• Achieve Customer Minutes Lost and Customer Interruptions targets set by Ofgem
• Aim to secure Kyoto credits up to the UK Kyoto credit cap by 2012
• Complete installation of Flue Gas Desulphurisation plant at Longannet by summer 2008

Group Fuel Mix

The percentage of electricity we generated from coal in 2007 reduced by more than 21% – and there was a corresponding increase of 24% in the percentage of generation met from gas.

This was due to the collapse of a coal conveyor at Longannet in January 2007 which meant that the station was unable to burn coal for six weeks while remedial action was taken. During this outage, gas, which is normally only used for start up and shut down at Longannet, was used to operate Units 1 and 3 at a reduced load.

In 2006, the amount of coal used in generation was also particularly high due to reduced output from Scotland’s nuclear stations, sustained high gas prices and outages at Shoreham which made coal more economically favourable.

Coal burn at Longannet during 2007 reduced to 2.83 million tonnes – down by a third on the 4.46 million tonnes consumed in 2006.

The contribution from both hydro and wind energy increased on the year, while “other” fuels reduced – reflecting reduced Waste Derived Fuel and biomass co-firing at Longannet during the early part of the year.

Total Energy Generated

The electricity sold by our Retail business comprises our own generation and electricity purchases, which include nuclear. We send details of our total fuel mix, including electricity purchases, to every retail customer annually. This information is also available on our Energy Retail website: www.scottishpower.co.uk.

Gas Supply

We supplied 1,239 million therms of gas to customers during 2007, a slight reduction on our last 12 month reporting period for 2006/07. Gas usage was consistent with mild weather conditions at the beginning and end of the year.

At the end of 2006 we purchased Hatfield Moor Gas storage Facility from Edinburgh Oil and Gas. The facility, at Malton in South Yorkshire can store 1.25 billion cubic metres (bcm) of gas – enough to supply 450,000 homes. Gas storage enables us to manage fluctuations in gas prices, by purchasing the gas and storing it when prices are low, then releasing gas for sale when prices rise. We also “lease” gas storage space from other UK operators, including Centrica.

In May 2007 our parent company IBERDROLA acquired re-gasification capacity of up to 2.75 billion cubic metres at the Isle of Grain LNG importation terminal in Kent.

In October, the company started taking delivery of new gas supplies from Norwegian-based Statoil, under a 10-year contract, which will deliver 500 million cubic metres of gas annually until 2017.

Investment in Renewable Technology

Our investment in renewable technologies includes the development of onshore windfarms in the UK, and we have a number of other renewable energy projects under development, including offshore wind, wave and tidal stream projects

In 2007/8 ScottishPower was required to meet 6.7% of customer energy demand in the UK from eligible renewable sources. We are unable to provide the final ROC figure for 2007/8, as we will not complete our position for the period 2007/8 until the end of August 2008 (the compliance deadline).

UK Windfarm Portfolio at 31 Dec 2007

Windfarm Growth in the UK

We continued to develop our wind energy portfolio during the year and remain one of the UK’s leading operators of onshore wind.

With 372 MW of wind capacity operational, 666 MW consented or under construction and a further 599 MW in planning, we should exceed our target of bringing 1,000 MW of new renewables online by 2010 and have revised our target upwards to 1,200 MW.

During the year we added a further 37 MW of wind energy capacity with the completion of

• 18 MW Wether Hill Windfarm in Dumfries and Galloway
• 10 MW Wolf Bog Windfarm in County Antrim, Northern Ireland
• 9 MW with the acquisition of the remaining 55% stakes in Carland Cross and Coal Clough windfarms

Construction work began at Greenknowes, our 30 MW development in Perthshire and towards the end of 2007 we began erecting turbines at Whitelee Windfarm near Glasgow, which at 322 MW will be the largest onshore wind project in Europe.

We were also successful in obtaining a number of consents for new windfarms and site extensions during the year.

In September 2007, following a public inquiry, the new Scottish Government granted consent for Harestanes Windfarm which will provide up to 213 MW of capacity at Harestanes and Forest of Ae in Dumfries and Galloway. The £200 million, 71 turbine project will provide enough green energy for approximately 120,000 homes, and will be ScottishPower’s third largest windfarm to be consented, following Black Law in Lanarkshire and Whitelee at Eaglesham Moor near Glasgow. Construction is scheduled to start in spring 2008, with the first turbine scheduled to arrive in early 2010.

