The rapid growth of power demand and urbanization needs a quality and reliable power supply system. On the other hand, the existing passive distribution network and high cost of power transmission from generation can’t meet the fast-growing power demand. The weak performance of the utility like high power interruption and poor voltage profile affect the living standard of individual consumers which are the most serious problems of Ethiopian power distribution system. This type of problem can be minimized by integrating optimally allocated renewable distributed generation (RDG) with the existing distribution system. Optimal allocation and sizing of DG can be determined by applying particle swarm optimization (PSO) for multi-objective function using MATLAB software. The significant process is how to minimize the power loss, reduce power interruption and improve the voltage profile of distribution systems. The power losses and voltage profile evaluation are done based on a power flow method of forward-backward for radial distribution networks. The reliability indices of the network like SAIDI, SAIFI, and EENS are evaluated using ETAP software. The proposed method is tested at Gihon 25-bus feeder of Bahir Dar distribution system. The results of this research show that appropriate sizing and placement of solar based DG improves the performance of the distribution system. The minimum voltage is improved from 0.9256p.u to 0.955p.u.Integrating DG with distribution system reduces the real power loss by 83.8%. And also, the integration of DG decreases SAIDI from 286.628hr/cus.yr to 81.175hr/cus.yr which reduces the power interruption duration by 71.67%. The SAIFI decreases from 61.395f/customer.yr to 18.14f/customer.yr and this determines the reliability of the system that gives continuous service for its end-users which is 70.46% reliability improvement. The EENS due to power interruption minimized from 407.08MWh/yr to 110.232MWh/yr which is 296.848MWh/yr unserved energy before installation of DG. The proposed solution is able to save 649,591.06 ETB per year from the unsold energy of one feeder only with 3.01years payback period of investment.