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With the increasing use of distributed energy (DE) systems in industry and its technological advancement, it is becoming more important to understand the integration of these systems with the electric power systems. New markets and benefits for DE applications include the ability to provide ancillary services, improve energy efficiency, enhance power system reliability, and allow customer choice. Advanced power electronic (PE) interfaces will allow DE systems to provide increased functionality through improved power quality and voltage/volt-ampere reactive (VAR) support, increase electrical system compatibility by reducing the fault contributions, and flexibility in operations with various other DE sources, while reducing overall interconnection costs. This paper will examine the system integration issues associated with DE systems and show the benefits of using PE interfaces for such applications.