Mounting fears within government circles that Britain’s utilities are poised for a new dash for gas – increasing the country’s future power dependence on fuel imports from Russia – has persuaded Ed Miliband, the Energy and Climate Change Secretary, to back funding for a second clean coal demonstration power plant.

In an attempt to ensure that coal remains part of the UK energy mix, he will also set out licensing conditions for more coal power stations.

Mr Miliband’s renewed pitch for clean coal, which could be timed to coincide with the Budget on Wednesday, is to be pushed out quickly to counter scepticism in the power industry that the Government has a viable strategy to promote carbon capture and storage (CCS) technology.

Lack of a long-term government strategy to ensure the commercial viability of power plants that use CCS, a technology that has not been proven on a commercial scale, is creating anxiety in the power industry.

Mr Miliband is opposed to granting licences for new coal plants that are “carbon-capture ready”, arguing that this provides no commitment to reduce carbon dioxide. However, power companies argue that a new coal plant with CCS is not financially viable if it must compete against electricity supplied by other coal or gas plants that do not carry the cost of capturing CO2 .

According to E.ON, the extra cost of CCS for a large coal-fired power station would place it between on-shore and offshore wind generation in terms of its competitiveness. Without the benefit of a regime, such as the renewable obligation that forces power utilitites to buy wind power, CCS cannot compete with coal or gas-fired generators, the German utility says. It has applied to build a new coal power station at Kingsnorth, Kent, where it is committed to closing the existing two gigawatt coal-fired generator to comply with European Union rules on sulphur dioxide emissions. Five coal power stations, representing 10 per cent of Britain’s power capacity and owned by E.ON, RWE, npower, ScottishPower and Scottish & Southern, must close by the end of 2015 to comply with EU law. Without rapid investments in new power stations, the country could face blackouts within five years, experts say.

The chief executive of one company facing a big investment decision said that the Government’s inaction on a CCS regime was forcing his hand: “If I was to do the obvious thing, I would build a gas-fired plant. Without a carbon tax of some kind or a renewable obligation, there is no way you can build CCS.”

Officials at the Department of Energy and Climate Change are worried that the yawning electricity gap will prompt a late dash by utilities to build gas-fired power stations. Yet huge opposition to coal remains. Mr Miliband, therefore, will propose a funding mechanism to support a second CCS demonstration plant. He will also spell out licensing conditions for new coal-fired generators to ensure that there is a binding commitment to reduce carbon emissions.

The announcement is intended to send a signal that the Government is committed to keep coal in the energy mix, but it may fall short of providing a long-term strategy to ensure the viability of investments in CCS technology. E.ON estimates that a CCS plant large enough to capture 90 per cent of the carbon emitted from a new Kingsnorth coal plant would cost about £1 billion. Operating costs are also high as about a fifth of the electricity produced is lost in stripping out and capturing the CO2 emissions.

Tim Dyke, E.ON’s clean coal business development manager, said: “We need a financial mechanism enabling us to recover the additional costs. The carbon price is not high enough to support it.”

Britain had hoped that Europe’s Emissions Trading System would create financial incentives to build CCS power plants, but the price of allowances to emit carbon dioxide, known as EUAs, has collapsed. Idle factories and falling demand for power has cut Europe’s carbon emission, leaving industry with surplus EUAs that cash-strapped companies have dumped on the market. The carbon price is about €14 per tonne, but E.ON reckons that for CCS plants to compete on a large scale with ordinary coal and gas-fired generators, a price of €40 is needed. Without subsidy, a demonstration plant might need a price of €100 to compete.

Mr Dyke said: “If we cannot go the coal with CCS route, we will invest in gas-fired power stations.”

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