* E.ON had aimed for signing in Q2, no longer feasible -sources
* Assets could fetch 3 billion euros -sources
* Hydro assets seen as most valuable -presentation (Adds details from presentation, background on industry)
FRANKFURT/MILAN, Jan 17 (Reuters) - Germany's largest utility E.ON faces a delay to the planned sale of its Italian business, four people familiar with the process told Reuters, blaming a depressed climate for power assets in Europe.
According to an internal presentation obtained by Reuters, E.ON was initially seeking to sign contracts on the sale, which could fetch about 3 billion euros ($4 billion), in the second quarter. Two of the sources said that timeline was no longer feasible.
"Second quarter is an impossible target, not least because there are a lot of assets out there on the block," one of the people said.
Having originally aimed for initial bids this month or next, E.ON was now seeking tentative offers for the unit at least two months later.
E.ON declined to comment.
Sources told Reuters in November that E.ON had started preparations for a sale of the activities, which include about 6 gigawatts (GW) of generation capacity. More than half of that is gas-fired, with about 1 GW from renewables.
E.ON, which at the time said it was always looking at strategic options for its portfolio, employs about 1,000 staff in the country - less than 2 percent of its total workforce - and has 860,000 customers.
Badly hit by weak energy demand in Europe, low wholesale power prices and rival solar and wind power, German utilities, including E.ON, RWE and EnBW, have embarked on multi-billion-euro asset sale programmes.
They are also suffering from large debt piles, with E.ON's net debt standing at 33.1 billion euros as of Sept. 30.
According to the internal presentation, E.ON expects 531 megawatts (MW) of hydro assets to be the most valuable holding in the country, potentially accounting for more than a third of the portfolio's value.
In contrast, E.ON's roughly 3.5 GW in gas assets account for only 15 percent of the portfolio's value, the presentation showed.
Two of the sources said Edison, owned by France's EDF , was a likely bidder for the whole unit.
Edison Chief Executive Bruno Lescoeur last month said the Italian business of E.ON was "interesting". Enel, Italy's biggest utility, has said it is not interested in E.ON's Italian assets.