The effects of fuel blends containing 5, 10 and 15 wt.% of anhydrous ethanol in diesel oil with 7% of biodiesel (B7) on performance, emissions and combustion characteristics of a diesel power generator are investigated. The engine was tested with its original configuration, with the fuel blends directly injected into the combustion chamber, and the applied load varied from 5 to 37.5 kW. The results were compared with standard B7 operation, and showed that in in-cylinder peak pressure and heat release rate were decreased at low loads and increased at high loads with the use of ethanol. Increasing ethanol concentration caused increased ignition delay, decreased combustion duration and reduced exhaust gas temperature. The use of ethanol decreased carbon dioxide (CO2) emissions, up to 8.6% lower than B7. Carbon monoxide (CO), total hydrocarbons (THC) and oxides of nitrogen (NOX) emissions showed different behavior, depending on load and ethanol concentration.