RWE scraps British wind farm amid political energy row

* Energy policy uncertainty threatens investment - consultant

* Project would have built world's biggest wind farm

* Could have powered up to 900,000 British households

By Kate Holton

LONDON, Nov 26 (Reuters) - Germany's RWE (LSE: 0FUZ.L - news) has scrapped plans to build the world's largest offshore wind farm in British waters only a month after warning that political wrangling over green energy was endangering billions of pounds of investment.

RWE's nPower said that the Atlantic Array project off southwest England, which would have featured up to 240 wind turbines and powered as many as 900,000 British homes, no longer made economic sense in current market conditions.

The cost of the project has been estimated at as much as 4 billion pounds ($6.5 billion).

The decision to abandon the Atlantic Array follows Prime Minister David Cameron's promise to cut some green levies, stoking speculation that the world's sixth-largest economy may change how it funds renewable energy and prompting environmental groups to question Britain's green credentials.

"It really doesn't help when you're a political football," Gordon Edge, director of policy for trade association RenewableUK, said of the growing debate around energy and environmental costs in the run up to the 2015 election.

"Until quite recently there was political consensus ... but there's been a growing drumbeat about the size of the bills. There's been a febrile atmosphere, and that's really not helpful."

Britain's biggest energy companies have come under intense scrutiny since the leader of the opposition Labour Party, Ed Miliband, sought to address soaring household energy bills by pledging to cap prices if he is elected in 2015.

Cameron, who once promised to form the greenest government ever, called the plan a gimmick but pledged to remove so-called green taxes and social levies that contribute nearly 10 percent to domestic energy bills.

The Prime Minister told advisers recently that the government should get "rid of all the green crap", British media reported, citing a senior Conservative Party source. Downing Street said it did not recognise the phrase but stopped short of denying it.

Paul Coffey, chief operating officer at RWE's renewable energy division Innogy, had been quoted by the Guardian newspaper in October as saying he could not invest on promises and blaming the political row over energy for the uncertainty that had descended on the sector.

"The next six months are critical," he said, "but politicians are treating the issue as a political football to beat up the utility companies."

PRICE RISES

RWE's nPower - along with British Gas, ScottishPower , E.ON, EDF Energy and SSE (Berlin: SCT.BE - news) - is one of the big six companies that dominate Britain's energy market.

British energy regulator Ofgem says the Big Six, which have blamed rising gas and electricity bills on green levies, wholesale energy prices and the cost of using the national grid, made a profit of 53 pounds per household customer last year, up from 30 pounds in 2011.

Though the political landscape for renewables has become increasingly uncertain, a spokeswoman for RWE said the company's decision on the Atlantic Array was based on technical factors, including the deep waters and adverse seabed conditions.

Offshore wind parks have a relatively high risk profile compared with onshore sites because turbines installed in open water need to withstand more extreme weather conditions. However, they have drawn slightly less criticism than land-based installations that many Britons consider unsightly.

RWE is also in the process of a major restructuring that has resulted in 13,000 job losses, or about 18 percent of its workforce, since 2011.

Renewable energy (NasdaqGS: REGI - news) accounted for 15.5 percent of British electricity generation in the second quarter of this year and the government said it remained on track to meet its target of 30 percent by 2020.

The 15.5 percent represents 19.5 gigawatts (GW) of power. The Atlantic Array would have added a further 1.2 GW.

Ben Warren, of consultancy firm EY, said the uncertainty around the renewables sector had already prompted developers to invest in other countries or to push back investment decisions.

"If this trend continues, it could jeopardise billions worth of investment and thousands of much-needed jobs," he said.

Prime Minister Cameron's spokesman did not comment directly on RWE's decision, but played down concerns over investment in Britain's green energy sector.

"You've seen 29 billion pounds of private sector investment in renewable energy since 2010," he said. "The UK is a world leader in offshore wind power. You are seeing a very significant and sustained investment