Smart Grids are evolving as the next generation power systems that involve changes in the traditional ways of generation, transmission and distribution of power. Advanced Metering Infrastructure (AMI) is one of the key components in smart grids. An AMI comprises of systems and networks, that collects and analyzes data received from smart meters. In addition, AMI also provides intelligent management of various power-related applications and services based on the data collected from smart meters. Thus, AMI plays a significant role in the smooth functioning of smart grids. AMI is a privileged target for security attacks as it is made up of systems that are highly vulnerable to such attacks. Providing security to AMI is necessary as adversaries can cause potential damage against infrastructures and privacy in smart grid. One of the most effective and challenging topic's identified, is the Key Management System (KMS), for sustaining the security concerns in AMI. Therefore, KMS seeks to be a promising research area for future development of AMI. This survey work highlights the key security issues of advanced metering infrastructures and focuses on how key management techniques can be utilized for safeguarding AMI. First of all, we explore the main features of advanced metering infrastructures and identify the relationship between smart grid and AMI. Then, we introduce the security issues and challenges of AMI. We also provide a classification of the existing works in literature that deal with secure key management system in AMI. Finally, we identify possible future research directions of KMS in AMI.