UPDATE 2-EON's Kingsnorth still in carbon capture contest

* E.ON also says still in UK CCS competition

* DECC says timetable not deal-breaker

* ScottishPower says happy to go ahead

* RWE npower says its CCS project still continuing

(Adds ScottishPower and RWE npower comment)

LONDON, Oct 8 (Reuters) - E.ON UK's (EONGn.DE) Kingsnorth coal-fired power plant is still vying for funding in the British government's carbon capture and storage (CCS) competition, the government and the company said on Thursday.

E.ON UK said on Wednesday it expected to delay building the controversial plant for up to three years because of lower demand for electricity, which would take the plant completion date beyond the competition deadline of 2014.

"Nothing has changed with our CCS competition, E.ON has not withdrawn," a spokeswoman for the Department of Energy and Climate Change (DECC) said.

"EON's decision to delay a decision on their proposed project is a response to the global economic situation."

While E.ON said on Wednesday it remained committed to the development of CCS, it was not clear if it would go ahead with its CCS proposal in Britain. [ID:nL7082010]

Kingsnorth has been the focus of environmental protests in Britain since it was proposed in 2006. E.ON has long been awaiting government funding to test the new technology that is meant to trap climate-warming greenhouse gases emitted by the plant and store them underground.

E.ON is one of three bidders for the UK's government-funded project for a 400 megawatt CCS demonstration facility, which is expected to be in operation by 2014 or 2015.

Other two groups still in the competition are a consortium led by ScottishPower, a unit of Spain's Iberdrola (IBE.MC), including Shell UK Limited (RDSa.L) and National Grid (NG.L), and another, led by RWE npower (RWEG.DE).

"We are still taking part in the competition. We haven't withdrawn," an E.ON UK spokeswoman told Reuters on Thursday.

When asked about the government's target date for the facility, the spokeswoman said: "There's quite a lot of conversation that needs to happen now. We are going to be talking to the DECC team about the competition."

The DECC spokeswoman said: "The timetable is not a deal breaker. There are a number of criteria that the projects have to meet."

In March, E.ON said its Kingsnorth project in south-east England was one of three demonstration plant options for the German utility. It could also build demonstration plants in Wilhelmshaven in Germany and Maasvlakte in Holland. [ID:nLI908266]

ScottishPower said it was seeking clarification from DECC on what E.ON's announcement meant for the competition.

"If other bids fall away from the competition, 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," said Nick Horler, ScottishPower's Chief Executive in a statement.

"We would be more than willing to agree the mechanisms with DECC to ensure value for money, whilst ensuring the UK remains in the lead in the development of this world changing technology."

RWE npower said the decision by E.ON to delay its Kingsnorth plant would not affect CCS development for its Tilbury coal plant site.

"There's nothing new today over yesterday before E.ON made this announcement," a spokesman said.

Industry sources said the government was likely to provide around 1 billion pounds for the first demonstration project.

ScottishPower plans to retro-fit CCS to its existing coal-fired power generator in Longannet, while RWE plans to build a new plant for adding CCS. (Reporting by Daniel Fineren and Nao Nakanishi. Additional reporting by Kwok W. Wan)