The quango plans to be a partner in an 18-turbine wind farm in Angus to help cut its own £40 million electricity bill and contribute to keeping consumers' bills stable.
The proposed development at the Backwater Reservoir near Kirriemuir would have the capacity to generate 142GWh per annum, almost one-third of Scottish Water's 445GWh annual energy requirement to power about 2000 treatment works across the country and to pipe the water through the network.
But electricity from the wind farm would not feed in directly to the Scottish Water operation. The power generated would be sold to the grid and then bought back at a discounted rate, which could save Scottish Water several million pounds a year.
Scottish Water's partner, Eneco Wind UK, has been awarded the rights to explore the development of a wind farm – known as Macritch Hill – of up to 54MW on Scottish Water land at the Angus reservoir.
But Graham Lang of Communities Against Turbines Scotland (Cats) said it raised important questions of fairness: "Scottish Water is not a privatised utility so the revenue would flow to them with any surplus reducing the grant they receive from the Scottish Government or even being 'borrowed' by the Scottish Government.
"Because of the proposal's installed capacity this would be a section 36 application, determined by the Scottish ministers so there may be a conflict of interest and other developers not on the Scottish Water list may have reason to be worried."
He said the Macritch Hill site was in a sensitive upland landscape, close to developed sites at Drumderg and Welton of Creuchie, the site applied for at Tullymurdoch and the Carrach Wind Farm refused by Angus Council and now at appeal.
"It is our view this wind farm would breach the capacity of the landscape for wind farms."
A Scottish Government spokesman said: "There is no question of there being a conflict of interest. The application will be considered like any other entirely on its own merits"