Construction of the combined heat and power plant is now well underway, and once finished it will provide the Fife-based paper manufacturer with steam and electricity.

It will be owned and operated by RWE npower renewables, and reduce the mill's fossil fuel CO2 emissions by around 250,000 tonnes each year.

Chris Parr, Tullis Russell chief executive, said: "This is an extremely positive development for Tullis Russell and helps to ensure a sustainable future for our business by enabling us to compete more effectively in what is a highly competitive market.

"It will also significantly reduce Tullis Russell's carbon footprint, making us a genuine low carbon paper producer in the markets we serve."

Construction is expected to last two years and the plant is scheduled for operation in late 2012.

The development has received the backing of Scotland's first minister Alex Salmond and it was awarded £8.1m through a Scottish Government's Regional Selective Assistance grant.