Businesses and households will be offered rebates on their power bills if they agree to turn down their air conditioning and other equipment in times of extreme demand.
The Turnbull 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.
They will involve installing remote monitoring and control equipment in commercial and industrial businesses - such as cold storage - to curb energy use during extreme peaks in demand, such as during a heat wave.
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.
During February's heatwave, the ACT government encouraged people to reduce their power consumption to help ease demand with some success.
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 is widely acknowledged as a necessary part of the future grid stability.
Meanwhile, a pair of economists have called for the government to take another look at whether its international commitments to reduce emissions will be too tough for Australia's economy.
Fred Hilmer and Gary Banks have told The Australian it could be a good thing to have blackouts in Sydney and Melbourne this summer to focus political minds and have queried whether claims about the capacity of new batteries and storage to act as back-up to renewables have been exaggerated.
