A T first sight, the top camp of the Glendoe hydro-electric scheme looks bleak. Situated some 700 metres above sea level, in the Monadhliath mountains above the small Highland village of Fort Augustus, it is the highest settlement in Scotland and surely the most exposed. Pockets of snow lie all around the camp, and there is no natural shelter from the freezing wind. "There it is," says the driver of the 4x4 that brought me here, along a partially constructed road, half an hour's journey from the Glendoe base-camp. Cloud swirls around the collection of orange Portakabins, set like bricks against an expanse of maroon-coloured hills; green silos curve against the elements, sheltering men from the driving rain.

There are no armed guards at the perimeters, but the place still projects the gloom and isolation of a wartime prison camp. Most of the 70 staff currently based here are involved in the construction of accommodation blocks for 150 more workers for whom this will be home by next summer, when the midges take over from the sleet. Their job will be to build a 905 metre-long dam across the River Tarff, which in time will provide the head of water needed to power the UK's biggest scheme of its kind in half a century.

Commissioned by Scottish and Southern Energy (SSE) at a cost of £140 million, and run by the German construction company Hochtief, the development will eventually honeycomb the mountain with more than 18 kilometres of tunnels. An aqueduct will bring water to the top camp reservoir, then to a power station deep underground. When completed, it will provide enough electricity to power 250,000 homes. At present this is still a pipe dream, but at least that pipe is under construction.

At the base camp a short distance above Fort Augustus, entrances to the access and tailrace tunnels began last year. And today - December 4, St Barbara's Day in Poland, where many of the employees are from - those tunnels are being officially named. We are standing at a tunnel entrance, and scenes from the film, The Great Escape - with its cast of men digging for freedom - come to mind. "When you're inside a tunnel the weather is always the same," whispers Ivan Labaj, site manager of the Slovakian drilling company Tubau. Sludge gathers at our feet; the climate is constantly cold.

Reflective jackets glint in the light from the arching rooftop. In a white plastic marquis, deep in the belly of Borlum Hill, local minister Adrian Varwell is evoking the spirit of Saint Barbara for the troops of assembled workers. The martyr - legend has it she was beheaded circa 300AD by her father for her Christian beliefs - has been the guardian of tunnellers and miners ever since. Looking on under white protective helmets, with earmuffs round their necks, are those who might need her most: men from 19 different countries, speaking at least as many languages. Those who catch the sermon first time round nod solemnly; those who don't will get a second chance when it is repeated, by a visiting priest, in Polish. As a final flourish, holy water is thrown meaningfully at the walls and into the lenses of digital cameras.

As the drill-and-blast team for the network of underground tunnels, Labaj's men form the first line of attack. Working round the clock on 12-hour shifts, they set the explosives that will forge a path through the rock face, clearing away the rubble before preparing the next charge. It is a process he has overseen in Iceland and Spain and his team are among the best in the business. Respite, he says, comes in the form of a weekly trip to Inverness on a company bus and the odd bit of gallows humour. "It's not like it is in the cartoons," he says. "We still use dynamite but there's a cable from a really long distance outside. It's all done with electric chargers these days so it's a lot safer than it used to be. The men don't complain. They like it at the bottom here because it's a beautiful place to work."

In scenic terms, this is indisputable. From the grit and mud of the base camp, the view over Fort Augustus is stunning. Pleasure boats rest on the southwestern banks of Loch Ness; the valley stretches endlessly into the distance. In the Kilchuimen primary school below, children have already begun preparing hampers for the men who will remain on-site over Christmas. From there, it is a stone's throw to the roof of the Benedictine abbey, where, more than 100 years ago in 1890, monks cranked the wheel on the UK's first public hydro-electric scheme. The new scheme will have significantly more muscle, and is a key element of the Scottish Executive's push to provide 40% of the country's power from renewable energy by 2020.

