Abstract The aim of this paper is to present a novel method to dispatch the active generation power properly in the power system while incorporating fault current levels as constraints for the optimization problem. Due to the limited capacity of protective devices such as circuit breakers, allocating active power without considering fault current levels can probably lead to fault currents exceeding the rating of these devices. Hence restricting the fault current levels to an allowable amount while minimizing a specified objective function seems to be necessary. In a number of cases even the appropriate allocation of active power is not able to reduce the fault current levels to the permitted amount therefore using fault current limiters (FCL) is unavoidable. In this paper also a planning scheme is presented for the location and sizing of fault current limiters and the effect of fault current limiters on the objective functions is investigated.