The offshore wind industry is seeking massive investment, but who’s building it and how much does it actually cost? Cassie Werber analyzes the numbers.

LONDON—A major European utility said Tuesday it would scrap a wind farm that was due to become the largest offshore wind project ever built, a sign of the struggles of the industry to attract investment needed to overcome huge costs and technical challenges.

The Atlantic Array, in the Bristol Channel off the west coast of England, could have generated up to 1,200 megawatts of electricity, almost twice as much as the largest farm already operating in U.K. waters. But RWE said on Tuesday that continuing with the project faced problems that were “prohibitive in current market conditions.”

RWE’s decision highlights the central difficulty in achieving Europe’s ambitious wind targets. Huge plans are in place, but few investors are willing to stake the billions needed to build them, in an environment where government subsidy is essential but uncertain and costs can skyrocket.

The U.K. has pioneered offshore wind power, maximizing its island status with more turbines than any other country, but risky technology and the huge cash outlay needed for the next phase of development has some investors balking.

“You worry at the moment, when [offshore] is very expensive, and relies on a long-term government contract at a very high price. And you also don’t know how it’s going to be to operate in very harsh conditions” out at sea, said

Emma Tinker

of private-equity firm HgCapital, a long-established renewables investor.

Financial investors are essential to offshore wind’s future: The U.K. is planning to increase offshore-wind energy production from 3.65 gigawatts now—enough to power 2.5 million homes—to 39 GW in a construction phase stretching out to 2030. But the financial outlay is massive: £37 billion ($60 billion) is needed to achieve 16 GW, or less than half the final total, according to Industry body Renewable U.K.

HgCapital, which has £5.6 billion under management, is putting its money into onshore wind and solar, technologies that could be competitive with fossil-fuel power and “shouldn’t need cash subsidies” within five years, according to Ms. Tinker. Offshore wind, by contrast, needs government support.

Utilities have traditionally funded the building of energy-producing assets from their balance sheets. But the expense of technologies like offshore wind is driving them to seek increasingly diverse investment.

“The utility industry is not able to fuel the capital needs for the growing offshore industry on its own. We need to tap into new sources of capital,” said

Samuel Leupold,

CEO of Danish utility DONG Energy Wind Power.

DONG has already committed a lot of money to European projects—this month it said it would pour €2.2 billion ($2.97 billion) into two German offshore projects, and it has invested €3.5 billion in U.K. offshore wind farms so far. Outside investors have taken stakes worth €2.5 billion in the company’s already-built farms.

But finding investors willing to finance construction is much harder.

“You have to spend a huge amount of money before the first turbine starts to turn…. You could have a couple of years where you have hundreds of millions of pounds out and no return,” said

Richard Nourse,

managing partner at

Greencoat UK Wind,

UKW.LN +0.36%

Greencoat UK Wind PLC

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an infrastructure fund that invests solely in British wind farms but won’t risk money on building offshore installations.

Greencoat did buy part of the Rhyl Flats Offshore Wind Farm, off the coast of north Wales, from RWE, but only when it was up and running. “We tell our investors, day one that we own the asset, it’s turning, and the proposition to investors is about a good, safe, growing income,” Mr. Nourse said.

To make matters worse, the bounty of cheap oil and gas from shale finds in the U.S. has made renewable energy even less competitive.

Advocates of green energy say sticking with fossil fuels is a short-term plan. But market preference for cheaper alternatives means only government can force through plans for transitions to new, expensive technologies.

Of these, offshore wind is arguably the priciest, and uncertainty over how subsidies will work is another reason for investors hanging back.

New energy legislation, due to pass in the U.K. before year’s end, might provide some clarity. But utilities remain concerned.

Up the coast from the Atlantic Array site, RWE is completing the second largest offshore project in the world, costing £2 billion. It found a partner in the City of Munich, a German municipality with a bankroll and renewable energy targets to meet.

At the nearby port of Mostyn, as driving rain flayed the huge pieces of machinery waiting to be installed into the cold gray seas, chief operating officer of RWE Innogy

Paul Coffey

said that time was running out to find investors for its next venture.

“These are massive big ticket investments. We can’t do it on our own,” he said. We are “at a real tipping point, a critical point in the offshore wind industry.”

Write to Cassie Werber at