Despite the enormity of the development, all that will remain visible once work is completed will be the entrance to a tailrace tunnel piping clean water into Loch Ness. The top site's invisibility to all but the most persistent of ramblers was one of the reasons the project was given the go-ahead in the first place. Although 10 smaller hydro-electric schemes have been commissioned by SSE, the drive to preserve areas of natural beauty means Glendoe will be the last of its size in Scotland. "There aren't many sites left that wouldn't attract serious environmental challenges," says SSE project manager Neil Sandilands. "We only received eight objections against this site on environmental grounds which is exceptionally low for a project of this size. It's still omelettes and broken eggs to some extent but we have the ability now to reinstate the land we disrupt and we're fairly confident that we can do this."

In the headquarters of the base camp, Sandilands runs through the mathematics of the plan, outlining its green credentials. Diagrams of machines and their technical specifications line the Portakabin's walls. But one takes pride of place. At 200 metres long and weighing in at more than 300 tonnes, the £7 million tunnel-boring machine has become the poster girl for the entire campaign. Dubbed Eliza Jane by local schoolchildren, and resembling a tooth-bearing train, the machine was modified in Germany before arriving at Glendoe.

Since first firing its engines in September, it has chewed 900 metres into the mountain at a rate of around 125 metres per day. Carving out the main water shaft, without the help of the drill-and-blast teams, the spoil it displaces is ferried on an electric conveyor belt, where it is used in the construction of site roads. Operated by a team of 60 men, Eliza Jane will not see daylight again for 18 months.

Although it is still in its infant stages, Glendoe's potential was identified several decades ago. The site was one of more than 100 originally proposed by the former Scottish secretary of state Tom Johnston, who was head of the North of Scotland Hydro-Electric Board in the 1940s. Of these, there are now 79 plants across Scotland, mostly in the Highlands, and mostly built in the 1950s. At its peak, the industry employed 12,000 men, bringing electricity for the first time to remote parts of Scotland and sparking a gold-rush mentality. But with wages outstripping anything seen previously by local people, and bonuses linked to the speed of excavation, progress often came at a cost. Collapsing tunnels were not uncommon; carbon monoxide and diesel fumes took their toll. Although some sites were running at the loss of around 20 workers a year, precise figures were never recorded. Memories of the Tunnel Tigers - so named for their willingness to press ahead regardless of danger to life and limb - are still vivid for many in the Highlands and for some of those now employed on-site.

"A lot of people are drawn in by the mystique of the hydro schemes of the past and the idea that this is now the last-ever chance to work on one," says Hochtief personnel manager Jim Oliver, who is from Inverness. "As a young lad I was always interested in the hydro schemes and the dams that my father used to tell me about. I grew up with the stories of the Tunnel Tigers, and I was fascinated by those massive structures."

Thankfully, health and safety awareness has improved significantly since then. The men on site receive talks, often with the help of translators, on the dangers of a job. Though far from risk-free, the use of electric machinery and modern explosives means many past hazards have been eliminated.

"I remember my grandfather a tunneller on an early scheme talking about the dust in the tunnels being so thick that you could barely see in front of you," says Barry Paterson, who has worked on-site since the summer. "You go into the tunnels now and the air is clean and fresh."

Inevitably, a development on this scale has brought changes to the local environment and economy. A native of Fort Augustus, Paterson thinks it has come at the right time for the area. "I was just about to leave because there was nothing happening in the village but now there's an opportunity to do two or three years of solid work. I think most people would agree it's been good for the town and for Scotland."

Outside the base camp mess hall, men gather in groups, according to their nationality: Germans speak with Germans; Lithuanians with their fellow countrymen. None of the migrant workers I talk to has been in Scotland before although several know their place in the country's tunnelling history. At Sloy - Scotland's first large-scale plant in the 1950s - 75% of the workforce comprised displaced Europeans and German ex-prisoners of war, a pattern repeated in hydro schemes throughout the Highlands. Today, just over a third of the 330 men at Glendoe hail from Eastern Europe, the majority of those from Poland. Haircuts, accordingly, are advertised in four different languages; meals on-site are responsive to the cuisines of the different nationalities, although every one comes with rice. A recreation hall, with pool tables and a bar, provides the lion's share of entertainment in this, their home for the next two years. Along with the wage packet - which starts at £6 an hour for unskilled labourers - each man has a room with a bed, a wardrobe and a chair. For management or skilled workers, a single room is the norm while most share with another body. In terms of the highlights, most point to the showers, with their dimple-inducing water pressure.

