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British government to amend subsidy rules to exclude old coal plants

* Gov't says will change capacity market rules

* Old plants won't be eligible for 15-yr capacity contracts

LONDON, Aug 4 (Reuters) - The British government will amend the rules of its proposed energy capacity market to exclude long-term subsidies for ageing coal plants, it said on Monday, relenting to pressure from environmental campaign groups.

"We will amend the capacity market rules to clarify without any doubt that only genuine new projects can access the 15-year maximum term. We will be consulting on this shortly," a spokeswoman for the Department of Energy and Climate Change (DECC) said.

Britain is overhauling its electricity market to help deliver low-carbon energy and reliable electricity supplies as existing and ageing nuclear and coal plants go offline over the next decade.

The government plans to introduce a capacity market by the end of this year to ensure there is enough electricity-generating capacity available at all times to meet demand.

The capacity market will offer all capacity providers - new and existing power stations and electricity storage operators - predictable revenue from capacity payments. In return, they have to deliver energy when needed or face penalties.

But the scheme has drawn criticism from green groups for allowing pollutant-heavy coal plants to apply for long-term payments.

Greenpeace estimated that the government could have handed out up to 10.5 billion pounds ($17.65 billion) in capacity payments to old coal-fired power stations, keeping them in business for years to come and undermining government emissions cut targets.

Under the proposed changes, plants will still be allowed to apply for a maximum three-year capacity agreement.

"While existing coal and gas plants may be eligible for three-year capacity agreements the capacity market is not expected to change the general picture we see of a move away from coal," the DECC spokeswoman added.

Greenpeace said the shorter contract lengths were worth tens of millions of pounds. (1 US dollar = 0.5948 British pound) (Reporting by Nina Chestney; Editing by Susan Fenton)