The fast-paced development of power systems necessitates the smart grid (SG) to facilitate real-time control and monitoring with bidirectional communication and electricity flows. In order to meet the computational requirements for SG applications, cloud computing (CC) provides flexible resources and services shared in network, parallel processing, and omnipresent access. Even though CC model is considered to be efficient for SG, it fails to guarantee the Quality-of-Experience (QoE) requirements for the SG services, viz. latency, bandwidth, energy consumption, and network cost. Fog Computing (FC) extends CC by deploying localized computing and processing facilities into the edge of the network, offering location-awareness, low latency, and latency-sensitive analytics for mission critical requirements of SG applications. By deploying localized computing facilities at the premise of users, it pre-stores the cloud data and distributes to SG users with fast-rate local connections. In this paper, we first examine the current state of cloud based SG architectures and highlight the motivation(s) for adopting FC as a technology enabler for real-time SG analytics. We also present a three layer FC-based SG architecture, characterizing its features towards integrating massive number of Internet of Things (IoT) devices into future SG. We then propose a cost optimization model for FC that jointly investigates data consumer association, workload distribution, virtual machine placement and Quality-of-Service (QoS) constraints. The formulated model is a Mixed-Integer Nonlinear Programming (MINLP) problem which is solved using Modified Differential Evolution (MDE) algorithm. We evaluate the proposed framework on real world parameters and show that for a network with approximately 50% time critical applications, the overall service latency for FC is nearly half to that of cloud paradigm. We also observed that the FC lowers the aggregated power consumption of the generic CC model by more than 44%.
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