* In Britain, world's largest market, political risk rises
* Competitors partner up to tame costs
* Germany should support EU in propping up carbon market
By Barbara Lewis and Karolin Schaps
BRUSSELS/LONDON, Oct 10 (Reuters) - Political wavering in Britain, the world's biggest offshore wind market, is casting doubt on European ambitions to build a fleet of gigantic turbines out at sea, desperately needed to meet legally binding climate change targets.
The increasing scale of offshore wind means it is the one green energy source able to make up for the phase-out of nuclear generation - especially in the EU's largest economy Germany - and for the closure of ageing and polluting coal plants in other countries such as Britain and France.
In addition, it is less prone to opposition from local residents, whose "not in my back yard" response to onshore wind farms has often blocked projects.
But the financial crisis has made politicians rethink how much taxpayer money to spend on offshore wind, especially in Britain where the finance and energy ministers disagree o n the issue.
"It's just yet another example of mixed messages and uncertainty, all of which give industry a reason to say 'you know what, it's too hard, I'm gonna head to a different jurisdiction where my investments are welcome'," said Ben Stansfield, senior associate at law firm Clifford Chance, who specialises in energy legislation.
"The delays will no doubt come if (finance minister George) Osborne keeps making comments which industry finds unhelpful."
Last week, seven of the biggest wind investors, including turbine-makers Vestas and Gamesa , warned the government in a letter seen by Reuters that a shift in political support could push them to take their money elsewhere.
"Historically, the UK has benefited from being known as a country with low political risk for energy sector investments," the letter dated Oct. 5 said. "Undermining that reputation would have damaging consequences for the scale of future investments."
Two big turbine manufacturers, GE Energy and Vestas, have already backtracked on plans to set up factories in Britain, showing that, even though other factors may have contributed to these decisions, the government failed to make investing in British manufacturing attractive enough.
"As a new industry, hearts and minds are very important for public perception and politicians have a big role to play in that," Dean Cook, the head of UK renewable energy at consultancy Deloitte, said.
Rather than providing reassurance, Britain's divided ruling coalition has heightened political risk, critics say, with a change in rhetoric that has spooked some international investors.
Comments by finance minister Osborne suggest he is shifting emphasis to natural gas and away from greener technology to kickstart growth in the $2.5 trillion economy.
This week, for instance, Osborne raised the prospect of a "generous new tax regime" to encourage investment in shale gas.
Such remarks can ripple through boardrooms across Europe.
"If Osborne says 'I'm not sure we should be spending money on renewables, I think gas maybe is more interesting', I can guarantee I will get a call from RWE AG saying 'are you doing the right thing?'" RWE Innogy's Chief Operating Officer Paul Coffey told reporters.
As the renewable arm of German utility RWE , RWE Innogy has invested billions of euros in offshore wind in Britain and Germany.
Assessments of the cost of building an offshore wind project vary enormously, but, even though costs have fallen, investments needed are roughly double those of gas-fired power plants.
The British government estimated that offshore wind farms cost between 149 ($240) and 191 pounds per megawatt-hour (MWh) to build, compared with between 75 and 127 pounds for onshore wind and 76 to 79 pounds for the most efficient gas plants.
An industry task force commissioned by the government predicted the offshore cost could fall to 100 pounds per MWh by 2020 if construction were streamlined and the industry improved collaboration.
One approach is the formation of cost-sharing consortiums to undertake projects. All but one winner of Britain's latest tender for offshore wind concessions were made up of competing firms joining forces to spread the risks.
Linking up with neighbouring offshore parks, meanwhile, can help beat the financial and logistical challenge of getting a grid connection to the shore.
Connection delay has been a major issue in Germany, where turbines are being placed far out to sea, making for an estimated 1 billion euro bill for a link to land.
In theory, the German government is supportive. Following its decision to phase out nuclear energy in the aftermath of Japan's Fukushima disaster, Chancellor Angela Merkel has thrown her weight behind offshore wind to make up the shortfall.
Her cabinet in August approved a draft law to help offshore projects by passing some of the cost to consumers.
But funding is still uncertain. Part of the problem is the collapse of the EU's Emissions Trading Scheme (ETS), which was set up to charge emitters of carbon and thus discourage investment in polluting energy sources.
A carbon allowance is trading at around 8 euros per tonne of carbon , a negligible cost for plant developers that does not incentivise a shift from carbon-intensive plants to green power.
Germany should, therefore, be among the first to support European Commission plans to prop up the carbon market, analysts say. In practice, divisions between the economy and environment ministries are expected to hold it back from taking a stance.
In France, which is just embarking on its first offshore wind projects, the election of President Francois Hollande earlier this year is regarded by many as favourable for offshore wind developments.
Hollande has promised to boost the share of renewables in the French energy mix, overwhelmingly dominated by nuclear, and has vowed to continue with offshore tenders.
Results of such commitments remain to be seen and the realities of the offshore wind sector across Europe's main markets highlight the fact that governments are ultimately responsible for assuring investors and taxpayers of the benefits of offshore wind.
"I think the support of politicians for offshore wind, particularly in times of austerity, is very important," said Deloitte's Dean Cook. "Because ultimately the end consumer pays for it."
($1 = 0.6176 British pounds)
(Additional reporting by Muriel Boselli in Paris; Editing by David Holmes)
Keywords: EU POWER/OFFSHORE