissions and end-use sectors. The model framework has been enhanced to include a description of DG contributions and energy-efficiency improvements. In particular, a detailed description of the power grid has been made to take account of different voltage levels in electricity production and energy demand. The presence of mandatory energy-saving targets in the civil sector is considered under suitable constraints. By timing to reduce environmental impact and operational costs, the following optimisation process provides feasible generation settlements between large-scale generation and DGs, and optimal diffusion of energy-efficiency technologies. The proposed methodology is applied to a realistic energy system. (C) 2007 Elsevier Ltd. All rights reserved.