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The idea of smart grid is currently receiving much attention. However, there are differences in understanding of concept of smart grid and in how this concept should be implemented. Moreover, there is no clear agreement, worldwide, on what a power grid must include in order to be considered as smart grid. The fact is that with a growing demand for reliable and sustainable power supply, there is a need for smarter grid applying new technologies and tools to work more efficiently, more reliable with affordable maintenance, with ability to accommodate more renewable energy sources, to reduce consumers carbon footprint and etc. The main objective of this paper is to review the characteristics and associated weaknesses of traditional grids and to highlight the opportunities and challenges that smart grid technologies can provide to make grid capable of working far more efficiently. A further objective of this paper is to present result of a study conducted on dynamic electricity pricing model, which links the electricity price with electricity consumption and can be used for homes and businesses.