South Australia is already home to world's biggest battery in an Elon Musk-driven project to provide electricity for more than 30,000 homes.
The state government has since been looking for more ways -- particularly through renewables -- to address its energy woes after an "unprecedented" storm caused a state-wide blackout in 2016.
Under a new plan unveiled on Sunday, a network of solar panels linked to rechargeable batteries will be provided free to households and financed by the sale of excess electricity generated by the network, the government said.
"We will use people's homes as a way to generate energy for the South Australian grid, with participating households benefitting with significant savings in their energy bills."
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A trial phase will begin with 1,100 public housing properties, each supplied with a 5kW solar panel system Tesla battery.
Following the trial, the systems will be installed at a further 24,000 public housing properties before the scheme is opened up to other South Australians over the next four years.
The rollout will be supported by the state government through a 2 million Australian dollars grant and a 30 million Australian dollars loan from a taxpayer renewable technology fund.
Tesla said in a statement to AFP that the virtual power plant would have 250 megawatts of solar energy and 650 megawatt hours of battery storage.
"At key moments, the virtual power plant could provide as much capacity as a large gas turbine or coal power plant," the company added.