US tech giant Tesla is receiving taxpayer-funded subsidies for household batteries it sells in an Australian green energy scheme despite claims the devices can short-change consumers and undermine the grid at times of stress.

Energy industry observers have queried the New South Wales government's decision to make Tesla's batteries eligible under a scheme that started on November 1, even though they are not "interoperable", or compatible, with other companies' products.

The program, known as the Peak Demand Reduction Scheme, provides rebates of up to $2,400 a battery.

At the time of its announcement in May, NSW Energy Minister Penny Sharpe said the scheme would help to slash consumers' bills while boosting the reliability of the electricity system.

But experts say the inclusion of products made by Tesla — owned by the world's richest man, Elon Musk — can "negate" those goals because of restrictions the company puts on products it sells in Australia.

They say the company has the ability to make its battery products interoperable but disables this capability in Australia.

Tesla, which in 2020 disbanded its public relations departments, was contacted for comment.

Not talking to anyone

Tim Ryan, a consultant specialising in technology and energy, said more and more household electrical devices from solar panels to air conditioners and heat pumps were fitted with smart tech that made them compatible with other devices.

Mr Ryan said such tech allowed the devices to be coordinated and controlled remotely by hardware and software platforms known as home energy management systems.

By allowing these devices to be controlled remotely, households could get lucrative benefits by providing services to the grid during periods of volatility — either by selling power when demand was high or using more when there was excess supply.

Consumers could either do these things themselves or through so-called virtual power plants, in which thousands of consumers' clean tech — such as batteries — was used to prop up the grid.

However, Mr Ryan said Tesla's batteries could not be controlled by anyone other than Tesla or a third party — such as a big retailer like AGL or Origin — with which it had a deal.

He said this meant households with Tesla products — such as its Powerwall battery — could miss out on valuable payments.

What's more, he said Tesla's batteries could not communicate with other smart devices that might be in a customer's homes because they were closed within the company's proprietary systems.

This, Mr Ryan said, meant Tesla batteries could "fight" with other devices, undermining efforts to bolster the grid at times it was under pressure.

To illustrate his point, he used an example of a hot summer evening when the sun had gone down and solar production was non-existent but demand for electricity from the grid was high because of heavy air-conditioner use.

In such an instance, he said Tesla or an electricity retailer might try to discharge a household battery to capitalise on high prices for power.

But because the Tesla battery was not interoperable, Mr Ryan said the so-called home energy management system that controlled the other smart devices would clash with it.

He said it was possible — if not likely — the system would determine the exports were excess solar power rather than discharge from a Tesla battery.

And in that event, he said the system would increase demand for power from devices such as hot water systems — exactly the opposite of what a stressed grid needed at that time.

"It's a huge problem," Mr Ryan said.

A clash of interests

According to Mr Ryan, the risks for consumers — and to the electricity grid — stemmed from the clash between Tesla's commercial objectives and the broader public interest.

He said Tesla was pursuing the time-honoured practice by technology companies of building so-called walled gardens for their products and their services.

The term refers to the way technology companies try to lock consumers into their products by making it difficult for them to switch to others.

Mr Ryan says the global exemplar of the practice is tech behemoth Apple, which uses various methods to keep its customers and acquire new ones.

Among these methods is an unwillingness to share its systems — from messaging to video-calling — with other tech providers.

Similarly, Apple products often don't support services provided by their competitors.

On top of this, Mr Ryan said Apple strictly controlled what apps could be sold through its store and took a big cut of any sales.

"Tesla is trying to be like Apple," Mr Ryan said.

"Apple is a system where anyone who wants to sell something on their app store has to give Apple 30 per cent of their income, you can't just download something on your Apple phone, you've got to get it from the app store.

"So, they've got full control of their environment and their ability to earn commercial rent."

The ABC sent questions to NSW Energy Minister Ms Sharpe.

The NSW Department of Climate Change, Energy, the Environment and Water, in a response to those questions, said all batteries that were eligible under the state subsidy scheme met relevant standards.

These standards were administered by industry body the Clean Energy Council and included "meeting the additional capacity, warranty and connection requirements".

The spokesman said: "We understand that the Clean Energy Council has found that the Tesla batteries are compliant with the relevant standard."

"Work on developing interoperability standards is progressing through the [a national] taskforce, and the NSW government will continue to be involved through this forum."

Compatibility key: report

Calls for greater compatibility between smart electrical devices have been growing louder.

Supporters say coordinating and controlling clean tech will be critical to efforts to electrify the economy and wean households off fossil fuels such as gas in their heating and cooking and petrol in their cars.

A final report into a landmark virtual power plant trial in Western Australia — known as Project Symphony — found interoperability was key to properly orchestrating the various devices.

Without it, the report noted, many of the supposed benefits of virtual power plants and the mass adoption of smart devices could go begging.

Mr Ryan said there were already examples of the risks to consumers from Tesla's approach.

When Victoria was hit by rolling blackouts in February, he said some consumers with Tesla batteries had been left without power because their devices had been drained without their knowledge.

He said there was an urgent need for governments and regulators to intervene.

Chief among the reforms should be the mandating of international standards — imposed by several US states including California — requiring Tesla and other battery suppliers to make their products interoperable.

Industry experts say Tesla batteries supplied to Australia are the same as those sold in America but note the capabilities allowing compatibility with other devices is switched off here.

They say turning on these capabilities simply requires a software update from Tesla that would take the company a few minutes.

But Mr Ryan said there should also be preventions against practices that locked people into one company's systems, arguing consumers bought products like batteries so they should control how and when they used them.

He argued products that failed to meet those standards should not be eligible for taxpayer cash.

"They put things in where they've got effectively a continuing right to use your asset even though they've sold it to you," he said.

"And that's a fundamental problem."

Billions on the line

Concerns about the capability of Tesla batteries come amid high hopes for such clean tech as part of the energy transition.

The Australian Energy Market Operator, which runs the country's biggest electricity and gas systems, earlier this year forecast huge growth in the capacity of such "coordinated consumer energy resources".

It said capacity would rise from just 200 megawatts today to as much as 37 gigawatts by 2050.

The agency warned that without better coordination of batteries, billions more would need to be spent upgrading the grid.