A Scottish public owned energy company may face “challenges” competing with established players in the relatively low margin supply market, according to a report commissioned by the Holyrood government.

First minister Nicola Sturgeon announced last September that the Scottish government would explore setting up a new publicly owned company to provide low cost renewable energy to customers north of the border.

However, a study outlining a strategic case for the company, carried out by consultants EY for the Scottish government, warns that a public owned energy company would not be eligible for subsidies under EU state aid rules.

“Pre-tax profit margins made in this market, on average, are limited.

“It is possible to establish an energy company to achieve the stated objective of delivering competitively priced energy to help alleviate fuel poverty in Scotland. We also, however, recognise the challenges of doing this in a highly innovative, competitive and evolving energy retail market.”

However, if a Scottish energy company is able to offer competitive pricing, it would be “well positioned” to develop a sufficient customer base, the study says.

And by developing a “significant and positive brand awareness” as a public sector initiative, the new company may be able to persuade disengaged customers to switch who would otherwise have remained on uncompetitive tariffs.

The report also says the energy company could also encourage the take up of energy efficiency measures by consumers.

It says the Scottish government could either set up its own licensed supplier or offer white label products via an established outfit.

Responding to the report, a Scottish government spokeswoman, said: “The Scottish government made a commitment to provide more details on plans to establish a publicly-owned energy company when they became available.

“The independent strategic outline case, which was prepared by Ernst and Young, has now been published on the Scottish government website. Meanwhile, we continue our work to identify how best to ensure the publicly-owned energy company tackles fuel poverty and supports economic development. A public consultation will begin later this year.”

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