Thanks for the input everyone! It's great that everyone supports re-roling of Penals, or even completely changing the unit.
@Zombifrancis just because the system of commanders with guards in the title I would think that has a low chance of being patched in. It sounds amazing though.
So generally we have 4 solutions including the OP:
1: buff to make them viable in current role, buff vet/rifles/satchel
2: change them into a riflemen type unit, a la OP.
3: put Penals into weird nonmeta commanders like nkvd and terror, replace in t1 with some kind of soviet long range unit that performs like cheaper but worse Guards
4: leave Penals in current role, but give some kind of AT
The main thing I was looking at was how Soviets would function with a strong infantry from T1. What I felt like the results were a similar faction to vCoH Americans.
Stripped down Guards actually work out pretty well though. They just needed a few reductions to reflect that they aren't hitting the field at 2 CPs. With slight reductions to their costs and accuracy, they actually fall into place. Without reducing their accuracy they outpace riflemen by far, with 6 men and 16 damage rifles that are just as accurate as Garands. The lack of a snare isn't enough to counter balance this. As such, I reduced their their far accuracy to 4/6th of grenadiers (the other 16 damage rifle), so 0.398, from 0.529.
But the thing is, 0 CP Penal Battalions for doc choice doesn't make the unit worthwhile. Being able to pop one out immediately has some implications that could be good for SOV, and sure the flamethrower and satchel could be utilized, but the unit itself is still in an awkward place.
Especially if a unit like Guards are available at T1. There just becomes no need for Penals. And the exact same situation we're in with Penals exists: why make them if you have Guards or Shocks? Giving them AT nades puts conscripts in a redundant role.
Giving Penals a form of AT would somewhat undermine a doctrine choice for PTRS. The main thing about Guards troops and the doctrine choice is to get that light AT. Even if Penal Battalions were identical clones of guards, but didn't have PTRS, then the Guards commanders be variants of the conscript PTRS. Giving Penals a snare like AT nades would really start to invalidate conscripts.
So in my opinion #2 is the only real option, regardless of anything else. Even in a different context Penals aren't terribly functional. And comparing the SVT to the Carbine and it seems the SVT is better than the Carbine in every way, (especially accuracy, surprisingly), except for aim time and damage, where the Carbine has the (slight) edge. The SVT is almost exactly like the M1 Garand, but with half the long range accuracy and 2/3s the midrange accuracy.
I tested the SVT with it's midrange accuracy tweaked to more closely match rifle's garands. Directly matching rifle's midrange accuracy was too much, so I gave then 5/6s of that: .555, (from .46). I also boosted Penals' moving accuracy modifier from 0.5 to 0.6. So far so good.
But one thing I didn't expect is that by having Penal Battalions as a doctrinal call-in, their situational nature really gets highlighted. Being able to pop out a Penal when I see bunkers being thrown down while also being able to go T2 first is a nice concept.
I'll polish and publish this little experiment in a bit if anyone would like to see for themselves.