The Spanish company plans to build new supercritical turbines and boilers, capable of burning coal at very high temperatures and pressures, within its existing plants in Fife and East Lothian.
Work on the development should start in 2009 and be completed by 2012, if a feasibility study recommends that the turbines be built.
"As a world leader in renewable energy Iberdrola is committed to developing the best environmental and technological practices," Ignacio Galan, chief executive of Iberdrola, commented.
"We are delighted that today's announcement puts Scottish Power on track to deliver a revolutionary change in low carbon energy generation in Scotland."
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