A funding package worth up to £1 billion to help Britain to build the world’s first “clean coal” power station could be delayed by the Government after E.ON’s decision to freeze plans for a new coal plant at Kingsnorth in Kent for up to three years.

In an interview with The Times, Paul Golby, the chief executive of E.ON UK, said that the Government had agreed to retain Kingsnorth in a competition for the funding, even though it would now be impossible for the project to meet a key deadline.

To qualify for the government scheme, aimed at making Britain a leader in the technology to strip out carbon and bury it underground, power companies had been expected to build a 400-megawatt carbon capture and storage (CCS) demonstration plant by 2014.

Dr Golby said it was possible that this date would be waived by Government. He said: “Clearly, it would be very difficult for Kingsnorth to have met that condition. We are still in a process of consultation on CCS and how [the competition] will work ... The devil is in the detail.”

He insisted that the UK could remain a leader in the technology, despite the potential delay.

The decision to accommodate E.ON’s request brought a furious reaction from ScottishPower, one of two rival groups hoping to secure the cash for other CCS projects.

The row has emerged as Ed Miliband, the Secretary of State for Energy and Climate Change, prepares to host an international forum on CCS in London this week. In The Times today, Mr Miliband calls CCS “a technology we cannot do without”.

Yesterday, ScottishPower, which wants to fit CCS equipment to an existing coal-fired power station at Longannet in Fife said that it was in talks with the Department for Energy and Climate Change about E.ON’s continued role in the competition.

ScottishPower pointed out that the US Government had awarded $3.5 billion to CCS projects and that China, Australia, Canada and the Netherlands were working on similar initiatives.

Dr Golby said that the decision to delay building a £1.5 billion, 1,600MW plant at Kingsnorth had been taken for economic reasons rather than as a response to pressure from anti-coal activists.

“Demand for electricity has dropped substantially, You can’t build plant that there is no market for,” he said. He acknowledged that the delay to Kingsnorth would boost, temporarily, Britain’s reliance on imported natural gas for electricity generation.

Nine coal and oil-fired power stations, comprising a quarter of the UK’s generation fleet, are set to close by 2015 to meet new European pollution rules. Only gas-fired stations will be able to make up the supply shortfall in time because not enough wind turbines or nuclear stations will arrive before the end of the decade.

National Grid said this month that the UK would have to import half of its gas supplies this winter — the highest proportion to date — as domestic supplies from the North Sea are depleted.

Malcolm Wicks, MP, a former energy minister and author of a recent government report on Britain’s energy security, said that E.ON’s decision to delay Kingsnorth was a cause for concern: “The decision by E.ON raises questions about energy security.”

The Government, which has confirmed that E.ON remains a contender for the money, has never disclosed the sum available for the CCS competition, but industry sources believe it could be up to £1 billion.

A final decision on the winner is due early next year.

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