German utility E.ON AG (EOAN.XE) Wednesday said it won't proceed to the next stage of the U.K. government's competition to fund a commercial-scale carbon capture and storage project on a fossil fuel-fired power station, leaving an Iberdrola SA (IBE.MC)-led project as the only one remaining.

E.ON said in a statement that the economic conditions were still "not right" for the company to progress the project and that it was clear that the project at Kingsnorth in Kent couldn't meet the project timetable.

"Having postponed Kingsnorth last year, it has become clear that the economic conditions are still not right for us to progress the project and so, simply put, we have no power station on which to build a CCS demonstration," E.ON U.K. Chief Executive Paul Golby said.

The move is a blow to the U.K. government that is aiming to become a global leader in CCS with a view to exporting the technology to countries such as India and China that are rapidly expanding their fossil fuel fired power generating capacity to support booming economies.

The U.K. government had said it wants to support up to four CCS projects, which could also include capturing emissions from a gas power plant.

"The government is naturally disappointed that E.ON has decided not proceed," the Department of Energy and Climate Change said in an emailed statement.

"E.ON's decision has been made in the context of their own investment plans, and is no reflection on E.ON's commitment to CCS," the DECC statement said.

E.ON said it will instead focus on its Maasvlakte project in the Netherlands where it is working with Electrabel SA, GDF Suez (GSZ.FR) and the Rotterdam Climate Initiative to conduct a joint feasibility study for a 250 megawatt carbon capture unit to be fitted on the new power station currently being built.

The only other contender for government funding is a ScottishPower-led project at its Longannet coal plant in Scotland . ScottishPower, the U.K. subsidiary of Iberdrola SA (IBE.MC), is working with National Grid PLC (NG.LN), Royal Dutch Shell PLC (RDSB.LN), Aker Clean Carbon and Acccenture PLC (ACN) on the Longannet CCS scheme.

E.ON had planned to build a carbon capture unit on a new 1,600-megawatt coal station at Kingsnorth, where their existing coal plant is due to close in 2015 under a European Union environmental directive.

However, last year, the German utility postponed making an investment decision on the new coal-fired power station at Kingsnorth by three years to 2016, citing a fall in power demand and prices due to the recession.
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