* Four bidders interested in Energy from Waste - sources
* Offers likely won't exceed 800 mln-1 bln eur - sources
* Deadline is June 8 for binding offers
FRANKFURT, May 22 (Reuters) - German utility E.ON has drawn lukewarm interest in the sale of its Energy from Waste unit, with bids unlikely to top 800 million to 1 billion euros (1.0-1.3 billion), three people familiar with the sales process said.
Overcapacity in waste burning plants, sharply falling electricity prices and an expected decline in the amount of waste available for burning as recycling becomes more refined are weighing on financial prospects for the unit, cooling bidder interest.
Four potential buyers are expected to submit binding bids by June 8, with Morgan Stanley Infrastructure and Swedish private equity group EQT seen as frontrunners, the sources said.
Singapore's Sembcorp is also still in the running, while German utility MVV is interested only in parts of the waste burning unit.
E.ON, however, prefers to sell the Energy from Waste unit as a whole, two sources said, adding that it also includes some older assets that need investment and would be unsellable on a standalone basis.
Banking and industry sources told Reuters last month that non-binding offers of 1.2-1.5 billion euros had been submitted but had said these were expected to be revised down in the current round.
While the original deadline for bids was May 25 the bidders were granted extra time for conducting their due diligence. "I would not rule out further delay," one person close to the transaction said.
E.ON, Morgan Stanley, EQT and MVV declined to comment. Sembcorp was not immediately available for comment.
U.S.-based Foster Wheeler and Germany-based water and environmental service company Remondis have dropped out of the race, one of the sources said.
E.ON Energy from Waste generated revenues of 544 million euros in 2011. It has 18 waste incinerators in Europe - most of which are in Germany - with an annual capacity of about 4.0 million tonnes.
The sale of Energy from Waste is part of E.ON's wide-ranging 15 billion euros disposal programme to streamline its activities, as the group struggles to cope with Germany's decision to shut down all nuclear plants by 2022.
E.ON's Chief Executive Johannes Teyssen confirmed in March that the company has initiated the sales process for the unit. A company source subsequently said that E.ON was also considering splitting up the unit to sell it in parts.
E.ON has hired Barclays and Royal Bank of Scotland to manage the sale process.