* Government funds for nuclear seen capped at 4 bln pounds
* Potential operators shy away from fears of spiralling costs
* Analysts see nuclear entry cost at 140 pounds a MWh
* Current spot price is below 50 pounds a MWh
By John McGarrity
LONDON, Nov 7 (Reuters) - Britain's nuclear power generation future may be at risk as the list of potential operators shrinks due to concerns about the high costs of entry.
The British government wants to build around 10 nuclear power stations by 2025, which it says are necessary to keep the lights on in future decades, reduce dependence on foreign gas and meet tougher carbon targets.
But persuading potential operators to invest in nuclear generation could involve guaranteeing minimum power prices far above what cash-strapped government departments and households would be willing to pay, analysts said.
"The rewards from nuclear are likely to be far below what companies would require to justify this level of investment. The risks are enormous," said Tom Burke, a consultant with environment and energy advisory E3G and former adviser to the British government on energy policy.
The Emirates Nuclear Energy Corporation (ENEC) is in talks with Japanese conglomerate Hitachi about taking a share of the Horizon nuclear project, which last week was sold by E.ON and RWE after the German utilities cited unacceptably high costs of building new plants.
Hitachi this week has started considering which other potential operators it could approach for the Horizon nuclear plants, a company spokeswoman said.
Analysts say that ENEC would not be an optimal partner since it so far has no experience in operating a nuclear plant itself. The first of its Korean-built reactors is expected to come online in 2017.
Sweden's Vattenfall, which runs reactors in Germany and Sweden, previously stated its interest in UK nuclear operations, but the company told Reuters it had no plans of investing in the Horizon project.
"Vattenfall has no plans for nuclear power operations in the UK. Our activities there focus on renewable energy (offshore and onshore wind) and R&D (wave power)," a Vattenfall spokesman said.
Exelon, the largest U.S. nuclear operator, also said it was not interested in the UK nuclear market.
Analysts say the cost of market entry for new nuclear power plants is around 140 pounds per megawatt-hour (MWh), which is comparable to offshore wind power parks.
The current price for wholesale electricity is around 50 pounds per MWh.
Offshore wind benefits from generous government subsidies, but Britain has ruled out giving subsidies to investors in the nuclear industry.
"To put money into UK nuclear would be crazy," said Dominic Nash, a utilities analysts at London-based investment bank Liberum Capital.
Energy Fair, a research group of energy economists opposed to nuclear, said in a report last month that the true cost of nuclear could even be over 200 pounds per MWh once "hidden subsidies" are taken into account.
The research group said these would include government allocations of public money to limit its liability for accidents, offset the cost of nuclear waste and decommission power stations.
For investors in Britain's nuclear industry, the main problem is the amount the government can allocate from higher retail energy tariffs to offset the development costs of Britain's nuclear plant fleet.
E3G's Burke said that allocation would be capped around 4 billion pounds ($6.4 billion) by 2015, while the costs of nuclear construction could rise to over 12 billion a year by the mid-2020s.
Utilities such as France's EDF Energy, which operates Britain's biggest nuclear power plant park and plans to build several new reactors, are seeking safeguards against big cost overruns.
The government's energy bill, which is expected to go to parliament later this month, may include details on the minimum nuclear generators can charge, which could give more certainty to investors. But the legislation is likely to be subject to amendments, Energy Minister John Hayes told a parliamentary committee this week.