Alex Salmond unveils plan to turn Scotland into 'world's first hydro-economy'

Proposed legislation would allow state-owned Scottish Water to use vast landbank and pipe network for renewable energy projects

From Severin Carrell, The Guardian

Alex Salmond told the Scottish parliament that he wanted to 'give Scottish Water room to grow'. Photograph: David Cheskin/PA

The state-owned utility Scottish Water is to be given new powers to build windfarms, hydro schemes and "green" power stations in partnership and competition with established energy companies.

The company, one of the country's last remaining state-owned firms, could generate £300m or more in extra revenues by using its 80,000 acres of land and vast pipe network for renewable energy projects.

The proposal was unveiled by Alex Salmond, Scotland's first minister and leader of the Scottish National Party, in his government's last legislative programme before next May's Scottish elections. He claimed it would turn Scotland into "the world's first hydro-economy – wisely exploiting our water to help drive our economy".

Salmond is resisting pressure to convert Scottish Water into a mutualised company under public ownership, similar to Welsh Water, to generate much-needed revenue and offset cuts of up to £3.7bn expected in next month's spending review.

The Conservatives and Salmond's own economic advisers believe mutualisation would immediately raise up to £3bn for the Treasury, with £1bn going to the Scottish government, and save the taxpayer £140m a year in loans.

Salmond, an enthusiast for renewable energy investment, said that the company would remain entirely in public ownership, while having much greater freedom to exploit commercial opportunities that would eventually allow it to become self-financing and self-sufficient.

"They have identified potential for new economic activity in other business areas of some hundreds of millions in the medium term," he told the Scottish parliament. "If we give Scottish Water room to grow, then we have the makings of a great Scottish company, in public ownership."

Scottish Water, which has annual revenues of about £1bn and assets worth £5.5bn, is the UK's fourth-largest water company. It owns about 80,000 acres, including high ground with great potential value for onshore wind and hydro schemes.

The company hopes the legislation proposed by Salmond will allow its fledgling commercial services division, called Harmony, to drive its new energy projects. The Tories hope to amend the water bill with Labour support, forcing the SNP to mutualise the company.

The utility is also in talks about joint projects with some of the largest players in renewables and potential competitors, which are thought to include Scottish and Southern Energy and ScottishPower.

Richard Ackroyd, the company's chief executive, said: "Our success in reducing our carbon footprint and expanding our work into renewables and recycling is helping to put Scottish Water in a position where it can make a real contribution to the environmental challenges facing Scotland."

Scottish and Southern Energy, the UK's largest hydro-electricity producer, would not comment directly on Scottish Water's entry into the energy market. "There are other people who are becoming players in the market all the time; we wouldn't have any comment to make on Scottish Water becoming part of that," a spokeswoman said.

A spokesman for ScottishPower's renewables arm welcomed Scottish Water's involvement, saying: "Scotland has a wealth of renewable energy opportunities and we are keen to see the country fulfil its renewables potential. Investment from both the public and private sector will be critical in achieving this."