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Orsted Diversifies From Offshore Wind With 20MW UK Battery
The wind giant’s strategic expansion into energy storage is more about
the future than the present.
Julian Spector January 10, 2019
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 cacophonous 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 smooth 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, Ørsted
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 a 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 determined it
to be illegal in November. Building a business case without factoring in
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 is also 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 toward
grid services, like Ørsted's previously built 2-megawatt system located
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.