Government subsidies and premium feed in tariffs (PFiTs) have been effective in driving Australia’s high uptake of residential solar photovoltaic (PV) systems. PFiT policies have reduced bills for solar customers and the total greenhouse gas emissions associated with electricity generation. However, solar penetration is approaching technical limits in some areas of Australian distribution networks. Distributed batteries can overcome these limits allowing for a greater penetration of residential solar PV and a reduction in overall network costs through improvements in capacity utilisation. It is important for policies to align the interests of individual consumers with a reduction in total system costs. In this article we demonstrate how redirecting ongoing feed-in tariff payments towards residential battery storage has the potential to reduce overall system costs. We present some of the challenges associated with unlocking these benefits and provide a list of policy principles that can be utilised to guide policy development.