Customers should be charged less when demand for electricity is low, and be updated in real time of when they can take advantage of cheap power, the Federal Government's energy advisor says.

Key points: The Federal Government energy adviser calls for a "grid of the future" that can handle the flow of renewables

The Federal Government energy adviser calls for a "grid of the future" that can handle the flow of renewables The Australian Energy Market Commission warns of the billons needed to replace poles, wires and substations

The Australian Energy Market Commission warns of the billons needed to replace poles, wires and substations It comes as regulators warn about the risk of blackouts with ageing coal-fired stations closing

It has also warned time is running out for Australia's energy grid to be revolutionised to pass on better returns to customers generating their own power, and that solar panels are now so popular the grid has hit capacity.

Australian Energy Market Commission's (AEMC) new report, which investigated how the energy grid could handle an influx of renewables, says Australia is at risk of being locked into an outdated and inefficient system unless change is made.

It says that leaves energy providers and governments with a stark choice: spend billions of dollars on poles and wires to keep the current grid going, or engage in a complete re-think of the way the grid works.

"Not making these sorts of reforms and starting now [sets] ourselves up for a repeat of the sort of experience of driving large amounts of investment in hard infrastructure, which flows through to high prices," AEMC chairman John Pierce said.

"There are serious choices to be made. To keep building traditional infrastructure and passing on those costs to consumers or get on with the job of implementing reforms."

The report says companies should charge customers less during off-peak times, and let customers know when they can tap into savings by posting real-time updates online or on an app.

Energy grid needs to reflect energy future

The report stated traditional infrastructure was expensive and only used for a few hours each year to service peak demand.

It argued a better solution would be to introduce flexible pricing, where customers could reduce their bills by waiting to use energy-sucking appliances like heaters and air conditioners, or charge their electric cars, when electricity was in less demand.

It would also offer incentives for households to feed excess energy from household batteries back to the grid when it is needed most.

"Flat tariffs are failing to give consumers the incentive to charge batteries or electric vehicles at times that reduce both energy bills and the load on the grid," Mr Pierce said.

He said a reworked grid should be seen as a "trading platform" where customers could draw power, inject it back in or even trade it with one another.

It also recommended allowing customers to supply energy to community projects like a shared battery, dubbing it the "energy grid of the future".

"Failure to act now would mean either fewer people are able to export solar to the grid, or all consumers will pay more to build new substations and poles and wires that are rarely needed," Mr Pierce said.