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23 March 2015, 15:20 | Updated: 23 March 2015, 15:23
Longannet power station is likely to close early next year after failing to secure a crucial contract with the National Grid, operator Scottish Power has confirmed.
The troubled coal-fired plant in Fife was bidding for a short-term contract to help maintain voltage levels in the electricity supply from April 2016 to September 2017.
MSPs heard earlier this month that the station would close by the end of March next year unless it was successful in its bid.
National Grid has announced that SSE's gas-fired Peterhead power station has been chosen for the £15 million contract over Longannet and a third bidder.
Neil Clitheroe, chief executive of Scottish Power retail and generation, said: "We are extremely disappointed with National Grid's decision as Scottish Power submitted a competitive bid that reflected our commitment to protecting the immediate future of Longannet power station.
"As we have said previously, today's decision by National Grid means that, in all likelihood, we will be forced to announce the closure of Longannet by March 2016.
"Everyone will appreciate that it is a concerning time for all our people and we will do everything in our power to manage the outcome of this process as best we can."
The plant has been under pressure from new European Union (EU) environmental legislation and carbon taxation combined with higher transmission charges to connect to the grid due to its location in Scotland.
Mr Clitheroe said: "The issue regarding punitive transmission charges has not changed and this still negatively impacts the future of the station.
"Beyond that, the current transmission charging regime is a major barrier to any future investment in flexible thermal power generation in Scotland.
"In any future scenario for Scotland, it is vital that the network here is supported by flexible generation to complement renewables."
National Grid said the proposal from Peterhead was the "most beneficial" across a number of factors including "system stability and resilience" and value for money.
The contract is to ensure stability in the system 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.
Mike Calviou, director of transmission network services at National Grid, said: "We recognised a need for voltage support in Scotland due to a gap between the potential closure of thermal plant and the completion of upgrades to the high-voltage transmission network.
"We shortlisted potential providers for this service and selected the provider that was best able to meet our requirements."
A Department of Energy and Climate Change (DECC) spokesman said: "The awarded contract is good news for Peterhead, a plant that is developing CCS (carbon capture and storage) technology which will help towards our carbon emission objectives.
"This will also help maintain high levels of electricity security for Scotland."
Jim Smith, SSE's managing director of energy portfolio management, said: "This announcement is positive news for Peterhead.
"SSE has continually invested in the site since it opened in 1980 and we're pleased Peterhead will continue to play an important role in ensuring National Grid can provide system stability and resilience going forward."
The contract will allow National Grid to call upon 385mw of Peterhead's 1180mw capacity to provide voltage support.
Scottish Government Energy Minister Fergus Ewing is to hold urgent talks with Scottish Power, Fife Council and unions about Longannet's future.
Mr Ewing, who is expected to make a statement to Parliament on Wednesday, said his thoughts were with workers at the Fife plant.
He said: "Of course I welcome the news that Peterhead power station has secured a contract from National Grid, given its huge strategic importance to Scotland.
"However, the news that Longannet is now likely to close prematurely is very concerning for the Scottish Government.
"I will speak to the leader of Fife Council, Councillor David Ross, this afternoon to discuss a co-ordinated response.
"We will look to engage all relevant authorities and agencies alongside Scottish Power to secure the best possible outcomes for those affected throughout the local economy and further afield.
"This activity will require cross-party support and close working between all of the relevant authorities.
"Of course there has been broad consensus that the electricity system in Scotland will be less resilient if Longannet closes prematurely.
"It is vital, therefore, that these discussions also explore all possible options for averting the premature closure of the site, such as possible action to address discriminatory transmission charges, whether additional National Grid contracts could be available and whether the restoration coal proposal - mentioned in the UK Budget - could help the station's economics."
Scottish Conservative energy spokesman Murdo Fraser MSP said: "This is a very serious blow for the workforce at Longannet and for the wider economy.
"We have always known Longannet was going to have to close but it's disappointing this has been brought forward.
"It illustrates once again why the Scottish Government has to change tack on energy policy.
"The SNP is anti-fracking, anti-nuclear and obsessed with developing intermittent wind power.
"This approach will have serious issues in relation to security of supply and could mean we will have to start importing power from England unless we can find a way to fill this gap."
Prospect, one of the unions that will meet with Mr Ewing on Thursday, called for politicians to reverse the "catastrophic decision".
Speaking after a meeting between the union and Scottish Power representatives, Prospect negotiations officer Richard Hardy said: "Scottish Power is clear that without the National Grid contract there is no economic way for the station to stay open.
"Closure is now planned for March 2016, threatening over 1,000 highly-skilled jobs within the power station and the supply chain.
"It will also see the loss of 2.5 gigawatts of generating capacity from the system with no immediately apparent replacement.
"This decision raises two major concerns for our members - the impact on their jobs and the West Fife economy and the implications for security of supply.
"Removing such a large baseload generator from the system will make Scotland even more reliant on importing energy from England, at a time when England's generating capacity is also falling."
Green MSP Patrick Harvie said: "Long before now the Scottish Government and Fife Council should have been drawing up a plan for jobs so that workers at the plant and the wider economy had a secure future.
"Given the unsustainable emissions from the plant, and the progress being made with renewables and grid upgrades, Longannet was always going to close.
"We urgently need to focus on developing new local employment, planning a transition for local workers and harnessing the potential from renewables and energy efficiency for the wider community."
Gina Hanrahan, climate and energy policy officer at WWF Scotland, said: "Today's announcement is another important step in Scotland's energy transition.
"While Longannet has served Scotland well for over 40 years, it is Scotland's single biggest source of climate emissions and a combination of EU air pollution rules, carbon pricing and factors such as transmission charging have made the ageing plant's closure inevitable.
"However, National Grid have made clear that this does not pose problems for security of supply in Scotland and has taken very prudent steps to ensure grid stability with this short-term voltage control contract for Peterhead.
"The Scottish government and others now need to focus on attracting new low-carbon employment to the area so that we can secure a just transition to a clean energy future."