We are moving from a highly-centralized to a more decentralized energy system relying on more distributed generation, energy storage and a more active involvement of consumers through demand response. The present study makes an assessment of the status quo of decentralized energy systems, both in terms of technological developments and the legislative and policy framework. The analysis then discusses the current technical, economic and policy challenges and barriers facing decentralized energy production. Finally recommendations are provided in terms of the EU legislative and policy framework; infrastructure issues; R&D, investments and technological developments; monitoring and coordination of Member States incentive schemes; and SME support measures. IP/A/ITRE/ST/2009-16 JUNE 2010