The closure of lgnalina Nuclear Power Plant, impact of recent global recession of the economy, as well as changes and problems posed by the global climate change require significant alterations in the Lithuanian energy sector development. This paper describes the current status and specific features of the Lithuanian power system, and in particular discusses the role of the distributed generators. Country's energy policy during last two decades was focused on substantial modernisation of the energy systems, their reorganisation and creation of appropriate institutional structure and necessary legal basis. The most important factors stimulating development of distributed generation in Lithuania are the following: international obligations to increase contribution of power plants using renewable energy sources into electricity production balance; development of small (with capacity less than 50 MW) cogeneration power plants; implementation of energy policy directed to promotion of renewable energy sources and cogeneration. Analysis of the legal and economic environment, as well as principles of regulation of distributed generation and barriers to its development is presented. (C) 2011 Elsevier Ltd. All rights reserved.