The cyber–physical system (CPS) architecture provides a novel framework for analyzing and expanding research and innovation results that are essential in managing, controlling and operating complex, large scale, industrial systems under a holistic insight. Power systems constitute such characteristically large industrial structures. The main challenge in deploying a power system as a CPS lies on how to combine and incorporate multi-disciplinary, core, and advanced technologies into the specific for this case, social, environmental, economic and engineering aspects. In order to substantially contribute towards this target, in this paper, a specific CPS scheme that clearly describes how a dedicated cyber layer is deployed to manage and interact with comprehensive multiple physical layers, like those found in a large-scale modern power system architecture, is proposed. In particular, the measurement, communication, computation, control mechanisms, and tools installed at different hierarchical frames that are required to consider and modulate the social/environmental necessities, as well as the electricity market management, the regulation of the electric grid, and the power injection/absorption of the controlled main devices and distributed energy resources, are all incorporated in a common CPS framework. Furthermore, a methodology for investigating and analyzing the dynamics of different levels of the CPS architecture (including physical devices, electricity and communication networks to market, and environmental and social mechanisms) is provided together with the necessary modelling tools and assumptions made in order to close the loop between the physical and the cyber layers. An example of a real-world industrial micro-grid that describes the main aspects of the proposed CPS-based design for modern electricity grids is also presented at the end of the paper to further explain and visualize the proposed framework.