Smart metering generally involves the installation of an intelligent meter at residential customers and the regular reading, processing and feed back of consumption data to the customer.

A "smart" meter has the following capabilities:

• real-time or near-time registration of electricity use and possibly electricity gener-ated locally e.g., in case of photovoltaic cells;
• Offering the possibility to read the meter both locally and remotely (on demand);
• remote limitation of the throughput through the meter (in the extreme case cutting of the electricity to the customer)
• interconnection to premise-based networks and devices (e.g., distributed generation)
• ability to read other, on-premise or nearby commodity meters (e.g., gas, water).

Usually, a smart meter is considered for registry of electricity and gas use, but also water consumption registration is a possibility.                                                                                                                                                                           
The 'intelligence' of the meter is incorporated in the electricity meter. It has three basic functions: measure the electricity used (or generated), remotely switch the customer off and remotely control the maximum electricity consumption. The electricity meter communicates by means of a modem. An important characteristic is the communication infrastructure used by the smart meter for this communication.

Amongst the possibilities are:

• Power Line Carrier (PLC, using the existing electricity grid);
• a wireless modem (GSM of GPRS) or an existing permanent internet connection (ADSL).

An interface connects the smart meter to home appliances or a home display. Appliances can be controlled directly and the display can be used to show (historic) energy data and energy cost.

A smart meter is a logical successor of the mechanical electricity meter, just as the pick-up, the dial phone and the typewriter are replaced with digital, more intelligent alternatives.