A smart meter generally refers to a type of advanced meter (usually an electrical meter) that identifies consumption in more detail than a
conventional meter; and optionally, but generally, communicates that information via some network back to the local utility for monitoring and billing
The term smart meter typically refers to an electrical meter, but the term is beginning also to be seen applied to the measurement of natural gas and water consumption.
Similar meters, usually referred to as interval or time-of-use meters, have existed for years, but Smart Meters usually involve a different technology mix, such as real-time or near real-time sensors, power outage notification, and power quality monitoring. These additional features are more than simple automated meter reading (AMR). They are similar in many respects to advanced metering infrastructure (AMI) meters. Smart meters are also believed to be a less costly alternative to traditional interval or time-of-use meters and are intended to be used on a wide scale with all customer classes, including residential customers. Interval and time-of-use meters are more of a legacy technology that historically have been installed to measure commercial and industrial customers, but typically provide no AMR functionality. Smart meters may be part of a smart grid, but alone do not constitute a smart grid.
Since the inception of electricity deregulation and market-driven pricing throughout the world, government regulators have been looking for a means to match consumption
with generation. Traditional electrical meters only measure total consumption and as such provide no information of when the energy was consumed. Smart meters provide an
economical way of measuring this information, allowing price setting agencies to introduce different prices for consumption based on the time of day and the season.
Electricity pricing usually peaks at certain predictable times of the day and the season. In particular, if generation is constrained, prices can rise significantly during these times as more expensive sources of power are purchased from other jurisdictions or more costly generation is brought online. It is believed that billing customers by how much is consumed and at what time of day will force consumers to adjust their consumption habits to be more responsive to market prices. Regulatory and market design agencies hope these "price signals" will delay the construction of additional generation or at least the purchase of energy from higher priced sources, thereby controlling the steady and rapid increase of electricity prices.