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The concept of Smart Distribution Grid (SDG) and the basic elements and the requirements for implementing SDGs are introduced in this paper. Given that Distribution Automation (DA) is the foundation of a SDG, the structure and communication of DA system is discussed in the paper as well. In order to achieve the interoperability and compatibility in realization of IEC60870-5-104 protocol in the Distribution Terminal Units (DTUs), it is required that every DTU be tested before installation in China according to the Chinese industry standard. The test items and the test methods are discussed based on the SDG pilot project in Changsha Lu Valley Economic Development Zone.