German utility firm RWE npower renewables has withdrawn its backing for the world's largest "wave farm", throwing the future of the 4MW facility in doubt, the Sunday Herald can reveal.

RWE npower renewables’s decision to abandon the project at Siadar Bay off the north coast of Isle of Lewis leaves Inverness firm Wavegen, developers of the world’s first commercial-scale wave energy device the Limpet, seeking a new developer or owner of the projected £30 million Hebridean scheme.

A Wavegen statement confirmed that RWE would “not proceed” with Siadar, adding “we are in discussion with a number of parties in order to seek an owner and investor in the plant ... work on the civil engineering solutions is ongoing”.

The Siadar project was the first of its type to be approved in 2009 and was originally scheduled to open this year. The project has been allocated a conditional £6m grant from the Scottish Government.

While npower’s withdrawal is understood to be linked to an “internal review” by its heavily-indebted parent company based in Essen, senior marine energy sources see the setback as symptomatic of wider funding, commercialisation and grid-connection problems in the emerging marine power sector, where Scotland has strong claims to lead the world.

Recent setbacks include Edinburgh-based company Pelamis Wave Power’s decision in May to cut around 20 jobs at its Leith manufacturing plant, blaming the “shift ... from the completion of a manufacturing focus to an operational phase”. In April the Crown Estate reopened tendering for a wind and tidal development zone in the Pentland Firth when £300m plans by Singapore’s Atlantis Resources foundered after Norway’s Statkraft pulled out of the joint venture to deploy deep-water tidal turbines.

The costs of developing wave and tidal power remain formidable obstacles to the sector, which is not expected to deliver substantial power to the grid until an indeterminate date after 2020. Most projects require £30-50m to take a paper concept to full scale. Although there is a plethora of ingenious devices in development in Scotttish waters, where incentives are more generous than in the rest of the UK, even the first 5-10MW “arrays” will require large capital grants and five renewables obligation certificates (ROCs – the tokens used to subsidise the production of renewable power) to be viable.

Niall Stuart, chief executive of trade group Scottish Renewables, said: “The decision on the Siadar project looks more like a refocusing of operations by RWE than a reflection on the merits or demerits of the project. In terms of investment, in the last 10 months the French firm Alston has invested several million in AWS, ABB have invested heavily in Aquamarine, and Pelamis have raised several million. The sector continues to attract serious money.

“Nowhere else in the world has anything like Scotland’s ambition to deliver 1600MW by 2020. That’s not politicians’ rhetoric that is claiming that, it’s the likes of Scottish Power, Scottish and Southern Energy and EOn, who have brought forward proposals that amount to more [capacity] than the rest of the world combined. If you speak to people involved in renewable energy around the world they clearly see Scotland as the front-runner.”

However one senior marine renewable power executive, speaking on condition of anonymity, told the Sunday Herald: “There is a mismatch between the rhetoric and the reality of where we are which will be damaging in the shorter term when we don’t deliver [on our claims].

“The industry is in a precarious position, with much activity, lots of expectation but few confirmed successes and major challenges to overcome resulting in key backers such as utilities starting to lose the faith. The recent Energy Markets Review white paper indicates that the Department for Energy and Climate Change hasn’t been convinced either.”

“The fundamental for success has to be robust, proven and economic technology in which utilities and others will invest. Great strides have been made and developers should be commended but they are still far from having a finished product. The rush to be first to market, to maintain a high profile and to attract investment is encouraging companies to make overblown statements and run before they can walk, wasting public and private investment. Some companies are developing technology in a rigorous manner: recent high profile failures show this is clearly not the case overall. The lack of an independent technology assessor is telling.”