The plan, announced on Friday, means more than one million households with solar panels could save as much as $2400 in the up-front costs of installing a battery.
The measure comes a day after a two-year lifeline was thrown to Australia's largest coal-fired generator in a bid to shore up at-risk energy supplies during a slower-than-expected transition to renewables.
The deal with Origin Energy, which could cost taxpayers up to $450 million, will keep the Hunter region's Eraring plant running past its previously scheduled retirement date of August 2025.
Energy Minister Penny Sharpe said the incentives for household batteries were part of efforts to boost state power-grid reliability.
"It's just part of the suite of activities that we're undertaking as NSW transitions our electricity grid to a cleaner energy future," she said.
The lifeline of the Eraring power station has been extended by two years. (HANDOUT/GREENPEACE)
Ms Sharpe defended the Eraring deal, which was resoundingly criticised by environmental groups and renewable-energy advocates.
The agreement was essential for managing the state's shift to renewables, she said, but the government did not want "coal-fired power open a day longer than it needs to be".
"I genuinely believe this is the best thing for NSW, it buys us the insurance we need when we get on with the transition," she said.
Official projections show NSW is likely to fall short of its legislated greenhouse gas emission-reduction goals of a 50 per cent cut to 2005 emissions levels by 2030 and a 70 per cent cut by 2035.
Emissions from power generation are forecast to remain a significant contributor in 2030 before dropping off in the following decade.
Under the battery scheme, homes and businesses that want to fit solar panels will get the incentive factored into quotes for a new solar and battery system installation.
There would also be a $250 to $400 incentive for connecting a battery to a virtual power plant - technology that aggregates thousands of home batteries to help stabilise power supply.
The offers will be available from November and the rollout will take place via approved suppliers once they are accredited.
Rewiring Australia, a group that urges rapid decarbonisation through electrification, backed the subsidy.
"Incentivising households and businesses to take up batteries means more cheap solar power in the grid and reduces our reliance on harmful fossil fuels," executive director Dan Cass said.
But Solar Citizens, a community organisation that advocates for solar power, said the government was sending mixed messages on power.
"Does it want to prop up polluting, outdated fossil fuel power and allow companies to penalise households .... or does it want to move further in the direction of the announcement today," chief executive Heidi Lee Douglas said.
