Scottish Power will likely close its coal-fired power station at Longannet in Fife next year.
The announcement comes after the energy firm lost out on a contract from National Grid.
A Peterhead gas-fired power station owned and operated by SSE was selected to provide voltage support services to National Grid between April 2016 and September 2017.
About 270 people are currently employed at Longannet.
Earlier this month MSPs heard Longannet would be at risk unless Scottish Power won the £15million contract.
Scottish Power retail and generation chef executive Neil Clitheroe 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.
“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.”
Peterhead was chosen because its proposal was determined to be the “most beneficial” across a number of factors.
These included the ability to provide system stability and resilience, and value for money for British customers.
Mike Calviou, Director of Transmission Network Services, 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.”
Jim Smith, SSE’s managing director of energy portfolio management, said: “This announcement is positive news for Peterhead.
“SSE has continually invested in the site since it opened in 1980 and we’re pleased Peterhead will continue to play an important role in ensuring National Grid can provide system stability and resilience going forward.”
The contract will allow National Grid to call upon 385mw of Peterhead’s 1180mw capacity to provide voltage support.
Scottish Government Energy Minister Fergus Ewing is to hold urgent talks with Scottish Power, Fife Council and unions about Longannet’s future.
Mr Ewing, who is expected to make a statement to Parliament on Wednesday, said his thoughts were with workers at the Fife plant.
He said: “Of course I welcome the news that Peterhead power station has secured a contract from National Grid, given its huge strategic importance to Scotland.
“However, the news that Longannet is now likely to close prematurely is very concerning for the Scottish Government.
“I will speak to the leader of Fife Council, Councillor David Ross, this afternoon to discuss a co-ordinated response.
“We will look to engage all relevant authorities and agencies alongside Scottish Power to secure the best possible outcomes for those affected throughout the local economy and further afield.
“This activity will require cross-party support and close working between all of the relevant authorities.
“Of course there has been broad consensus that the electricity system in Scotland will be less resilient if Longannet closes prematurely.
“It is vital, therefore, that these discussions also explore all possible options for averting the premature closure of the site, such as possible action to address discriminatory transmission charges, whether additional National Grid contracts could be available and whether the restoration coal proposal – mentioned in the UK Budget – could help the station’s economics.”
Scottish Conservative energy spokesman Murdo Fraser MSP said: “This is a very serious blow for the workforce at Longannet and for the wider economy.
“We have always known Longannet was going to have to close but it’s disappointing this has been brought forward.
“It illustrates once again why the Scottish Government has to change tack on energy policy.
“The SNP is anti-fracking, anti-nuclear and obsessed with developing intermittent wind power.
“This approach will have serious issues in relation to security of supply and could mean we will have to start importing power from England unless we can find a way to fill this gap.”