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The smart grid moves new power grid automation systems from being proprietary and closed to the current state of information technology (IT) which is highly interconnected and open. But open and interconnected automation platforms bring about major security challenges. The power grid automation network has inherent security risks due to the fact that the systems and applications for the power grid were originally designed without much consideration of cybersecurity. This paper first introduces scope and functionalities of power grid, its automation and control system, and communications. Potential cyberattacks and their adverse impacts on power grid operation are discussed, a general SCADA cyberattack process is presented. This paper discusses the major challenges and strategies to protect smart grid against cyberattacks and finally proposes a conceptual layered framework for protecting power grid automation systems against cyberattacks without compromising timely availability of control and signal data. The proposed “bump-in-the-wire” approach also provides security protection for legacy systems which do not have enough computational power or memory space to perform security functionalities. The on-site system test of the developed prototype security system is briefly presented as well.