The proposed Bluewater wind farm off the coast of Delaware is facing an uncertain future, one that could reflect broader impacts for the still-emerging US offshore wind industry.

The proposed wind farm off the coast of Delaware received a near-fatal blow this week when developer NRG Bluewater Wind said it would withdraw from a power purchase agreement with local utility Delmarva Power that would have given the wind farm a market for 200 MW of its output.

NRG said it had been looking for investors for the 150-turbine project but that none had come forward because the risk was too great in the absence of long-term federal tax credits and loan guarantees.

The company blamed Congressional decisions to eliminate federal funding for an offshore wind loan-guarantee program and to terminate investment and production tax credits when they expire at the end of 2012.

Without the federal support, private investors won’t back the significant sums needed to build offshore wind farms, said Peter Mandelstam, President of NRG Bluewater Wind.

“This is a reflection of inconsistent federal tax policy,” Mandelstam said in an interview. “Business people make decisions based on the rules as they find them.”

Although Mandelstam is now talking with potential partners in Europe, there is very little time for investors to sign on before a December 23 deadline by which NRG has to confirm or cancel its contract with Delmarva Power.

The apparent failure of Bluewater is a reflection not only of the withdrawal of loan guarantees and tax credits but also of the difficulty of persuading utilities to buy offshore wind power in quantities and at rates that make sense to both buyers and sellers.

Although Delmarva agreed – in the first US power purchase agreement for offshore wind – to buy 200 MW from Bluewater, that was less than NRG wanted to sell and at a rate that was a lot more expensive than the utility would have to pay from other sources, said Sam Jaffe, research director at IDC Energy Insights in Boulder, Colo.

Jaffe argued that Delmarva signed the deal because it wanted to boost its output of renewable energy, but that it was never fully committed to the project. “They were half-hearted partners,” he said.

Bluewater shows that offshore wind developers face an uphill battle to attract investors, especially in light of the heavy cost of offshore wind, which can be twice as high as land-based wind power, said Matthew Kaplan, an industry analyst at IHS.

Kaplan said such projects need to be able to sell about 400 MW – twice as much as the Delmarva contract — in order to become economically viable.

“My understanding is that 400 MW is the sweet spot,” he said.

The US offshore wind industry won’t approach its European counterpart – which already has 3,300 MW of installed capacity and 2,900 MW under construction – unless the US government takes a similarly supportive approach to the industry, analysts said.

“All we need is to jumpstart the industry, and Europe has proved that it works,” said IDC’s Jaffe.

With the Delaware project in jeopardy, the best hope for US offshore wind remains Cape Wind off Massachusetts, where prospects of becoming America’s first operating wind farm are largely dependent on the full commitment of National Grid, the local utility that has agreed to buy power from the project.

But the agreed Cape Wind rate of 20 cents/kWh is up to twice as high as comparable prices elsewhere in the northeast, indicating that even for a project that enjoys 100% support from the utility, offshore wind has trouble competing on price, at least in its initial stages, Jaffe said.

“We are going to have to pay above market price to help get this project off the ground,” he said.