The basic concepts of temperature measurement in power transformers and underground power cables using fiber optic gratings are introduced. The economic benefits of continuous temperature measurements are discussed. The problems encountered in high density applications, i.e. using many sensors in the same power transformer, is identified as the resolution limitation due to comparatively large bandwidth of optical filters used. The deconvolution technique has been proposed as a possible solution to improve accuracy and resolution. The fundamental ideas are illustrated by giving results of a laboratory prototype using twelve measurement points. The prototype has a capacity to employ up to 30 gratings for each phase of a power transformer, connected to the same measuring unit using an optical multiplexer.