Plans to build a ten-mile tidal barrage across the River Severn that could generate up to 5 per cent of Britain’s electricity are likely to be shelved under a government cost-cutting drive, The Times has learnt.

The Severn Barrage project, which would cost up to £23 billion to build, is set to be indefinitely postponed early next year when ministers announce whether to commit fresh public funding, according to Westminster insiders.

“They are moving towards a political fudge,” said one. “They will say they are delaying it, but in reality the lifeline on offer will not be worth very much.”

The vast cost and tight constraints on future public spending have led ministers to question the project’s affordability.

Government figures show that the cost of generating electricity from a barrage across the Severn or from a tidal lagoon could be as high as £317 per megawatt hour, compared with £38 for nuclear power and no more than £85 for offshore wind.

The news will be a blow for advocates of the scheme, including the Sustainable Development Commission. They argue that it would help Britain to meet its ambitious EU targets of generating 30 per cent of UK electricity from renewable sources by 2020.

However, under EU rules, to contribute to those targets, the barrage would need to be generating electricity by 2022. Because it would take up to a decade to build, that would mean construction would have to start as early as 2012 — requiring large infusions of public money within the next two or three years.

Matthew Bell, of Frontier Economics, the author of a report on the costs of the Severn project, said: “Given that the Government has only a limited amount of money and some very ambitious renewable energy targets, it wants to make sure it gets the best value it can — and the Severn Barrage is simply more expensive than any other form of renewable generation.”

The Department of Energy and Climate Change, which spent £3 million on the project last year, said that a feasibility study was continuing into the project. External consultants are working on the study, which includes an analysis of five options for how it could be built.

The group is led by Parsons Brinkerhoff, the company that built the New York subway. PricewaterhouseCoopers and DTZ are also involved.

The Conservative Party is understood to view the project as an obvious target for potential cost savings.

Two main technologies have been proposed: a conventional barrage, running between the English and Welsh coasts, and a tidal lagoon. Both would harness the enormous tidal range of the Severn, which, at 14 metres, is the second-highest in the world, to drive electricity-generating turbines.

A conventional barrage would have a capacity of 8,640 megawatts and an estimated output of 17 terawatt hours a year — providing about 5 per cent of present UK electricity demand. But such a link would involve moving 18 million tonnes of seabed to create a level surface and require 13 million tonnes of concrete and aggregates.

In July, the chairman of the Environment Agency, Lord Smith of Finsbury, delivered a blow to the plans, hinting strongly that the agency would oppose proposals for the barrage if environmental concerns are not addressed.

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