This study presents a novel microgrid optimal scheduling strategy, which considers the degradation of distributed generators (DGs). DGs affected by degradation exhibit reduced generation efficiency and capacity. Operating the microgrid without consideration of these impacts increases operating and management costs and reduces reliability and stability. To overcome this problem, we developed a new optimal scheduling strategy that considers the degradation of DGs. This study focuses on a permanent magnet synchronous generator, which is widely used as DGs recently, and on the degradation of stator insulation, which is one of the most frequently occurring forms of degradation. The reduction in performance caused by insulation degradation is analyzed using finite element analysis and is integrated into the optimal scheduling strategy. We demonstrate that the proposed strategy operates a microgrid more economically through a reduction of total operating costs, achieved by adaptively accounting for the increase in operating costs and the reduction of capacity arising from degradation. In addition, the sudden shutdown of a DG can be prevented by predicting its remaining useful life and incorporating it into the optimal scheduling strategy. The effectiveness and feasibility of the proposed strategy are confirmed using various case studies.INDEX TERMS Distributed generator, generator degradation, microgrid, optimal scheduling, remaining useful life estimation. NOMENCLATURE b ESS charging/discharging efficiencies. N g ,N r ,N b ,N l number of dispatchable DGs, renewable DGs, ESSs and loads.