The biggest challenge currently facing Scottish business is energy, according to the first PricewaterhouseCoopers (PwC) Business Review supported by the Fraser of Allander Institute at Strathclyde University.

The biggest challenge currently facing Scottish business is energy, according to the first PricewaterhouseCoopers (PwC) Business Review supported by the Fraser of Allander Institute at Strathclyde University.

"Over the last five years fuel costs have soared by over 83%," the review says. "If this trend continues, many firms could be facing crippling energy bills by 2010 unless they adopt a long-term energy strategy.

"It is currently estimated that the increase in gas and electricity costs by 2010 could reach as much as 60% - resulting in an additional cost to UK businesses in excess of £13.9bn."

Paul Brewer, senior partner, PricewaterhouseCoopers LLP in Scotland, commented: "UK businesses have not only been caught in the grip of the toughest global financial crisis of the last 70 years, but they have also had to adjust to a succession of major increases in oil, gas and electricity prices - a powerful pincer effect that is now a tough reality for many as they struggle to manage their finances."

Some energy intensive businesses operating in mature, highly-competitive marketplaces had been prepared to consider radical approaches based on a long-term strategy.

The review cites Diageo's £65m investment in a bio-energy facility at its Cameronbridge site in Fife, which is Scotland's largest distillery, enabling it to generate 98% of the thermal steam and 80% of the electrical power requirements of the distillery from waste products.