Scottish Water set to become renewable energy powerhouse

State-owned utility Scottish Water will be given powers allowing it to grow into one of the UK's largest generators of renewable energy as part of an upcoming Water Bill from the Scottish Government.

The bill, outlined by Scottish First Minister Alex Salmond in Holyrood yesterday, will give Scottish Water statutory authority to partner with other firms to build a wide range of renewable energy projects, such as wind farms and hydro-electric power plants.

Salmond told parliament yesterday that the bill will help Scotland reap the financial benefits of the country's water resources, adding that the move would help establish the country as "the world's first hydro-economy – wisely exploiting our water to help drive our economy".

According to reports, the legislation could see the company generate over £300m a year in revenue from renewable energy projects by exploiting the 80,000 acres of land it already controls.

Salmond insisted that the move was not designed to boost the attractiveness of the company ahead of a sale to the private sector.

"As Scottish Water expands its activities, it will generate the additional revenue to become financially neutral to the Scottish government's books," he said. "Currently, Scottish Water is the largest consumer of electrical power in Scotland. We intend to give it the power to instead become one of the largest generators of renewable electricity on its land."

A spokesman for the Scottish government told BusinessGreen.com that further details of the Water Bill will be confirmed in the coming weeks.

The move is the latest in a series of steps by the Scottish government designed to establish the country as one of the world's leading generators of renewable energy.

Yesterday Salmond also announced plans to consult on how local communities could benefit financially from the growing number of offshore wind farms and marine energy projects planned for Scotland.

"The only public body which currently accrues a direct benefit from the offshore [energy] development is the Crown Estate Commissioners and we have worked well with the Commissioners," he said. "But the revenues go direct to the Treasury and that cannot be right."

The latest initiatives come in the same week as the Scottish government launched a consultation on proposed changes to the Renewables Obligation (Scotland) Order 2010, designed to boost financial incentives for wave and tidal energy developers.

In particular, the consultation proposes changes to the rules that would allow projects that already receive enhanced incentives through the Renewables Obligation Scheme to still be eligible for government grants.

The consultation also proposes an extension to grandfathering for anaerobic digestion and energy from waste with combined heat and power plants, that would guarantee new projects a set level of support under the Renewables Obligation scheme regardless of any future changes.

However, it does not set out grandfathering arrangements for biomass power plants, a move criticised by the Renewable Energy Association (REA), which warned that differences in the subsidy mechanism between Scotland and the UK would put Scottish developers at a disadvantage.

"The Renewables Obligation is a tradable mechanism, and having different arrangements within the UK is far from ideal." said REA chief executive Gaynor Hartnell. "By not grandfathering biomass, it's made [Scotland's] prospects worse... Experience shows that when governments are too prescriptive, it can backfire. Scottish forestry residues will end up being transported south of the border if they are to be used for clean, green, power generation. It makes no environmental sense."

The deadline for responses to the consultation is 1 December 2010.