Smart meters have ensured effective end-user energy consumption data management and helping the power companies towards network operation efficiency. However, recent studies highlighted that cyber adversaries may launch attacks on smart meters that can cause data availability, integrity, and confidentiality issues both at the consumer side or at a network operator’s end. Therefore, research on smart meter data security has been attributed as one of the top priorities to ensure the safety and reliability of the critical energy system infrastructure. Authentication is one of the basic building blocks of any secure system. Numerous authentication schemes have been proposed for the smart grid, but most of these methods are applicable for two party communication. In this article, we propose a distributed, dynamic multistage authenticated key agreement scheme for smart meter communication. The proposed scheme provides secure authentication between smart meter, NAN gateway, and SCADA energy center in a distributed manner. Through rigorous cryptanalysis we have proved that the proposed scheme resist replay attack, insider attack, impersonation attack and man-in-the-middle attack. Also, it provides perfect forward secrecy, device anonymity and data confidentiality. The proposed scheme security is formally proved in the CK—model and, using BAN logic, it is proved that the scheme creates a secure session between the communication participants. The proposed scheme is simulated using the AVISPA tool and verified the safety against all active attacks. Further, efficiency analysis of the scheme has been made by considering its computation, communication, and functional costs. The computed results are compared with other related schemes. From these analysis results, it is proved that the proposed scheme is robust and secure when compared to other schemes.