UPDATE 2-TenneT buy could be step to unify European grids

* TenneT buys E.ON German power grid for 1.1 bln eur

* First step to integrate northwest European power market

* New connections from German to Dutch market needed-analyst

* Buy might lower Dutch power prices, economy minster says

(Adds comments from analysts, Dutch economy minister)

By Catherine Hornby and Peter Dinkloh

AMSTERDAM/FRANKFURT, Nov 10 (Reuters) - Plans of Dutch power grid operator TenneT to buy the electricity grid of German peer E.ON AG (EONGn.DE) may speed up the formation of an integrated continental European power market, as envisaged by the European Commission.

E.ON, the world's largest utility, said on Tuesday it agreed to sell its German long-distance power grid for 1.1 billion euros ($1.7 billion) to TenneT, confirming what two people familiar with the situation had told Reuters on Monday. [ID:nL9500663] [ID:nFAB015317]

London-based analyst Catharina Saponar at Nomura said the disposal was a first step to creating a larger northwestern European power market.

European Commissioner Andris Piebalgs is seeking to integrate separate national power markets. But such efforts have so far been hampered by national operators of power grids and scarce capacity of interconnectors at national borders.

The sale offers new opportunities as it is the first time a grid operator has combined networks in two countries -- peers such as National Grid (NG.L), Terna (TRN.MI) and Red Electrica (REE.MC) only operate within their national markets.

TenneT's takeover might speed up the integration of the German and Dutch markets -- similar to the combined Nordic power market -- as the operator has an interest in unifying the grid to cut costs and offer more services to clients.

PHYSICAL HURDLES

"Cooperation across borders makes it possible to share reserve capacity in an efficient way with other countries and deal with crises together," Dutch Economy Minister Maria van der Hoeven said.

"More imports of relatively good value electricity from abroad can put downward pressure on prices and increase competition on the Dutch electricity market," she said.