The availability of renewable energy sources along with the advancement of sensing and communication technologies has resulted in the sustainable operation of modern energy systems. An intelligent grid system is the integration of sensors and actuators, which enables the system to connect and exchange energy-related data from renewable sources to a computer system and end-users in a communication network. This data can be monitored in real-time with the help of the Internet of Things (IoT). However, several challenges exist in IoT, such as security, bandwidth management, interfacing interoperability, connectivity, packet loss, and data processing. In this paper, the key challenges and outstanding issues with the IoT when incorporated with energy systems are reviewed. The objective of this paper is to assess the suitability of different data transfer and communication protocols of IoT for deployment in the modern grid system. Moreover, several wireless IoT communication technologies are compared for their suitability in the multilayer network architecture and applications of energy systems.