THE largest power station in Scotland may be forced to close due to the high transmission charges it must pay to connect to the main grid network.
Scottish Power said that changes to the financial situation of Longannet Power Station, which employs 260 full-time staff, must be achieved to avoid closure in the coming years.
It said the station has to pay "disproportionately high" transmission charges compared to those in the south of England.
Longannet has to pay around £40 million a year to connect to the national grid due to its location.
The company has decided not to enter the Fife station into the UK Government's auction for the delivery of electricity generating capacity for the winter of 2018/19.
Scottish Power said it will now "fully explore" all options to keep Longannet operational for as long as possible and will hold talks with the National Grid, Scottish Government and Department for Energy and Climate Change.
Neil Clitheroe, CEO Energy Retail and Generation at ScottishPower, said: "We do not want to close Longannet, and I would stress that there are no plans to do so.
"We have invested over £200 million in recent years to improve both environmental and operational performance at Longannet, and we want to secure a longer term future for the station. However, to avoid closure within the coming years, changes to the plant's financial situation must be achieved.
"The current market conditions, predominantly the transmission charging rules, mean that we simply can't justify entering Longannet into a process which is four years away and will then only offer one year of certainty."
The current Transmission Charging mechanism is linked to the electricity generator's distance from the main centres of electricity demand and generation.
The charges applied against a power station to access the main grid network become increasingly higher based on the distance that the station is located from the UK's most densely populated areas in London and the South East.
Mr Clitheroe said: "For many years we have argued that the transmission charging penalties imposed on Longannet are disproportionately high in comparison with other power stations in the south of England, some of which are actually paid a fee to remain connected.
"The lack of any sensible regional flexibility in the current system penalises generators in Scotland, and discourages investment in new thermal power plants. Simply to reach the 2018 delivery year, Longannet needs to pay over £120 million in transmission penalties.
"In comparison, if Longannet was located in the London area, the station would receive a fee of £4 million per year to stay connected."
The coal-burning power station at Kincardine-on-Forth was commissioned and opened between 1969 and 1973.
Energy Minister Fergus Ewing said: "Scottish Power's decision is a direct consequence of the current transmission charging regime that unfairly penalises Scottish energy generators, which account for around 12% of the capacity connected to Britain's high-voltage electricity network, but pay around 35% of the charges.
"As one of the UK's largest power stations, Longannet plays a unique role in delivering affordable energy, underpinning security of electricity supply at a time when reserve safety margins in the GB electricity system have narrowed to an all-time low of around 2%.
"Therefore there is all the more reason for Scottish Power's concerns on this matter to be taken very seriously."
He added: "We have been calling for a change to the transmission charging regime for years. We welcomed the partial improvements that are due as a result of Project Transmit - although they are only a partial improvement and have been subjected to much delay.
"There is still a long way to go until there is a fair system that does not discriminate against Scotland and does not put much needed power supplies in question."
WWF Scotland director Lang Banks said: "While this is an important decision it should not come as a surprise. Even the Scottish Government have long assumed Longannet would close at the end of this decade.
"We now need ministers to work closely with Scottish Power and others to secure a transition to a power sector that isn't dominated by large fossil fuel power plants.
"Longannet is currently responsible for almost one fifth of all Scotland's climate emissions, so is never going to be part of a low carbon future. With our massive renewables resource, Scotland is ideally placed to continue to create many long-term jobs from clean energy. Renewables is where Scotland's energy future lies."
A National Grid spokesman said: "The charging regime is based on a locational methodology. Generators ask to connect and the transmission companies build the grid to connect them and move the power to where it is needed, the demand centres.
"Generators further away from demand centres may need more network built and the charges reflect this additional cost. The aim is to encourage generators to consider this when making decisions on where to locate, so it can reduce the need for extra network and keep costs down for customers.
"Over the past few years, National Grid has been working closely with the industry and Ofgem to review the charging regime in light of changing generation, principally the increase in wind generation. Ofgem recently approved a significant change that will generally reduce future charges in Scotland, which is planned to be introduced from April 2016."
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