Energy firm E.On has pulled out of a competition to develop a power station with carbon capture and storage (CCS) technology at Kingsnorth in Kent.
The firm was to compete with Scottish Power to build the UK's first CCS coal-fired power plant in Kent or Clackmannanshire, Scotland.
The energy company said the market was not conducive to building a new 1,600 megawatt power station near Strood.
It said it would now concentrate its efforts on a CCS project in Holland.
Dr Paul Golby, chief executive of E.On UK, said: "Having postponed Kingsnorth last year, it has become clear that the economic conditions are still not right for us to progress the project and so, simply put, we have no power station on which to build a CCS demonstration.
"We therefore took the decision to withdraw from the government's competition because we cannot proceed within the competition timescales."
E.On announced in October 2009 it was putting on hold plans to build a new coal-fired power station on the Hoo Peninsula, claiming electricity demand had fallen during the global recession.
A spokesman for the Department of Energy and Climate Change said: "The government is naturally disappointed that E.On has decided not to proceed. Scottish Power remains in the procurement process.
"CCS has significant potential for demonstration and deployment in the UK - we have some of the best CO2 storage sites in the world, as well as the unparalleled engineering expertise needed to make this technology work at commercial scale."
Kingsnorth has been a high-profile target for environmental protests by groups that argue a new plant would increase carbon emissions and climate change.
Hundreds of environmental campaigners camped near the site in 2008 as part of a Camp for Climate Action protest against the plans.
Following the announcement, Steve Dawe, of the Kent Green Party, said: "This is an important first step towards getting the carbon out of the UK's energy future.
"Reducing energy demand through efficiency, and investing in microgeneration for homes, offices, schools and hospitals must be coupled with larger scale renewable energy projects like the London Array Wind Farm."