NATIONAL Grid is demanding up to pounds 500m from prospective wind farm developers before it expands the electricity network capacity to accommodate new sources of power.

Wind farm developers that have applied to connect to the electricity grid have been told they must first put up financial guarantees, known as final sum liabilities. National Grid is seeking a total of pounds 500m from the top 20 wind farm developers.

National Grid wants developers to provide bank guarantees to cover the cost of the network expansion to cope with the expected extra power. It wants to weed out opportunistic wind farm developers and protect itself financially.

"They say they don't have the money and they're reluctant to deal with more than five or six major utilities,'' said one source. Developers that don't use their transmission connections will forfeit the money. But those that connect to the network will get their money back from National Grid.

Some developers have withdrawn their applications after being told they would have to put up a financial guarantee.

It is also understood that some major oil companies are considering running electricity cables underground alongside their oil and gas pipelines rather than negotiate connections with National Grid.

Fledgling wind farm developers argue the bank guarantees sought by National Grid impose a financial strain on companies before they have even started producing power and making money. "This is putting a lot of people off,'' said a source. "When people have to start putting up letters for those sums of money, it starts to impact on people's balance sheets.''

Scotland and outlying islands are the UK's biggest sources of wind power. Although Scottish Power owns the electricity network in Scotland, National Grid manages the network. National Grid says it will cost pounds 550m to upgrade its network to accommodate the extra 3 gigawatt to 5 gigawatt of power that wind farms in Scotland are expected to generate and to transport it to centres of demand.

It told the Government's recent energy review that this investment is necessary to transport all the promised new power generated by remote wind farm sites to the main centres of electricity demand. It will also have to spend money to increase further the bulk transfer of power from the north to the south.

A National Grid spokesman confirmed the company was seeking financial guarantees from wind farm developers before spending money on new capacity for them.

"We don't want to build something that isn't going to be used. There has to be some shared risk.''

National Grid is currently sifting through 170 requests for connection from power companies. If all these went ahead, the amount of electricity generated in Scotland would double.

"This is an unprecedented level of requests at one time,'' the spokesman said.

Faced with a backlash from wind farm developers, National Grid has offered to cut the amount of money it is seeking. It is considering asking for smaller guarantees at the outset, gradually increasing the amount as the project nears completion. It has also suggested developers in the same area "cluster'' together on their connection and share the final sum liability.