Australians should be rewarded for turning down their heaters and air-conditioners during extreme weather, Resources and Energy Minister Martin Ferguson says.
Mr Ferguson said managing peak demand was one of the biggest challenges facing the energy sector, with one-sixth of the nation's network infrastructure being used only four days a year.
"We need metering and tariff structures to allow consumers to be rewarded for reducing their demand at these peaks and to mitigate the need for inefficient builds," Mr Ferguson told a business lunch in Perth on Friday.
About 25 per cent of retail electricity costs in the national electricity market were derived from peak events that occurred for less than 40 hours per year, he said.
"This is clearly an inefficient utilisation of capital, with resulting consequences for energy bills," he said.
Directing consumption away from peak times could reduce the need for expensive additional networks.
He said consumers were now more aware of the reasons behind higher electricity and gas costs and people were being compensated for the carbon tax if they deserved it.
Mr Ferguson predicted that the nuclear power debate would be reinvigorated as Australia's energy needs change.
He added that government ownership was the biggest barrier to greater investment in Western Australia's energy infrastructure.
"It is crowding out private players who do not have the certainty that government policy won't change and adversely affect them," Mr Ferguson said.
In the absence of effective competition, prices had risen by 57 per cent or $520 per household since 2008.
"I firmly believe the best means of meeting efficient pricing objectives is to allow the market to operate and make investment decisions on the basis of return on investment."