Plans to build a new coal-fired plant at Kingsnorth were put on hold in 2009
Energy firm E.On has been awarded a share of a £90m pot to develop designs for a carbon capture and storage (CCS) facility at Kingsnorth in Kent.
Scottish Power also won funding and the two firms will now compete to build the UK's first (CCS) coal-fired power plant in Kent or Clackmannanshire, Scotland.
Four coal-fired power stations which demonstrate commercial-scale CCS will be built, according to the government.
Dr Paul Golby, chief executive of E.On UK, welcomed the decision.
He said: "This is excellent news for the development of clean coal in the UK coming as it does hard on the heels of our announcement about our scoping application for the Kingsnorth CO2 pipeline.
"It's absolutely vital that we get CCS right and it's especially heartening to see that we're now getting some real movement here in the UK.
"We should always remember that the long game with CCS is not just about Kingsnorth, it's about a worldwide battle against climate change."
The undisclosed amount of money each firm won, which has been drawn from a £90m pot, will support engineering and design work for the CCS projects at Kingsnorth and Longannet, Clackmannanshire, over the next 12 months.
CCS technology captures the carbon released when coal burns.
Hundreds of environmental campaigners camped near Kingsnorth, on the Hoo Peninsula, in 2008 as part of a Camp for Climate Action protest against plans to build a new coal-fired power station at the site.
In October EO.n said its plans had been put on hold for up to three years because electricity demand had fallen during the global recession.
The Government has promised that no new coal-fired power stations will be allowed to be built without CCS technology.
Ed Miliband, Energy and Climate Change Secretary, said: "CCS is the only technology that tackles carbon emissions from fossil fuel power stations, and given the world's dependence on coal, is a vital technology to securing the world's future energy needs and tackling climate change.
"These two promising projects are at the forefront of the UK's efforts to build one of the first commercial-scale clean coal plants in the world.
"The award of design-stage funding demonstrates our commitment to this breakthrough technology. It has the potential to support tens of thousands of jobs and bring billions to the economy."