A “clean coal” power plant at Hatfield colliery in Yorkshire is in pole position to collect £165 million in funding from the European Commission, it was claimed last night.

The Powerfuel plant near Doncaster, which is co-owned by Richard Budge, the mining entrepreneur, appeared to have won against stiff competition from companies including E.ON, the German power group, which announced on Thursday that it was delaying plans for a new coal-fired station at Kingsnorth, Kent, for up to three years.

E.ON claimed the decision had been taken because of falling electricity demand in the UK caused by the recession. But Chris Davies, a Liberal Democrat MEP who steered carbon-capture and storage (CCS) regulations through the European Parliament, claimed the decision was instead linked to the group’s failure to secure European funding. He added that a formal announcement from the European Parliament was due shortly.

Powerfuel’s location at Hatfield has been touted as a potential starting point for a “cluster” of CCS plants where emissions from a string of industrial sites on Humberside could be piped into the North Sea for permanent storage in former gas fields. National Grid has thrown its weight behind the scheme.

Separately, a row was brewing yesterday over whether E.ON’s decision to delay its Kingsnorth project disqualified it from winning a separate funding package worth an estimated £1 billion from the UK’s Department for Energy and Climate Change (DECC).

Both E.ON and the Government insisted yesterday that the company could still be eligible for the money, even though the delay leaves it unable to meet a 2014 deadline set by the Government for opening a clean-coal demonstration plant. One of the other three contenders, Scottish Power, which is trying to build a clean-coal plant at its existing power station in Longannet, Fife, said it was “seeking clarification” from the DECC on whether E.ON was still involved in the CCS competition.

Nick Horler, ScottishPower’s chief executive, added: “If other bids fall away our consortium is happy to sit down with the UK Government and agree the way to deliver their requirements of commercial-scale CCS to their original timescale of 2014.” But a spokesman for the Government said: “Nothing has changed with our CCS competition. E.ON has not withdrawn.”

Meanwhile, a government adviser warned yesterday that E.ON’s decision to shelve its plans for the Kingsnorth plant is set to make Britain more reliant on gas for generating electricity — even as domestic supplies of the fuel are running out.

The share of UK electricity produced by burning gas is set to soar from 35 per cent today to as high as 50 per cent by 2012, according to Redpoint, an energy consultancy that advises the Decc. Philip Grant, director at Redpoint, said that gas-fired stations were most likely to fill the yawning supply gap that will open up in about 2015 as a quarter of the country’s coal and oil-fired plants are set to close to meet new European pollution rules. He warned that this would further expose UK homes to volatile wholesale gas prices.

Tony Hayward , the chief executive of BP, has claimed that CCS technology will not be commercial for at least ten years. Speaking at the World Gas Conference in Buenos Aires, he said gas offered the cheapest and quickest solution to cutting carbon emissions.

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