Some electricity users in South Australia and Victoria will get paid to cut their power use during periods of high demand next summer under a program to better manage the energy grid.

The Australian Renewable Energy Agency and the Australian Energy Market Operator will spend $22.5 million over the next three years to fund the pilot program beginning in January 2018.

It will allow consumers to voluntarily reduce their power use during extreme weather or unplanned outages to avoid the need for extra fossil-fuel power generation.

ARENA chief executive Ivor Frischknecht said the demand response scheme would help Australia's transition to renewable energy.

"We need to find new, smarter ways of coping with spikes in demand and volatility as we move towards an electricity system with more variable renewable energy supply," he said in a statement on Friday.

"Instead of building a power plant that is only switched on a few hours or days a year, demand response will allow us to reduce energy consumption during peak demand while also reducing energy costs and emissions for consumers. It's a win-win.

The program wants to secure 100 megawatts of demand response capacity by next summer and hopes to increase that in subsequent years.

How much consumers, both residential and commercial, will be paid for cutting back their power use is yet to be determined.

But those who subscribe to the scheme will receive an initial payment and then another payment when called on to switch off or cut their electricity use.

Australian Energy Market Operator chief executive Audrey Zibelman said similar demand response programs were common in other countries.

"The simplest way to encourage people to use less energy at short notice is to provide a financial incentive," Ms Zibelman said.

AAP

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