SCOTTISH Power owner Iberdrola has again cast doubt on the long-term future of its Longannet power station in Fife because of high transmission costs.

The fresh warning came as the utility giant said the performance of the plant had "ironically" improved thanks to multi-million pound investments in recent years, which helped it reduce losses across the company's UK power generation business in the first nine months of the year.

Those losses fell as net profit at Iberdrola's UK generation and supply division increased to €85.1 million in the first nine months of this year, compared with €17.9 million last year.

Iberdrola said the improved group generation performance in the first nine months of the year featured better margins from its UK generation fleet, notably Longannet, where investment of more than £200 million has been made in recent years. Investment in the region of £20 million to £30 million was made in boiler upgrades at the plant last summer.

However, in spite of the improved performance of Longannet, with greater availability at key times and fewer "outages," the issue of high transmission charges means its future is "open to question".

Iberdrola pays £40 million a year to link Scotland's biggest power station to the National Grid because of its distance from the main centres of electricity demand and generation.

Under the Transmission Charging mechanism, the tariff increases the further away a power station is from the UK's most densely populated areas. By contrast, plants closer to major population centres such as London receive a fee.

A spokesman said: "We've got this issue over transmission charges in Scotland which affects not just our plant, but others, and it makes it quite difficult for Scottish plants to compete nationally.

"It's a structure that has evolved largely because National Grid are trying to encourage generation in the areas you have got the most people. But it does have the effect of causing potential supply security issues in Scotland, where the financial situation is very different."

As a result of the charges, Iberdrola has ruled that it would be "uneconomic" to bid the plant in UK capacity auctions due to take place in December. Plant owners are being invited by the government to submit bids to make their plant available at a certain price, to ensure it has sufficient generation at peak times. The system is scheduled to come into effect in 2018.

The spokesman added: "We felt it is not economic to bid Longannet into that auction, because the transmission charges just make it uneconomic to do so. It disadvantages our plant versus some of the other plants that will be bidding in.

"We have decided we would rather try and negotiate a separate agreement with National Grid and Ofgem that would allow us to continue operating for as long as possible outside that framework."

Iberdrola is calling for the Transmission Charging mechanism to be changed to ensure that Longannet, which employs 260 full-time staff, will remain open in the years to come. It has not been specific about how much it would like to see the price lowered, but emphasised the current framework had to change.

The update came as Iberdrola posted a 19 per cent fall in net profit to €1.831 billion, compared with €2.274 billion reported in the third quarter of last year.

It put the fall down to continuing regulatory challenges in Spain, where government caps on prices have limited utility companies' ability to recoup the cost of generating renewable power, and drought in Brazil. Those factors were only partially offset by a better performance in generation and renewable energy, including in the UK.