The government financial subsidy for the first carbon capture and storage (CCS) power plant, a project that could cost between £1 billion and £2 billion, is likely to be only tens of millions of pounds, an adviser to the Prime Minister has revealed.

Nine power companies are competing for government funds to build the first CCS power station, but the level of government financial support is likely to disappoint the bidders.

The pilot project will test the commercial viability of technology that captures carbon dioxide produced by combustion of coal or gas in a power station and stores it safely, probably in declining North Sea oil or gasfields.

Michael Jacobs, a senior adviser to the Prime Minister, said that a shortlist of four or five companies would be made in the autumn. The winning company would be selected in mid-2009 with a view to having the pilot plant operating by 2014.

Speaking at a conference organised by Deutsche Bank yesterday, Mr Jacobs said that the Government would offer very significant financial support to the project: “Tens of millions of pounds of taxpayer support,” he said. “It will be capital expenditure and operating expenditure. This is a very big commitment.”

The sum was described as disappointing by a big electricity company yesterday. “We would have been expecting something like £300 million,” a source within the company said.

Climate Change Capital, an investment adviser to low-carbon energy projects, estimates that a pilot CCS power plant would cost between €900 million (£722 million) and €1.3 billion more than a conventional power plant.

Anthony White, a director of Climate Change Capital, said that the available data was too uncertain to pick winners in a commercially untested technology. He said: “The scale of funding is so large it won’t come from a single member state. We need EU-wide funding.”

Mr Jackson expressed doubts about European Union proposals for 12 pilot CCS plants in Europe by 2015 because of the absence of any funding proposal. “We are not where we want to be. You would not be confident we are going to get 12.”

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