Decentralization of energy system is process of dispersing energy or redistributing energy from central location.  Currently, in the world large centralized facilities provide final form of energy from primary energy sources, such as oil refineries and power plants. These plants distribute energy over long distances which effect the overall efficiency. Depending upon different factors like health, environmental and economic etc. energy production systems are built away from the cities or near to the cities. Decentralized energy system not only fulfill rural needs but also able to provide centralized energy production in urban areas. 
According to DTI (Descon Technical Institute) decentralized energy can be defined by the technology used as electricity generated by hydro, wind, PV systems, biomass and combined heat and power generation which are renewable energy resources. Proper efficient usage of renewable energy resources and fossil is to be achieved by decentralized system with combined electrical power and heat. 
Pakistan is facing energy crises due to increase in demand, a poor management and lack of investment in our energy resources. Our energy needs depends upon oil and gas. We have to import about 30% energy in the form of crude oil, coal, LPG etc. 
For decentralized energy distribution and production involves three main components, these are:
1) Energy storage
2) Transmission and distribution
3) Distributed generation
To shift Pakistan’s energy system into decentralized state we have to face the challenges and proper management for distribution of energy to the system. The main barriers for decentralized state are:
1) Upgrading of energy infrastructure
2) Excess production
3) Storage capacity of energy
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• Centralized power stations that are inefficient and more polluting environment with CO2 emission should be closed
• Fossil fuels that contains cogeneration should be allowed.
• At each district there should be main power station.
• Small renewable units should be installed at rural areas and big units near to the cities.
• As solar power is main component of decentralized energy so main solar systems should be installed at each small city.
• Solar streets and roads lights should be installed.
• Biomass units should be installed in rural areas.
• Hydro systems capacity to be increased by investing with other countries.
Benefits of decentralized system reduces overall demand by enhancing energy, Ingresses number of resources, reduces financial risks and creates job opportunities. It provides a clean and reliable energy and thus to increase the economic growth.