I don't see how "penalizing" upleveled damage spells is relevant to this issue one way or another. Whether they're penalized or not, you still have to uplevel in order to get more damage. If you think this is a problem, then the only solution is a return to the 1E-3E automatic spell scaling system. Tinkering with how upleveling works isn't going to affect it.
Why would I
ever cast Burning Hands III if I can get more damage, in a better area of effect, that's easier to aim, by using Fireball III instead? At best, it would be
extremely situational, where you would want to avoid collateral damage, but it was still dangerous enough to warrant spending a high-level spell slot - maybe in a hostage situation?
You don't need auto-scaling spells like in 3E, since 5E auto-scales the save DC instead. If Burning Hands (in a level 1 slot) did as much damage as Fireball (in a level 3 slot), with the same save DC, then that would be a dramatic force-multiplier for spellcasters; and we don't need that. But a Wizard only has so many high-level spell slots in the day, and asking them to choose between Burning Hands for 5d6 or Fireball for 8d6 is not an interesting choice. Letting them
manually scale up their damage, so that the spells deal equal damage
in one of those high-level slots (while Fireball remains superior in every other way)
is somewhat closer to an interesting choice.
Spell preparation is a
minor limitation, compared to spell slot available which is a
major limitation. The flexibility of using your low-level spell slots to deal fire damage is worth
something, sure; it might be worth spending the extra preparation to have that available, or it might be worth sacrificing that flexibility to prepare a different spell. The added flexibility of being
able to do less damage, by casting in a low-level slot, doesn't come
close to justifying the loss in actual efficacy when casting in a high-level slot.