The aim of this paper is to present a new method for the allocation of new generation capacity, which takes into account fault level constraints imposed by protection equipment such as switchgear. It simulates new generation capacities and connections to other networks using generators with quadratic cost functions. The coefficients of the cost functions express allocation preferences over connection points. The relation between capacity and subtransient reactance of generators is used during the estimation of fault currents. An iterative process allocates new capacity using optimal power flow mechanisms and readjusts capacity to bring fault currents within the specifications of switchgear. The method was tested on a 12-bus LV meshed network with three connection points for new capacity and one connection to an HV network. It resulted in significantly higher new generation capacity than existing first-come-first-served policies.