Abstract: In this study, optimal placement of UPFC is proposed based on the sensitivity analysis and evolutionary programming technique. The guidance for the selection of the location of UPFC is made according to the sensitivity analysis performed on the transformer model of UPFC. From the point of view of operational planning, this analysis is superior when compared to the others as this analysis gives the best possible installation location. As the screening technique for locating UPFC is made on the sensitivity analysis and evolutionary programming, computation time for determining optimal location of UPFC is greatly reduced. On selection of the location of UPFC, performance of UPFC in reducing the generation cost is analysed using the evolutionary programming technique and the coding was done using matlab. The effectiveness of the proposed algorithm is tested and illustrated on IEEE 9 bus system.