Australia needs to prepare the ground for a two-sided national energy market, where consumers are rewarded for buying and selling energy in real time, according to the Australian Energy Market Commission.

In a new discussion paper to be released on Thursday, the AEMC says technology has previously limited consumer participation in the energy grid but the advent of smart devices and virtual power plants has created the opportunity for a fully fledged two-sided market.

Comparing the opportunity in energy with disruptive platforms such as eBay or Airbnb, the AEMC chairman, John Pierce, says “digitalisation has progressed to the point where it is time to consider a completely new approach”.

He says the Australian Energy Market Operator knows how much generation to expect from scheduled generators, but now attention needs to turn to virtual power plants which households are creating through solar PV and local battery storage.

As well as creating incentives for households to invest in smart appliances and distributed energy infrastructure, Pierce says there is opportunity to utilise more demand management in the system, because batteries, pool pumps, air conditioners and electric vehicles can be set to consume power off peak and export power back to the grid at times when that is most remunerative.

The commission has already released a draft rule for a demand-response mechanism allowing large commercial and industrial users to sell forsaken demand directly into the wholesale market for the first time. The rule would put demand response on an equal footing to generation for the first time, with energy users paid as if they are generators.

Pierce says the Australian energy market is already in the process of becoming more decentralised. The grid is transitioning away from centrally controlled, big generators dominating the market.

“Looking to the future – both the demand and supply sides of the energy market would be actively engaged in electricity scheduling and dispatch processes – while delivering all the services people expect like hot water, air-con and dishwashing,” the AEMC chair says.

“Less generation and network capacity would be needed in a market with higher levels of consumer participation and responsiveness. Decisions to consume or not to consume would be valued digitally through any device that’s connected to the internet and remotely controlled.

“Then all you will need are price signals to automatically switch your household or business power plant from grid import to export and back again delivering the services you want at least cost. It would also be cheaper for streets and suburbs to share local generation resources and storage devices.”

The AEMC paper will be released to contribute to market design work being undertaken by the Energy Security Board, with reform options expected to be pursued in 2020.