The key issue that remains unresolved is whether hydrogen-capable plants should receive start-up, or capital expenditure, funding in addition to support for operating expenses, the people said.

Chancellor Olaf Scholz had called a fresh round of talks for Thursday morning after a previous one earlier in the week failed to produce a deal, putting further pressure on the coalition to come up with a solution.

In addition to Finance Minister Christian Lindner and officials from the Economy Ministry, top representatives from the utility sector, including Uniper and RWE, also participated.

At the talks' core, the goal is to promote the construction of new gas-fired power plants with billions of euros to compensate for the growing but intermittent renewables capacity in Germany.

They are to be gradually converted to plants making climate-friendly hydrogen, which is likely to be significantly more expensive than natural gas for a long time.

According to government and industry circles, Economy Minister Robert Habeck and Scholz are largely in agreement and are pushing for a swift decision, while Lindner still has reservations, only wanting to fund operating expenses at most.

The plan, with an estimated cost of 40 billion euros ($43.35 billion), is part of Germany's attempts to avoid power shortages as it phases out coal in favour of renewable generation.

($1 = 0.9228 euros)

(Reporting by Markus Wacket; Writing by Christoph Steitz; Editing by Miranda Murray and Mark Porter)

By Markus Wacket