Orsted Diversifies From Offshore Wind With 20MW UK Battery

Danish energy giant Ørsted has added energy storage to its
global clean energy arsenal.

The company activated its first large-scale battery in Liverpool
in late December. The 20 megawatt Carnegie Road project inaugurates
a new business line for the Ørsted, which
leads the global market
for offshore wind development. It
changed its name in 2017 from the
cacaphonous and emphatic DONG
, short for Danish Oil and Natural
Gas, after choosing to abandon fossil fuels to create “a world
that runs entirely on green energy.”

The move into storage shows Ørsted is grappling with the
implications of a highly renewable grid. Variable wind and solar
generation creates grid volatility, which fast-reacting batteries
can smoothe out. Energy storage can also redistribute renewable
energy in times when it’s more valuable, although bulk shifting
of wind power has not yet been achieved at scale.

In branching from renewables development to storage development,
Orsted parallels other global clean energy companies, like EDF
Renewables, Engie and Enel Green Power, on the path to creating the
first
clean energy major
.

The U.K. grid has become a hotbed of these changes as the
country shuts down coal plants and builds more wind and solar.
Renewables now provide around 30 percent of annual electricity
generation, and they keep growing.

What’s the business case?

As for what exactly the battery will do, Ørsted’s announcement was
a little vague. It noted that batteries are well suited to
delivering grid balancing services to National Grid, but spent more
time talking about the “real and pressing threat” of global
climate change and the imperative to decarbonize electricity. GTM
reached out for more details.

“The plant has been awarded contracts to provide FFR [Firm
Frequency Response] services, however, the great thing about this
asset is the battery is flexible and able to switch between
operating in different markets,” spokesperson Juliette Sanders
wrote in an email Thursday. “So the plan is to use the flexibility
of the battery asset to provide other services and participate in
other markets.”

Typically, storage developers lock down as much contracted
revenue as they can before moving forward. In the U.K., that often
includes a 15 year capacity contract and a shorter-term frequency
contract (two years or less). Beyond that, developers have to
embrace merchant risk and play the markets.

The Carnegie Road plant, which uses batteries supplied by NEC
Energy Solutions, appeared in the recent T4 capacity auction for
2022-2023. The auction register describes it as a 20 megawatt
system with half-hour duration and a de-rated capacity of about 3
megawatts (a recent de-rating policy slashed the compensation that
short duration batteries can get for capacity). The project’s
prequalification decision, though, is listed as “rejected.”

A company like Ørsted doesn’t need a capacity contract to make
a storage project viable, said Rory McCarthy, who tracks European
storage markets at Wood Mackenzie Power & Renewables. For one
thing, it’s a state-backed firm with plenty of capital, and
figuring out storage “has massive strategic value for them.”

On the other hand, the contract for the de-rated capacity of 3
megawatts wouldn’t bring in a ton of cash anyway, and the capacity
market itself is in limbo after a surprise European Union court
ruling
rendered it illegal
in November. Building a business case
without capacity revenue looks pretty savvy right now.

The real benefit of storage assets will materialize as a
flexible companion to Ørsted’s massive intermittent portfolio.

“Although the market for storage is a bit pants now [Author’s
note: that’s a British way of saying ‘not great’], as a fully
renewables portfolio Ørsted will have the highest perceived value
for clean flexible assets in the market place vis-á-vis energy
players with other conventional dispatchable plants at their
disposal,” McCarthy said.

Global energy ambitions

If Ørsted likes what it sees in Liverpool, it has a clear
pathway to deploy in other global markets.

It
built a foothold in the U.S. market
by acquiring Deepwater Wind
and Lincoln Clean Energy, amassing a combined pipeline of 8.8
gigawatts. Ørsted also is developing gigawatts of offshore wind in
Taiwan. Both markets could play host to future storage
development.

Despite the frequent world-saving rhetoric, developers have yet
to build batteries large enough to turn wind farms into
dispatchable power plants. Batteries sited on wind farms tend to be
small and geared towards grid services, like Ørsted’s previously
built 2 megawatt system at the 90 megawatt Burbo Bank wind
farm.

“We are looking to develop our business model over time,”
Sanders said, adding the company is considering more standalone
storage, batteries linked to renewables and “other
opportunities.”

Early projects like these could evolve into more ambitious
efforts by wind developers as battery prices fall or other long
duration storage technologies enter cost-effective commercial
service. Market changes will also be crucial.

“Storage for wind energy is a solution in search of a problem,”
said Daniel Finn-Foley, an analyst at Wood Mackenzie Power &
Renewables who tracks hybrid projects. “There are currently very
few mechanisms in place to incentivize time-shifting or ‘firming’
wind energy to peak hours, but that is changing quickly.”

The value of storing wind power will increase as wind
penetration increases, and as governments place a higher value on
clean, dispatchable power (see Finn-Foley’s recent lecture
on the topic
for more details). A true market for large-scale
wind-plus-storage is still three to five years off, Finn-Foley
estimated.

“While that may seem like a long time, from an investment
perspective, it isn’t, so expect more and more forward-looking wind
developers to begin investing in storage now in anticipation of
policies to come,” he added. “It never hurts to have solutions in
your pocket when the problems present themselves.”

Carnegie Road won’t save the world, but it applies storage
technology in a format that fits today’s market structures.
If Ørsted makes good on its grand ambitions, larger and more
consequential installations are sure to follow.

Source: FS – GreenTech Media
Orsted Diversifies From Offshore Wind With 20MW UK Battery