Longannet will close next year unless it secures National Grid contract, MSPs told

Committee members heard that Peterhead power station is also currently facing "economically-challenging" circumstances.

Both plants, along with a third unnamed bidder, are currently competing for a National Grid contract to maintain voltage in the electricity supply from April 2016 to October 2017.

The contract is designed to ensure stability until the completion of projects to improve the electricity transmission system including the Western Link, a £1 billion project to help carry renewable energy from Scotland to Wales and England.

National Grid said it expected to make a decision on the contract by the end of March.

Neil Clitheroe, chief executive of retail and generation at Scottish Power, told the committee that Longannet was coming under pressure from new European Union environmental legislation and carbon taxation combined with higher transmission charges to connect to the grid due to its location in Scotland.

He said: "We've been pretty consistent since October when we didn't enter the capacity mechanism that if something doesn't change at Longannet then the likelihood of closure is very high."

Mr Clitheroe said that Scottish Power would have to announce about a year in advance that it was giving up the transmission rights and in its tender to the National Grid had made it clear that "effectively that decision is now".

Reading from a letter sent by the company, he said: "It's important to note that in event of rejection of our offers we will be forced to announce as soon as is practicable the closure of Longannet power station by the end of March 2016 and we believe that the closure will have serious consequences on security of supply and on direct and indirect employment in the local community and beyond."

He denied a suggestion from committee convener Murdo Fraser that the company was engaging in "brinkmanship" and using Longannet workers as "pawns in a game" to try and force National Grid's hand.

"Our plan was always to get to 2020 and keep this plant going," he said. "We've invested £350 million in the plant over the last six or seven years.

"It's not brinkmanship at all, it's just an economic reality of the situation we find ourselves in with regard to Longannet."

Mike Calviou, director of transmission network service at the National Grid, said it was obliged by its licence to procure the most economic option that was in the best interests of consumers.

"That process we're expecting to finish certainly by the end of March and hopefully in the next week or so," he said.

Mr Clitheroe acknowledged that if Longannet were to win the bid it would only provide the plant with a year or two's grace, adding "we are talking about when, not if".

He said Scottish Power was doing everything it could to "try and bring the cost down and make the plant in a better situation" but, asked whether the company had any other "irons in the fire" in relation to Longannet's future, he responded "not really, no".

Mr Clitheroe said the prospect of a new gas-fired replacement for Longannet was "very, very unlikely given the difference in the economics between locating a gas plant in Scotland versus locating one in the south east of England."

Scottish Power employs 270 staff at at the power station, with more jobs in the supply chain, and Mr Clitheroe said that in the worst-case scenario the company would seek to provide staff with a future elsewhere in the company or offer early retirement or voluntary severance.

Commenting on Peterhead power station, Jim Smith, managing director of energy portfolio management at SSE, said: "We have not said that Peterhead is going to close.

"We have said that it's economically-challenging at the moment but we are, through a number of things, working to try and get through this particularly challenging period.

"We're investing to make the plant more flexible for this winter coming through potentially winning ancillary service contracts.

"We hope to mitigate some of the losses that we're seeing in the plant."

He added: "Peterhead is a modern gas-fired power station, it's got the capability to operate well beyond 2030.

"If CCS (carbon capture and storage) goes ahead, and of course there is the fact that at some point we would hope to see a market recovery in the wholesale market for thermal plant, then Peterhead could still have a long-term future in the Scottish generation market."

MSPs were told that the third bidder for the National Grid contract was a new generator based in Scotland that was proposing an "innovative new idea".

The panel was questioned on the security of Scotland's electricity supply in the event of Longannet's closure and beyond to 2025, by which point the Torness and Hunterston nuclear power stations are scheduled to close.

Mr Calviou said: "There's no doubt there's a lot of change potentially planned.

"I certainly know that EDF, I think, would be hoping to life-extend their nuclear plants so they might still be open in 2025, you don't know."

He said a number of other factors could come into play including further investment in generation and in the transmission network as well as developments in CCS.

SNP MSP Bruce Crawford asked what would happen to Scotland in the extreme event of a black start - the procedure to recover from a total or partial shutdown of the transmission system - without the station.

Mr Calviou said neither Longannet or Peterhead are contracted as black start stations but if neither was available to help it "probably would extend the time-scales" for getting Scotland back up from 12-18 hours to 24-hours plus.

He said that, traditionally, Scotland has been a large exporter to the rest of the network but a change was likely with the increase in wind generation north of the border.

"There will be periods clearly when the wind is not blowing in Scotland that we'll increasingly start to see flows from England up into Scotland."

The committee heard the current balance is around 90% flowing south and 10% north but that was expected to change in future with an increase in the amount flowing north, "albeit I still think it will still probably flow south the majority of the time," Mr Calviou said.