Big energy users paid for reducing demand

Big energy users look set to be rewarded for reducing their power usage during peak periods, under a plan to prevent summer blackouts.

The energy market rule-maker has released a draft version of its so-called "demand response mechanism" for public consultation.

Demand response is when consumers reduce their electricity use at peak times to avoid shortfalls and forced blackouts.

But under the new proposal, non-retailers would be allowed to apply the practice to the wholesale market for the first time.

The Australian Energy Market Commission idea focuses on commercial and industrial electricity users, not households and smaller energy customers.

AEMC chairman John Pierce said big energy users would be able to sell power they don't use back into the grid, through a new commercial third-party provider.

"This puts demand response on equal footing to generation for the first time," Mr Pierce said.

"Because we are allowing demand response to set prices in the wholesale market, more expensive generation may be likely to be pushed to the back of the queue."

The AEMC will trial the program for several months and make a final decision by the end of this year.

Although the increased uptake of solar power is changing the nature of household use, peak demand is typically between 3pm and 7pm.

Supply usually tightens after prolonged high temperatures.

The commission says commercial and industrial consumers are well placed to alleviate stress on the power system.

The rule change was requested by the Public Interest Advocacy Centre, Total Environment Centre and the Australia Institute.

In a joint statement the groups praised the proposal, saying it will be important for the reliability of the power system as coal-fired power plants retire.

Energy Minister Angus Taylor said such a change would complement the government's work in giving consumers more control over their power usage.

"Consumers that work together will have improved negotiating power and will get a better deal - that's an important change," he said.

The Australian Energy Council - representing 23 major power companies - welcomed the proposal, saying the next challenge was to ensure accurate measurements.

Consumer watchdog Rod Sims says it's a vital reform for the energy market which will make the system more efficient and lead to lower power bills.