SMALL hydro operators who produced almost a fifth of renewable electricity output in Scotland have warned they may be forced out of business if the Scottish Government fails to curb "unfair" rates bills.

Scotland currently has around 500 small hydro schemes in Scotland, many in rural and remote communities, providing employment to hundreds of workers.

But industry leaders say while they are helping provide green electricity, they are facing a significantly higher business rates burden than other parts of the renewables sector.

Operators have expressed dismay at the conclusions of the Tretton Review published after a two-year inquiry which suggests temporary government reliefs should continue, rather than recommending an industry-preferred permanent solution to an "unfair and ill-founded" rateable value increase in 2017 which far outstripped what was faced by other businesses.

They say hydro schemes are being hit with Rateable Values (RVs) two to three times higher than small wind schemes and four times more than solar energy schemes. The result puts rateable values at an average 24% of turnover for small hydro schemes.

Video of the Garmony Hydro community energy project on the Isle of Mull.

The Scottish Government review suggested a rates relief system could provide a "viable solution to deliver a more affordable rates outcome for the sector whilst maintaining fairness with other ratepayers".

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But Simon Hamlyn, chief executive of the British Hydropower Association, insisted a more permanent solution is required.

Without one, he said, many small-scale hydro projects could become "uneconomic" to operate and "risk being sold off at a knockdown price".

Calling on First Minister Nicola Sturgeon to intervene, he said if she "is serious about the world making progress" towards reducing emissions at the COP26 summit in Glasgow this November, "she must take action closer to home".

The Tretton Review said that while a relief system "may be imperfect" it could help provide "greater certainty" for investors.

Mr Hamlyn said: "If the Scottish Government does not intervene then many small hydro schemes will become uneconomic to local operators and risk being sold off at a knockdown price to institutional investors outside Scotland.

"Some will just not be worth operating in future, with the resulting impact on rural economies and communities and local jobs."

The small hydro sector say that while a government relief scheme, which provides a 60% reduction in rates payable, has benefited many operators, the relief isn’t guaranteed in the long term and doesn’t apply to all small hydro businesses hit by "crippling" bills.

Alex Linklater, executive director of Alba Energy, which represents Scottish hydro operators, said: “This is no routine complaint about business rates.

Hydro schemes have been targeted with rateable values multiple times greater than other businesses, including wind and solar companies. Long-term economic damage is being inflicted on Scotland’s indigenous green energy source, suffocating the potential for future development and investment.

Footage of the Lochgoilhead Shared Ownership Community Hydro

“Small Hydro is being penalised by assessors who have got their formula wrong but won’t admit it – and by a Scottish Government whose promises about a low carbon economy and rural development appear to be little more than empty rhetoric.”

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Public finance minister Kate Forbes said: "The Scottish Government is committed to a fair and sustainable rates regime and we value the significant role the hydro sector plays in Scotland's economy - particularly in some of our most rural areas.

"That's why in 2018 we set up the independent Tretton Review to conduct an appraisal of business rates for small hydro, with a focus on plant and machinery regulations.

"I'd like to thank Professor Tretton and his team for their work. The Scottish Government will now take the time necessary to consider their recommendations and act on them as swiftly as possible.

"It should be noted that the ability of ministers to offer support to the sector through an ongoing relief is predicated on there being a resolution to the Non-Domestic Rates Bill."