Accountancy firm EY has warned that the Scottish Government faces tough competition from 42 other players if it goes ahead with plans to create a publicly-owned energy company.

In a report commissioned by ministers, consultants said the cost of setting up the company would be £3.5 million and it would cost £9m to run during its first year.

EY said half of the 42 competitors in the Scottish market reported a loss during their most recent financial years, including two of the “big six” companies.

The report outlined options for ministers to use, including offering energy through local councils.

Low-margin market

EY said: “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 recognise, however, the challenges of doing this in a highly innovative, competitive and evolving energy retail market.

“The over-riding strategic question for the Scottish Government is how to make the energy company cost competitive, in a low-margin market.”

> Download EY's report