The federal government in July launched the Cheaper Home Batteries Program, an ambitious $2.3 billion initiative aimed at making battery storage more affordable.
Since then, households, businesses, and community organisations have been able to receive an upfront discount of approximately 30% on the cost of installing a battery system.
To qualify, the battery must be installed alongside a new or existing solar PV system. Batteries that operate independently from solar PV – those that only store electricity from the grid – are not eligible. The intention is to store excess solar energy generated during sunny days and use it to cover peak evening electricity needs.
Eligible on-grid battery systems (including their inverters) must be technically capable of participating in a Virtual Power Plant (VPP), however, signing up to a VPP is not mandatory under the scheme.
Electricity system context
The Australian Energy Market Operator (AEMO) has flagged growing concerns as rooftop solar uptake continues to rise, driving down minimum system demand each year.
Networks, particularly in South Australia and Queensland, are working on technical solutions to manage the operational impacts of this influx of distributed energy. It makes sense to have additional batteries to store the excess energy and smooth out demand rather than use emergency backstop mechanisms to curtail solar output.
AEMO’s 2024 Integrated System Plan (ISP) paints a vision of the future electricity system that’s heavily dependent on rooftop solar and coordinated distributed storage. By 2031, the system would have 8 gigawatts (GW) of installed capacity from distribution system storage.
When more generation and storage happens within local distribution networks, the need for massive utility-scale renewables and new transmission lines decreases – a win, considering the mounting challenges of social license, rising costs, and planning approval bottlenecks.
Energy Networks Australia (ENA) estimated that increasing generation and storage within the distribution systems could save customers $160 per year and collectively more than $7 billion in overall system costs per year by 2030.
Expected storage capacity compared to AEMO assumptions
Early signs are promising, with a surge in uptake since the subsidy scheme began. If this pace keeps up, the program could use up its allocated funding by FY2026, contributing approximately 4 GW and 6.5 GWh of storage capacity.
Overall, these are positive signs, though meeting dispatchable capacity targets is proving trickier. The 2024 ISP Step Change scenario assumes that by 2030, more than 50% of consumer energy resource (CER) storage will be dispatchable, either through VPPs or similar arrangements.
AEMO sees visibility and dispatchability as critical to managing the system and reducing unnecessary costs of spinning reserve. This is also a key recommendation of the NEM Review’s Draft Report. Coordinated CER can also provide value to consumers through access to wholesale and ancillary services markets.
In reality, current VPP participation rates are below 20%, and consumer enthusiasm is “lukewarm”, due to a preference for independence and a lack of familiarity with unconventional retail offers.
Even AEMO recognises this challenge. Its Inputs, Assumptions and Scenarios Report (IASR) for the 2026 ISP has reduced the expectations for controllable (aggregated) embedded storage, now estimating 32% VPP participation by 2030 and just over 50% by 2050 in their ‘Step Change’ scenario.
Figure 1 (power in GW) and Figure 2 (storage in GWh) show the 2024 ISP and 2025 IASR assumptions for 2030-31 compared to a “Fast Uptake, Low VPP” scenario reflecting the current rush of subsidised battery installations and only 15% VPP participation.
In 2030-31, the “Fast Uptake, Low VPP” scenario is more than 1 GW short in both total CER power capacity and dispatchable (“coordinated”) power capacity compared to the 2025 IASR and well over 3 GW short compared to the 2024 ISP assumptions. The gap is even larger when looking at total storage capacity.
This emphasises the importance of encouraging storage dispatchability in addition to installed capacity.
Policy observations
Boosting embedded storage is undoubtedly a positive move, but as always, the devil is in the detail.
Inevitably, AEMO, retailers, or network operators will need some level of control, which may not sit well with consumers – much like the backlash we’ve seen over solar export curtailment and charges.
To encourage more people to join VPPs in future, additional incentives will likely be needed, pushing up the effective cost of the scheme.
VPP uptake could be increased by linking subsidies to participation, such as in NSW and WA, however, consumers aren’t locked in to these schemes forever and will exit VPPs if the consumer experience isn’t positive. There are many stories of consumers being unhappy with how VPPs have managed their equipment, despite receiving upfront subsidies.
Another limitation is the scheme’s restriction to premises with solar PV. This is unnecessary and shuts out consumers who can’t afford solar panels or don’t have the roof space but could still benefit from cheap daytime electricity stored in batteries. With appropriate pricing, there’s no need to differentiate between storing your own excess solar or your neighbour’s.
Next Steps
Battery storage is a vital piece of infrastructure, but there’s still plenty of work ahead. The government and industry should aim to avoid repeating the solar PV experience, where rapid adoption created challenges that utilities and policymakers are still reacting to today.
The next focus area should be on building an electricity system that rewards the operation of these new batteries in ways that support the network and keep costs down for everyone. That’s likely to involve:
– Increasing consumer engagement and providing more transparency;
– Helping the public better understand how CER can both impact and benefit the broader electricity system;
– Extending subsidies and opening them up to households without solar;
– Developing more flexible retail and VPP offerings, as well as distribution tariffs, to suit a wide range of consumer preferences and deliver consumer value that will encourage long-term participation.
In summary, the Cheaper Home Batteries Program is a welcome step forward, but to unlock its full potential, a more engaging approach will be needed.
Jarrad Rosser is a principal consultant at CutlerMerz
