Nuclear industry says weak carbon price justifies state funding

* Commission seeking to phase-out energy subsidies

* New energy guidelines on funding exclude nuclear

* Nuclear industry says atomic power secure and sustainable

BRUSSELS, April 10 (Reuters) - FORATOM, which represents Europe's nuclear industry, said new atomic power generation will need financial support as long as carbon prices are low and hit back at EU regulators' criticism of funding for a plant to be built by EDF (Paris: FR0010242511 - news) .

The European Commission, the EU regulator, has launched an in-depth investigation into Britain's plan to provide public funding for a 19 billion euro ($26.37 billion) nuclear plant to be built at Hinkley Point in Britain.

A 68-page letter to the British government from EU regulators, made public earlier this year, was strongly critical of the British funding, saying it effectively insulated EDF and its investment partners from the market.

The Commission also questioned the nuclear project's environmental credentials, saying although nuclear generation is carbon-free, its impact on the environment can be substantial.

"FORATOM regrets that the European Commission did not limit its comments solely to the state aid and competition aspects of the Hinkley Point deal, but expressed misgivings about the use of nuclear power per se," it said in a statement issued on Thursday.

It said nuclear energy, which requires very high upfront capital costs, would not be competitive until the European Union's Emissions Trading System (ETS) rose "significantly", although it did not specify a level.

The price of carbon allowances on the ETS is just above five euros a tonne, providing no incentive for emissions-free energy, while making carbon-intensive coal cheap.

"The market must therefore provide, in the interim, the necessary support mechanisms to incentivise nuclear investments at an acceptable level of risk for investors," FORATOM said.

It says nuclear power provides 60 percent of the EU's low-carbon electricity and argues it is essential if the 28-member bloc is to meet its climate goals and guarantee energy security - an issue that has shot to the top of the EU agenda because of uncertainty of the supply of Russian gas via Ukraine.

After a political outcry about the impact on household and industry energy bills of subsidising renewable power, the Commission is seeking to phase out all energy subsidies.

It issued new funding guidelines on Wednesday, which replace renewable subsidies with a market-based system of open tenders.

The new rules omitted nuclear energy, meaning any plans to fund new nuclear generation will be assessed by the Commission on an individual basis.

($1 = 0.7204 Euros) (Reporting by Barbara Lewis in Brussels and Geert de Clercq in Paris, editing by David Evans)