A combined flow-based and a marginal cost approach for identifying and quantifying costs-benefits for distributed generators is presented in this paper. The proposed methodology quantifies the interconnection benefits from a distributed generator in terms of total avoided costs. A fuel cell distributed generator is considered for the analysis and for describing the methodology. The transfer distribution factors (TDFs) which depend on the network topology for a given power network are used to quantify the locational benefits. These TDFs are used to calculate the incremental flow changes due to the distributed generator. The marginal capacity and energy costs are used to quantify the avoided costs due to deferred capacity expansion benefits, avoided energy costs and avoided transmission/distribution losses. The approach could also be used to compare and contrast different interconnection points for a fuel cell from a cost-benefit stand point for a utility.