Increased energy demands due to rapid industrialization, environmental concerns with fossil fuel-based generation, diminishing fossil energy resources, transmission network congestion, and technical performance deterioration are the motivations behind the integration of small renewable distributed generation (DG) units and turning the existing power systems into a restructured one. Optimizing the technical benefits offered by DG placement is a well-known challenge for distribution network operators (DNOs) for both fossil and renewable energy resource-based DGs, but renewable DG systems have several power quality (PQ) challenges associated additionally. Power quality is a very significant characteristic of renewable DG systems because today's loads are more sensitive to PQ disturbances and penetration of renewable energy as well as nonlinear loads is proliferating in distribution power networks. So the need for innovative power quality improvement (PQI) techniques becomes inevitable due to ongoing reformation in traditional distribution networks by the integration of renewable energy. This article presents a comprehensive analysis of power quality challenges with grid integration of renewable DG systems and current research status of associated mitigation techniques. Firstly, this paper puts emphasis on theoretically illustrating all the crucial power quality challenges associated with grid integration of renewable energy, and secondly, a thorough survey, of all PQI techniques introduced till date, is elaborated along with highlighting the opportunities for future research. Furthermore, all the crucial power quality issues, the impact of high penetration of renewable energy and mitigation techniques on power quality, are demonstrated also by simulating a grid integrated PV-based DG system in MATLAB/Simulink. This article is believed to be very beneficial for academics as well as industry professionals to understand existing PQ challenges, PQI techniques, and future research directions for renewable energy technologies.