Businesses, households offered incentives to turn down air conditioning

Rebates will be offered to businesses and households which cut their power usage in times of peak demand under new government trials.

Rebates will be offered to householders who turn down their air conditioning in peak periods. (AAP)

Businesses and households will be offered rebates on their power bills if they agree to turn down their air conditioning, temporarily switch off pool pumps and reduce use of industrial equipment in times of extreme demand.

The federal government on Wednesday announced it is providing $28.6 million to trial projects across Victoria, South Australia and NSW.

The NSW government is chipping in an extra $7.2 million to help fund state-based initiatives.

The 10 projects are expected to make 143 megawatts available to the grid when needed this coming summer - about one-seventh of the shortfall the Australian Energy Market Operator has warned could be looming.

Thousands of households will be sent text messages asking them to do things like switch off their air conditioners and consider using a barbecue instead of electric cook-tops in exchange for incentives such as rebates on their power bills, gift vouchers or movie tickets.

Other households and offices will have "smart" thermostats installed to control heating and cooling systems, reducing their energy use during peak times.

Adelaide company Intercast & Forge has installed sophisticated energy systems that allow it to power down its furnaces when needed.

Asking users to change their behaviour, known as demand response, has largely been absent from Australia's energy sector apart from some requests to large industrial users but it will be an important part of the future grid stability.

AEMO head Audrey Zibelman says it's widely misunderstood.

"It is not saying we want people to be uncomfortable and we are going to tell people to sweat in their homes and turn off their lights. That's exactly what we're avoiding," she told reporters in Sydney.

"It's actually just getting smarter about using energy, just as we got smarter about using water and therefore making it efficient and cheaper."

Energy Minister Josh Frydenberg said demand response had been proven to work around the world and, importantly, it was voluntary.

"The point here is we want the lowest cost solution and building new power stations may not always be that solution," he told reporters.