Longannet coal-fired power station is likely to close early next year after failing to win a crucial contract from National Grid.
The plant – one of the biggest of its kind in Europe – was bidding for a short term contract to help keep voltage levels in the electricity supply from 2016 to 2017.
MSPs heard earlier this month that Longannet would have to shut by the end of March next year unless it was successful in its bid.
But National Grid announced on Monday that that SSE-operated gas-fired power station at Peterhead was chosen for the £15m contract over Longannet and a third bidder.
Longannet employs about 270 people in Fife and would most likely have to let them go in rounds of redundancies.
Neil Clitheroe, chief executive of Scottish Power retail and generation, said: “We are extremely disappointed with National Grid's decision as Scottish Power submitted a competitive bid that reflected our commitment to protecting the immediate future of Longannet power station.
“As we have said previously, today's decision by National Grid means that, in all likelihood, we will be forced to announce the closure of Longannet by March 2016.
“Everyone will appreciate that it is a concerning time for all our people and we will do everything in our power to manage the outcome of this process as best we can.”
Peterhead was considered to be the most beneficial because it could provide system stability and value for money for UK customers, while Longannet has been under pressure from new EU environmental legislation and carbon taxation combined with higher transmission charges to connect to the grid due to its location in Scotland.
Mr Clitheroe said: “The issue regarding punitive transmission charges has not changed and this still negatively impacts the future of the station.
“Beyond that, the current transmission charging regime is a major barrier to any future investment in flexible thermal power generation in Scotland.
“In any future scenario for Scotland, it is vital that the network here is supported by flexible generation to complement renewables.”
The contract is seen as a safety net for the system until other projects are completed to improve the electricity transmission system including the Western Link, a £1bn project to help carry renewables-generated electricity from Scotland to Wales and England.
Mike Calviou, director of transmission network services at National Grid, said: “We recognised a need for voltage support in Scotland due to a gap between the potential closure of thermal plant and the completion of upgrades to the high-voltage transmission network.
“We shortlisted potential providers for this service and selected the provider that was best able to meet our requirements.”
The Scottish Government is expected to hold urgent talks with Scottish Power, Fife Council and unions about Longannet’s future.