In order to reduce the need of information exchange between nodes in smart grid and reduce the power generation cost and user consumption cost of smart grid, a distributed optimization algorithm based on timevarying topology is proposed to find the optimal solution of economic scheduling problem.Based on the related theory of graph theory, the information exchange between the nodes is expressed by timevarying undirected graph, and economic dispatch problem is simplified by the idea of smooth exact penalty function. The inequality constraint in optimized problem is integrated into objective function so that a new optimization problem only containing equality constraint is obtained, and the optimal value is received through adjusting parameter value. Because this algorithm considers the capacity constraint of each node, it has better universality in practical application. In addition, it is proved that all nodes reach the optimal solution together when the global objective function takes the minimum value. Finally, the validity and feasibility of this algorithm are verified by the example.