* Regulator, network firm, E.ON seek solution for Bavaria plants
* Unprofitable power blocks envisaged for reserve option
* No timing for solution given, grid customers would pay
* Companies decline comment
By Vera Eckert
FRANKFURT, April 18 Germany's energy network regulator has stepped in in an attempt to keep two gas power units open to ensure reliable power supply in the wake of the deep upheaval caused by the nation's strategic shift away from nuclear.
The Federal Network Agency said on Thursday that talks were underway with utility E.ON on how to keep its two unprofitable blocks in Bavaria state online, as the need to maintain grid stability makes their further operation a public issue.
"There are talks between us, E.ON and grid company TenneT about the possible inclusion of the Irsching 4 and 5 generation units into reserve status," said a spokeswoman for the Bonn-based Federal Network Agency.
"There has not been a conclusion as yet," she added.
E.ON has said that weak demand and low wholesale prices could force it to mothball the modern gas-fired power blocks Irsching 4 and 5 unless they receive payments in return for offering reserve power functions.
The case has a political dimension as after Germany's decision to pull out of nuclear faster and to hold on to a subsidy-driven green energy expansion, the energy system is turned upside down, causing margin pressure for utilities and posing supply risks.
Grid firm TenneT is charged with maintaining power supply in industry-heavy Bavaria and reports to the regulator, which supervises the arrangements.
Both an E.ON spokesman and a TenneT spokeswoman declined to comment on the issue on Thursday.
E.ON has threatened to apply for closure of a number of plants due to a collapse of achievable power prices for its output and relatively high buying-in gas costs, which are linked to the price of oil.[D:nL5N0B08GI]
Also, green power supply takes precedence on transmission grids. This cuts minimum running hours needed to justify returns for some conventional power stations conceived to run 24-hours.
E.ON has put necessary payments for three year-old Irsching 5 at 100 million euros ($130 million) a year. Under energy laws, it is not allowed to unilaterally go ahead and shut the plant.
TALKS FOCUS ON MONEY
The regulator already has TenneT on board, sources close to the talks said. It not only agrees that block 5 of 846 MW is needed locally to guarantee grid stability, but that this also extends to block 4 of 550 megawatts (MW) capacity, which started in 2011.
A huge E.ON nuclear reactor nearby at Grafenrheinfeld, is slated to shut in 2015 under the nuclear exit law.
The current talks at the regulator focus on modalities of the payments which E.ON would receive, as this determines how much will have to be paid out by TenneT and recovered via a charge borne by customers, the spokeswoman said.
Plants in reserve are paid just to stay open but are told that the plant must not run commercially for five years.
An alternative, redispatch, would allow the operator to offer the output commercially but reap higher payments if there is proof that it was needed to ensure grid stability.
Irsching 3, an older gas-fired plant of 415 MW is already assigned to so-called cold reserve for winter months.
E.ON owns the Irsching plants except for block 5, where it has a 50.2 percent stake and shares the remainder with three German city utilities, of Frankfurt, Nuremberg and Darmstadt. ($1 = 0.7668 euros) (Editing by William Hardy)