Smart grid is an idea of upgradation of the traditional electric grid infrastructure. The efficiency of the existing electrical grid can be automated by integrating with innovative technical equipment such as: high-tech forecasting system, digital sensors, advanced two-way communication and two-way power flow systems. Smart grid establishes an interface between utility and consumer which helps to use energy, based on the preferences of price, eco-friendly and without technical system issues. It empowers the grid to be more secure, reliable and efficient. The peer-reviewed articles and published government reports have been reviewed, based on the analysis of technical characteristics of power generation systems, eco-friendly sources of power generations, cost reduction, functionality and design of traditional grid versus smart grid. Furthermore, the innovative technologies that enable the grid to integrate with decentralized power generation system efficiently have been considered. This paper claims that in this modern era, it is arduous for traditional grid to fulfill the rising demand of electricity, along with sustainable, eco-friendly and stable power supply, as it cannot be efficiently integrated with decentralized and localized power generation systems and renewable energy sources.