Big energy users look set to be rewarded for reducing their power usage during times of peak demand under a proposal to prevent summer blackouts.

The Australian Energy Market Commission on Thursday released a draft version of its 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 AEMC plan, non-retailers would be allowed to apply the practice to the wholesale market for the first time by July 2022.

The proposal 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 their demand reduction into the grid, through a new commercial third-party provider.

“This puts demand response on equal footing to generation for the first time,” he 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.”

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

Tight supply for demand usually occurs after prolonged high temperatures.

AEMC says commercial and industrial consumers are well placed to provide demand response in windows of peak demand, in order to alleviate stress on the power system.

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.

“It is difficult to set accurate baselines, which are critical, and to minimise the added costs to settlement arrangements with new third-party demand response providers becoming involved in the market settlements,” the council said.

Consumer watchdog chair 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.

“It is encouraging to see this important measure being progressed by the AEMC,” he said.