Rather than becoming the first American offshore wind turbine to achieve "wet steel," a landmark single prototype project planned off the coast of Virginia has instead dried up in another setback for the young industry.

The project — always more noteworthy for the milestone it would produce, not the electricity it would generate — was hailed by the industry as a positive step forward. Barely more than a month ago, Virginia Gov. Bob McDonnell announced that a 5-MW Gamesa offshore prototype standing 479 feet at its highest point would be installed three miles off Cape Charles in the lower Chesapeake Bay.  Construction was expected to be completed by 2013, making it the first American project to produce energy off American shores.

The promise of using the single turbine to launch an offshore industry that could take advantage of Virginia’s vibrant ports was short-lived. On Monday, Gamesa announced it was pulling the plug on the innovative energy development, citing “an analysis of current conditions [that indicates] a viable commercial market in the United States is still farther out, as much as three or four years away, at the earliest.”

The company went on to list some of the major challenges that went into coming to the conclusion that watching from the outside was the best approach.

“While there have been improvements to siting in federal waters, regulatory issues still affect the level and speed at which projects can be approved,” said Gamesa in a statement. “The pace of growth is further delayed by the lack of an offshore grid. In addition, uncertainty surrounding the Production Tax Credit, which will expire at the end of the year without congressional action, and the lack of a federal energy policy, hamper companies’ ability to secure financing for projects.

“Without a mature offshore wind market in the United States, it is extremely difficult to justify the enormous expenditure of capital and utilization of engineering and technical resources that would be needed to build and install a prototype in the U.S.”

Gamesa and Newport News Shipbuilding recently completed the design phase for the 60 Hz version of the G11X-5.0 MW platform that the company said would enable them to build components for the wind turbine prototype.

The company also announced that it would still develop a separate prototype, this one planned off the coast of Spain’s Canary Islands. Bolstered by continued policy support in Europe, Gamesa said that permitting plans are moving ahead for the installation of its G128-5.0 MW offshore wind turbine.

While the project withdrawal is a blow to the short-term feasibility of the American offshore market, there remain several far bigger projects that are pushing forward. The 30-MW Deepwater Wind development off the coast of Block Island, R.I., could be operational as soon as 2014 and the massive 454-MW Cape Wind project in Nantucket Sound, just south of Cape Cod, Mass., has received federal clearance, has selected a contractor and has power purchase agreements for three-quarters of the energy generated. Cape Wind construction could start as soon as 2013 and completion is projected to take about 18 months.

One project that is uncertain to move ahead is the NRG Bluewater Wind development off the coast of Delaware. The company had won the rights to a federal lease, but it put the project on hold in January, citing “the monumental challenges in developing a new domestic industry.” The company is still working to negotiate terms of the lease with the Bureau of Ocean Energy Management and expects to have a lease in hand at the end of the year. The company said it will then decide how best to move forward.