This paper presents a control scheme that utilizes energy storage of the Modular Multilevel Converter (MMC) for Power Oscillation Damping (POD) service. Such a service is used to enhance grid stability by providing damping power in the electromechanical (0.2–2Hz) dynamics range. The scheme uses compensated modulation with average energy control. The aforementioned service comes at the cost of additional energy storage requirement for the MMC. A worst case estimate of this additional capacity, together with potential options to obtain it, is also addressed in this paper. The scheme is validated by simulation studies on a four terminal HVDC test grid.