Abstract- this paper proposes the most feasible configuration of  solar PV system with diesel generator  as back up for hypothetical rural school electrification around Arbaminch town(6.0333° N, 37.5500° E) in southern region of Ethiopia. Integration of PV systems with the diesel plants is being disseminated worldwide to reduce diesel fuel consumption and to minimize atmospheric pollution and the proposed simulation has be done to assure that the PV-Diesel hybrid system is Economically and technically feasible for Ethiopia as well.   The proposed system can supply daily energy demand of 50kWh / day with 11kW peak   for 24 hour. Technical and economic analysis of the optimum system has been done to compare economic viability of solar photovoltaic     ( PV)/ gen/battery  hybrid power   system with that of  standalone diesel generator only system. For analysis purpose HOMER simulation software has been used and meteorological data of solar insulation of the site has been taken from Online data of NASA . To incorporate uncertainty in solar radiation and diesel fuel price , both are taken as sensitivity variable in simulation. The costs of components are taken from online site of manufactures and equipment suppliers and adjusted to Ethiopian price value. The result of simulation  shows that solar PV system with Generator  backup is more cost effective and environmental friendly over the conventional diesel generator alone system with in life time of the project.