Managing director Don Munro said the Scottish papermaker had been in discussions with Scottish BioPower for the past six months.

If successful, the project that Munro said was dependant upon funding from Scottish Power and a number of other sources could be operational by 2008. "There's quite a lot of water to flow under the bridge, but we're very hopeful," he said.

The Rothes BioPower CHP plant, as it would be called, will replace the existing coal and gas fired power station. It will be fuelled by wood and biofuel crops grown specifically for use as fuel. The new power station will be developed and owned Scottish BioPower, a sister company to Scottish Coal.

A business park will also be built adjacent to the paper mill, which will create new jobs.

The plant will also play a significant part in meeting the Scottish Executive's target for 18% of Scotland's electricity generation from renewable sources by the year 2010. It will supply 5% of the target and 16-18 MegaWatts (MW) of its 50MW capacity to Tullis Russell.

Munro said one of the main reasons the firm had turned to CHP as an alternative fuel source was due to the increasing price of gas. Since October 2003 Tullis Russell's gas prices had increased by 70%.

Story by Andy Scott