In a letter to Richard Caborn, chairman of the Trade and Industry Select Committee, Michael Heseltine, President of the Board of Trade, said: 'It would be difficult to justify economically the closure of the Magnox stations before the end of their planned lifetimes.'
Mr Heseltine said that a report by Ernst & Young, one of the Government's advisers, shows the cost of electricity from Magnox is 1.5p per unit compared with 2p to 2.5p for electricity from coal.
A British Coal source attacked the figures as short-term and said that they did not take into account the 'lifetime' costs of nuclear plants, such as decommissioning and waste disposal. 'The lifetime costs put them way above coal,' he said.
The company believes that Magnox accounts for the equivalent of 5 million tons of coal. Sizewell B, the pressurised water reactor under construction, could displace another 3 million tons.
The issue highlights the DTI's problems in finding a big enough market for coal to satisfy Conservative backbench demands to save miners' jobs. National Power and PowerGen, British Coal's main customers, are resisting Government attempts to make them buy very large tonnages of extra coal on the grounds that the market does not exist for electricity generated from the power.
The companies are understood to have offered to take a certain amount of subsidised British Coal on top of their planned coal contracts. However, an industry source said that this offer would not be anywhere near enough to save half of the 31 mines threatened with closure.
The source said that if rumours were true that the Government was ready to put together the final coal package, their expectations must have come right down. He said that the issue was not about how much the coal would cost but how much the market could take.
The problem will become greater in two years' time as gas-fired plants come onstream. The Government appears reluctant to stop those plants from going ahead.
There is a growing consensus that only about 10 of the pits will be saved. With continued improvements in productivity, many of the 30,000 job losses announced by British Coal in October are still likely.