The top camp, however, is discussed with little enthusiasm. "We just moved up there two days ago and they're really difficult conditions," says Polish welder Lucas Grabowski, who is at base camp today for the tunnel-naming ceremony. "It's freezing and we have no contact with our families at home because there's no signal for our phones." From base camp, they can walk down to the village at weekends, but the top camp's location means such outings are unlikely to continue. "I'm tired all the time so when I'm not working I just sleep."

For some, the lifestyle has already proved too much to bear. Hired as a driver but put to cleaning rocks for the dam, Miro Jelen from Slovakia lasted just three weeks at the top site before throwing in the towel. "I got £6 per hour before tax," he says. "I thought it was really bad money for the job I was doing because it's really cold up there and it felt a bit dangerous. I was outside for about 12 hours a day. Nobody up there is happy but a lot of them have families and don't want to cause any trouble. I think lots more people will be leaving after Christmas."

While there have been only four accidents on-site - despite a total of 550,000 man hours worked - former camp nurse Anna Copple thinks the mixture of languages means there could be potential for more. "It's really concerning because they've got a serious communication problem up there," she says.

Down in the village, rumours abound about the men's working conditions. Since arriving last year, they have become the new neighbours next door. With the workforce expected to top 500 by next year, the local population is set to nearly double. Bed and breakfasts are already doing a roaring trade, their usual winter slump offset by the slew of incoming workers. Because families are not allowed on-site, workers with wives have taken up residence in the village, and their children are enrolled in local schools. Estate agents, unsurprisingly, have nothing but praise for the initiative. In what was primarily a stopping-off point for visitors to the lochs and glens, house prices have risen steadily over recent months. Much of the talk in the bars and restaurants is of integration with the new arrivals, of welcoming them as part of the community.

Jan Culshaw, vice-chairman of the Fort Augustus and Glenmoriston Business Initiative, says fears of an invasion were exaggerated. "We get good trade from these guys in our shop and other people seem to be saying the same," he says. "I think people were initially afraid that the place was going to be full of drunken workers but it just hasn't worked out like that. We don't have any problem with them at all and, to be honest; they're almost invisible."

Complaints, where they do emerge, revolve largely around the increased road traffic and the heavy blasting which signalled the start of construction in the summer. "There was one particularly loud explosion at four o'clock on a Sunday morning," says local business owner Christine Donnolly. "We thought it was an earthquake."

SSE, for their part, have been keen to keep local people in the loop through a monthly information bulletin and the appointment of a community liaison officer. In addition, the company has proposed a package to finance community initiatives in the village over the coming years, including bursaries for local engineering students. It is a promise many are keen to hold them to.

"If we could close our eyes and just wake up when it was all done that would be fine," says Highland councillor Margaret Davidson. "I do hope when it's finished in three years time that we have some sort of legacy for the future of the village. There's been lots of talk from SSE, and the community is happy with their proposals. I want to make sure the company takes that seriously." She will also, she says, be pressing for further large-scale hydro-electric schemes in the future, providing greater employment opportunities for locals with exprtise.

Singing from the same hymn sheet is SNP MSP Fergus Ewing, who lobbied the Scottish Executive for guarantees of a locally employed workforce at Glendoe. "I personally would like to see more debate, more candidates and more hydro schemes in the future," he says. "I argued for the maximum number of Scottish workers and businesses to be employed on site, which didn't materialise. It's perhaps an opportunity lost and I obviously feel disappointed by that."

Mike MacKenzie, from Elgin, who transports the concrete needed for construction, and who lives on-site during the week, chooses to look at the long-term benefits to be gleaned from hydro-electricity. "I certainly prefer hydro to nuclear energy, and with wind farms you need a hell of a lot of turbines for them to be of any use," he says. He puts his ability to cope with the hardships of life on the site down to a mixture of northern hippy blood and the promise of financial gain. Most days, he takes a video camera with him, documenting the progress of the scheme to show his children when they get a little older.

"My belief is that my kids are my future and that part of me will live on through them," he says. "It'll be nice to tell them I worked on the last big project like this in Scotland and that it was a step in the right direction."