A MAJOR scheme to unlock the green energy potential of Scotland's islands is at risk, industry leaders have warned, amid growing concerns the UK Government is preparing to ditch promised subsidies.

Industry insiders have warned time is running out for the Department of Energy and Climate Change (DECC) to clear its plans with Brussels.

At stake is investment in the Western Isles, Orkney and Shetland potentially running into hundreds of millions of pounds.

The development of large scale wind power schemes on the islands would also help Scotland meet ambitious green energy targets and pave the way for future wave and tidal schemes.

A string of major wind farms on the islands have been approved but cannot go ahead because the transmission infrastructure to export the power to the mainland does not exist.

Previous attempts to provide extra subsidies, to allow generators to build suitable transmission cables, have fallen foul of EU state aid rules.

Last year, Prime Minister David Cameron gave a commitment to resolve the issue but DECC remains in talks with Brussels.

Industry insiders have been told an agreement has been reached informally but that DECC has so far failed to make a formal bid to go ahead with the subsidy scheme, known as the Remote Island Wind Contract for Difference (CfD).

The delay has prompted fears the UK Government is preparing to scrap the plan.

Unless a deal is struck soon, the islands will miss out on the next round of Government-backed green power contracts.

A source said: "Our concern is that DECC no longer wants to go ahead with this.

"The suspicion is the UK Government is looking to renege on its commitment to find a solution and connect up the islands."

Earlier this month, a Scottish Government report said win power could be worth £725million to the island economies over the next 25 years.

It estimated that schemes in the Western Isles, Orkney and Shetland could generate five per cent of total UK energy demand by 2030.

In the Western Isles alone, schemes that have already been given the go-ahead would create 700 jobs during the construction phase and up to 150 permanent posts.

They would generate £7million a year in community benefits.

Angus Campbell, the leader of Western Isles Council, said: "We are really concerned.

"It is highly disappointing that we've not been able to move this forward in a positive way.

"If this falls through, the whole of the renewables programme in the Western Isles will be completely lost."

He said he feared the government was under political pressure to row back on wind power subsidies.

Niall Stuart, chief executive of industry body Scottish Renewables, said: "The remote island CfD was designed to overcome the massive grid charges faced by electricity generators on Scotland’s islands, and to ensure that renewable energy projects have a fair chance of proceeding.

"It would be yet another blow to our industry if Government was to change its mind at this stage, but it would be particularly damaging to the people, companies and communities that have spent years working on major developments that may no longer be viable."

A DECC spokesman declined to say whether it had submitted a formal notification to the European Commission over the remote islands scheme.

The spokesman said: "The remote islands Contract for Difference State Aid pre-notification was submitted to the European Commission by the UK Government in January 2015.

"We continue to engage with the European Commission on the progress of the case.

"It would not be appropriate to discuss the details of particular notifications while we are in discussion with the Commission."