An integrated and optimized smart grid cannot be achieved without a secure communication network. Due to the large-scale nature of the power system, the variety of technologies used, and limitations of communication bandwidth, supervisory applications for smart grid still use weak security in many deployments. Adversaries can potentially modify measurement values or inject bad commands over the network. Novel scheme based on dynamic secrets and encryption with secret keys. The scheme generates a series of dynamic secrets over the communication network, which are used to generate secret keys for data encryption. The generation of dynamic secret is frequent and no adversary can compromise the network for a longer period, even if he/she knows a secret key. The scheme is secure against eavesdrop- ping, malicious communication injection, man-in-the-middle attack, replay attack, impersonation attack, and chosen-plaintext attack. The security analysis and performance evaluation is feasible to use in the communication between supervisory and control nodes of various smart grid applications.