Battery rebates are paying for kilowatt-hours, not outcomes

Western Australian households can now stack two battery subsidies. The federal Cheaper Home Batteries Program takes a discount off the upfront price of an eligible battery, and the state's Residential Battery Scheme adds a rebate on top for households that sign up to a virtual power plant. On paper it is a generous package. In practice, the way both schemes are built rewards the size of the battery rather than whether it suits the household, and that is where public money starts to leak.

Start with what the schemes are meant to achieve. Batteries are supposed to soak up cheap midday solar and release it in the evening peak, when demand is highest and the grid is under most pressure. A battery that does that every day, in a home that actually uses the stored energy, is good for the household and good for the system. A battery that is twice the size it needs to be, half-empty most evenings, is a much poorer use of a subsidy.

Now look at how the federal discount is calculated. It is paid per kilowatt-hour of usable capacity. Since May the rate has been tiered: the full rate applies to the first 14 kWh, 60 per cent of it to capacity between 14 and 28 kWh, and 15 per cent between 28 and 50 kWh. At current certificate prices, a 10 kWh battery attracts a discount of roughly $2,600. A 20 kWh battery attracts about $4,500.

The tiering was a sensible correction. Before it, very large batteries were collecting very large discounts. But the first 14 kWh still earns the full rate, and that is the range in which most households are deciding what to buy. Nothing in the federal scheme asks whether a household needs 14 kWh, or 8, or 20. The subsidy scales with the box on the wall, not with the household's evening demand.

That design shapes behaviour. When every extra kilowatt-hour comes with a discount attached, the sales conversation naturally drifts upward. "It's only a bit more after the rebate" is a powerful line, and it is often true in the narrow sense. The household pays a bit more, the taxpayer pays a lot more, and the extra capacity may sit idle for much of the year.

The timing of the scheme adds to the pressure. The federal discount steps down on 1 January 2027 and keeps falling every six months until the end of 2030. Step-downs are a reasonable way to wind a subsidy back as prices fall, but they also create deadlines, and deadlines are a gift to anyone selling. A household told to "lock it in before Christmas" is not being encouraged to sit down with a year of power bills and work out what size actually suits it.

The state scheme takes a different, and in one respect better, approach. It pays $130 per kWh in the Synergy network, capped at $1,300, with higher rates for Horizon Power customers in regional WA. It requires a minimum of 5 kWh of usable capacity, caps eligible capacity at 10 kWh, and makes enrolment in a virtual power plant mandatory. The cap limits the incentive to oversize, and the VPP condition gives the grid something in return: the ability to call on the battery during peak events.

The federal scheme requires the battery to be VPP-capable, but it does not require the household to join a VPP. So the larger of the two subsidies buys capacity that the grid has no guaranteed access to, while the smaller one buys capacity the grid can actually use. Two schemes funding the same battery, built on two different theories of what the money is for.

None of this is an argument against subsidising batteries. Home storage can take pressure off evening peaks, make better use of rooftop solar and give households some protection from rising tariffs. The question is whether the money is buying those outcomes or just buying kilowatt-hours.

A better-targeted design would not be hard to build. Three changes would go a long way.

First, tie the subsidy to a sizing assessment. Many WA homes now have smart meters that record, half-hour by half-hour, how much power the household uses after the sun goes down. Requiring the installer to size the battery against twelve months of that data, and capping the subsidised capacity at what the data supports, would cut oversizing without cutting genuine support.

Second, pay part of the subsidy for performance rather than capacity. A smaller upfront discount, with the balance paid over the first few years for energy actually delivered during peak windows, would reward batteries that do the job the scheme exists for. The VPP rewards that already exist show the metering and payment systems can handle it.

Third, line the two schemes up. If the policy goal is peak reduction and grid support, the federal scheme should carry the same expectation of participation that the WA scheme already does, or at least give households a clear reason to opt in.

Australians are being asked to fund a very large rollout of home batteries. That is a reasonable thing to ask if each battery is sized to the home it sits in and does useful work for the grid. It is much harder to justify if the scheme simply pays more for bigger boxes. The rebates have done their job in getting people interested. The next step is making sure the money buys the outcomes it was meant to.