Managing director Ernest Kidney said the plant would be built at Invergordon, 25 miles north of Inverness.
It will have twice the capacity of Balcas’ Ulster combined heat and power plant (CHP) built two years ago and commissioned last year.
Mr Kidney said: “We want to grow this side of our business and the Forestry Commission and Forest Enterprise pointed us in the direction of that area of Scotland where there is an under-used surplus of wood fibre. It is under-used because it is so far from existing markets.
“There is one factory outside Inverness which has adequate supply and the next nearest is 160 miles further south. Wood fibre doesn’t travel that far because it is half water and trucking loads that are half water is a mug’s game.”
Balcas has completed an environmental impact study and is due to submit a planning application for the plant.
Mr Kidney said: “It takes a year to build such a plant, so it will be 2008 before it is operational.”
He said the plant will produce 8MW of electricity, five of which will be exported to the grid. The remaining 3MW will be used internally.
The Scottish CHP plant will produce 100,000 tonnes of wood pellets from bark, sawdust and woodchips which Mr Kidney said equated to 80 million litres of oil.
He added: “It is a chicken and egg situation. People don’t have a requirement for pellets until there is pellet availability, and that market has to be created. But we are confident that the Scottish market will absorb all of that production.”
