A SCOTTISH state-owned power firm could help boost the economy and alleviate fuel poverty, new analysis suggests.

A report by consultants EY for ministers sets out the options for the kind of company Nicola Sturgeon aims to set up to cut fuel poverty by the end of this parliament in 2021.

If successfully implemented, the report says this could encourage greater energy efficiency and support sustainable economic growth.

However it warns the financial landscape could present “significant challenges” to setting up a new energy firm in a “highly complex and competitive market”.

Of the 42 domestic energy suppliers offering services in Scotland, the report says around half recorded losses in their most recent financial statements, including two of the so-called “Big Six” companies.

It states that more than half of them highlight their competitive prices in trying to attract customers, yet the market still fails to operate properly because so many people do not consider the benefits of switching providers to get a better deal. In Scotland, it has been found that there is particularly strong loyalty to the Scottish Hydro brand owned by SSE, and to Scottish Power.

Both companies grew out of the nationalised electricity boards - Hydro-Electric for the north of Scotland, and the other for central and southern Scotland.

EY has drawn up a shortlist of possible options for the new company, including one that would see local councils involved in the delivery of energy.

Depending on the option chosen, the set up costs could be £500,000 to £3.5 million with an annual operating cost of £2.8m to £9m.

At local authority level, Edinburgh and Aberdeen already have innovative companies to help tackle fuel poverty and invest in district heating schemes.

In England, there are energy suppliers run by councils, including Robin Hood Energy, run by Nottingham City Council and supplying to Liverpool and Islington under a White Label.

EY’s report to ministers concluded: The report concludes: “The over-riding strategic question for SG is how to make the energy co. cost competitive, in a low margin market.”