Consents were also granted for extensions to Beinn an Tuirc and Hagshaw Hill windfarms. Beinn an Tuirc, near Carradale in Kintyre, which has a capacity of 30 MW will more than double in size. The 19 new turbines we plan to install will increase the windfarm’s capacity by 38 MW to 68 MW. Hagshaw Hill in Lanarkshire is Scotland’s oldest windfarm with a capacity of 16 MW. A further 20 turbines are planned for the site at Douglas, Lanarkshire, which will increase its capacity to 42 MW.

IBERDROLA aim to achieve an installed capacity of 13,600 MW of renewable energy globally by 2010 and are investing around €8.6 billion worldwide – €1.2 billion in the UK to deliver this.

It has always been our aim to deliver responsible and sustainable windfarm projects that are accepted by local communities. During our site selection process we seek out low impact areas such as commercial forests and brownfield sites, where we can minimise the impact on the landscape and create new habitats for wildlife. We also ensure that local communities benefit from our windfarm projects by setting up Windfarm Community Trusts.

Our responsible approach to development was recognised with a Queen’s Award in the Sustainable Development category in April 2006 and in the Green Apple Environmental Awards 2007 when we were named National Green Champion for Scotland.

Other Renewables

In the UK we are also supporting other forms of renewable energy including offshore wind, wave and tidal energy and biomass.

Wave Energy

In February 2007 we announced our plans to build the world’s largest commercial wave farm to date in Orkney’s coastal waters, close to the European Marine Energy Centre. The £10 million wave farm, which is receiving support from the Scottish Government, will consist of four, 160 metre Pelamis wave energy converters, which will generate up to 3 MW of electricity. Planning consent has been received and manufacture of the units is scheduled for 2008 with a target commissioning date of the end of 2009.

Tidal Energy

In May we announced a new joint venture with Hammerfest Strøm of Norway with the ultimate aim of building a tidal demonstration project in Scottish waters. Hammerfest has been running a demonstration project in northern Norway for the last four years with promising results.

The device, similar to an underwater wind turbine, generates 300 kW of electricity. It is anticipated that the technology will be scaled up to 1 MW for testing in Scottish conditions, where tidal speeds are faster. Data gathering to identify suitable locations around the Scottish coastline is under way.

Offshore Wind

We are continuing the development process for two offshore windfarms at Shell Flats, near Blackpool and West of Duddon Sands, near Liverpool.

Network Reinforcement

EnergyNetworks is investing £1.5 billion over five years in upgrading the electricity grid to support new renewable energy projects.

During 2007 EnergyNetworks completed connections to a further 520 MW of renewable energy. During 2008 we expect to connect another 218 MW of renewable capacity to our electrical network. We are also progressing site works and designs for a range of other generation sites. The additional portfolio across our licensed areas in Scotland, England and Wales over the next few years is potentially in excess of 4,500 MW.

Key areas of work in 2007 included:

• Work began on upgrades to the Anglo-Scottish interconnector– the power link between Scotland and England. The capacity of the interconnector is presently being upgraded from 2,200 MW to 2,800 MW. The major portion of the work involves two new substations being built at Coalburn and Elvanfoot, and the line from Eccles to Stella conductor being upgraded
• Public consultation on the new Coylton-Dalmellington-New Cumnock transmission line in Ayrshire commenced. The project would provide grid connection for planned windfarms in the area with a potential total of 800 MW. We aim to lodge the Section 37 consent application in summer 2008
• Public consultation on the proposed new substation and 132 kV line that would connect Markshill and Arecleoch windfarms in south west Scotland with the Moyle interconnector (the power link between Scotland and Northern Ireland) commenced

During the year EnergyNetworks gave evidence at the Public Inquiry into the construction of a 220 km line between Beauly, west of Inverness, to Denny, west of Falkirk. The proposal enables the growth of renewable generation in the north of Scotland. The plan is to replace the existing 132 kV line with a 400 kV line, approximately 60% of which would be built on a route adjacent to the existing line.

Around 10% of the line is in ScottishPower’s territory – the remainder in Scottish Hydro Electric’s area. We would be required to build a new substation near Denny, as part of the project.

Network Reliability

For information see Customer Experience and Sites, Siting and Infrastructure impact areas.