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Smart meters record consumption in intervals of an hour or less and communicate that information at least daily through a communications network back to the utility for monitoring and billing purposes. Smart meters enable two-way communication between the meter and the central system.

Smart
Meters

Since the inception of electricity deregulation, 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 are 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. 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.

In May 2009, the of the UK government unveiled plans for smart meters to be installed in every home by the end of 2020. The projected cost of fitting approximately 22 million gas and 26 million electricity meters was estimated at £7 billion. While the government considers the domestic requirements for smart metering, corporate and business users are being serviced by companies who provide advanced innovative metering to monitor their electricity usage and wastage.

Of all smart meter technologies, one critical technological problem is communication. Each meter must be able to reliably and securely communicate the information collected to some central location. Rural utilities have very different communication problems from urban utilities or utilities located in difficult locations such as mountainous regions or areas ill-served by wireless and internet companies.

What is a Smart Grid?

The function of an electrical grid is not a single entity but an aggregate of multiple networks and multiple power generation companies with multiple operators employing varying levels of communication and coordination, most of which is manually controlled. Smart grids increase the connectivity, automation and coordination between these suppliers, consumers and networks that perform either long distance transmission or local distribution tasks.

Local networks traditionally moved power in one direction, distributing the power to consumers and businesses. This paradigm is changing as businesses and homes begin generating more wind and solar electricity, enabling them to sell surplus energy back to their utilities. Modernization is necessary for energy consumption efficiency, real time management of power flows and to provide the bi-directional metering needed to compensate local producers of power. Although transmission networks are already controlled in real time, many in the US and European countries are antiquated by world standards, and unable to handle modern challenges such as those posed by the intermittent nature of alternative electricity generation, or continental scale bulk energy transmission.