It may not feel like it on a gusty grey day in Rhyl, but this country is blessed. Take a boat out into the choppy waters off the North Wales coast, and you can see why. Thirty bright white turbines spin continuously just five miles off the coast, producing enough electrical power to supply 40,000 homes with clean, green energy. The wind and waves seem limitless and powerful - and they are. If the UK had been more aggressive and far-sighted in developing renewable energy, we would already be exporting green electricity and wind turbines to Europe and further afield.

In renewable energy terms, we would be the Saudi Arabia of Europe. A full 40 per cent of the continent's wind blows across British shores, enough to meet all our energy needs and more. But instead of leading the world in renewable energy and at the same time cutting carbon emissions, the UK languishes close to the bottom of the European clean energy league. Just 2 per cent of our energy comes from renewable sources and the rest from dirty, climate-changing fossil fuels. This is the legacy of years of contradictory policies, conflicting priorities, ideological pig-headedness and government incompetence.

It's a story that shames Britain.

A good place to start is the government's Low Carbon Buildings Programme (LCBP). This was launched in 2006 to provide grants to householders wanting to instal renewable generation technologies - from solar panels to small hydro schemes - on their properties. Ministers acknowledge that micro-generation could play a big part in our clean energy future, and that turning homes into mini power stations is good for energy security, household income and the environment. But what actually happened? Instead of kick-starting a whole new market sector, the government starved it of funds. A measly £12.7m was allocated, with a monthly cap. On the first day of each month all the available grants were snapped up within hours.

This stop-start approach led to frustrated householders and cash-strapped solar installation companies, many of which began to go bust. The number of grants given for solar hot water systems fell by half last year, and the number for micro wind turbines by two-thirds. For ground-source heat pumps, while 100 grants were made in the last three months of 2006, the equivalent number for 2007 was zero. For electricity, we managed to put only 270 solar panels on British roofs last year, while Germany installed 130,000.

Gordon Brown, first as chancellor, and now as Prime Minister, has successfully ensured that it makes no financial sense whatsoever for householders to invest in generating their own energy renewably. If you put up a solar photovoltaic panel in this country, you do it for altruistic reasons only: at present, you are guaranteed to lose money hand over fist.

Germany's renewables sector has rocketed, thanks to a system that guarantees long-term paybacks at above-market rates for cleanly generated power. This is called the "feed-in tariff", which has also successfully catapulted Spain and Portugal to the top of the European clean energy league. Portugal gets 39 per cent of its electricity from renewables and is aiming for 60 per cent by 2020. In stark contrast, the UK government continues to rule out feed-in tariffs, insisting instead on retaining its outdated Renewables Obligation system, a support mechanism which is so complicated and cumbersome that only the biggest players can make any money from it (or, indeed, even understand it).

The RO system reveals another classic new Labour problem: an obsession with the market. Instead of simply guaranteeing a good return for solar or wind electricity over a long enough time period to make this an attractive investment, the government insists on making the Renewable Obligation Certificates tradable. If a company doesn't meet its obligation to generate power renewably, it must buy certificates from another company that has produced a surplus. The result is long-term price uncertainty, which makes investment much more costly, due to the "risk premium" that must be added to any lending. The ROC system has been fiddled with so many times that the British Wind Energy Association (BWEA) now opposes a feed-in tariff system, on the grounds that yet more policy uncertainty might scare off potential investors for good.

Lost business

This catalogue of failure has not only been bad for the climate, it has been bad for business. Britain might once have led the world in wind turbine development. But with no domestic market, production moved elsewhere, and today most turbines installed in this country are imported from Denmark. The leader in solar power is not Britain but Germany, which has pioneered a lucrative export industry in solar photovoltaic cells. In China, too, solar manufacturing is big business: the country's second-richest man leads a solar energy company. This is an energy sector which saw growth last year of roughly 40 per cent, and has attracted tens of billions in venture capital. None of that came to Britain. Instead of creating a brand new industry and thousands of jobs, British-based renewables companies have been going out of business.

Wind should already be our biggest single power source. The BWEA estimates that wind could generate 27 per cent of our electricity by 2020, which, combined with other renewables, could easily meet our EU-assigned target of 15 per cent renewable energy by 2020. Instead, wind accounts for just 1.5 per cent of UK electricity generation today (the equivalent figure in far less windy Denmark is 20 per cent, for Spain 8 per cent and Germany 5 per cent). That 1.5 per cent could be ramped up very quickly if the planning system worked in favour of renewables. According to the BWEA, 220 windpower projects are currently stuck in planning. If all received immediate consent, they could generate 9.3 gigawatts of electricity, enough for an estimated 5.25 million households. If the 39 projects that were refused planning permission last year had instead been allowed it, they could have provided power for 750,000 households, and prevented the emission of three million tonnes of CO2. (Anti-wind campaigners need to recognise their moral liability for these climate-changing emissions.)

While 39 projects were refused planning permission, just 26 projects went ahead. This year, we are level-pegging: seven wind applications have been approved and six refused. It can now take ten years for a windfarm project to get approved and built, and another five for it to get a grid connection (unlike in other countries, renewable generators here have to pay for their own grid connections). This does not look like a country on the fast track to a clean energy future. Indeed, power companies such as E.ON are pro posing to invest billions in hugely polluting coal power plants instead.

The government has proposed to reform the planning system to make it easier for windfarms to get the go-ahead. Environmentalists and conservationists are opposed to the reform, however, for the good reason that it would also make it easier for new motorways, power stations and airports to gain approval, and stifle local democracy in the process.

A greener government might have focused on reforming the planning system for renewable energy projects, gaining support from greens and electricity generators alike. Instead, in its enthusiasm for aviation and nuclear power, the government has bundled windfarms into a planning policy package that will be opposed by almost all. A missed opportunity.

There is some good news. The 1000MW London Array - which will generate enough power from wind for a quarter of London's households - has been given the go-ahead. Several other major projects are under way, and this year the UK will overtake Denmark as the largest offshore generator in the world. The UK also still leads in marine renewables (wave and tidal stream power). With 30 marine technology developers headquartered here, compared to only 15 in the rest of Europe, the UK is able to put its offshore operational skills learned from North Sea oil - now in long-term decline - to good use. At the end of last month the world's largest conference on wave and tidal stream energy, Marine 08, was held in Edinburgh. Tidal power would address the intermittency question: what to do when the wind doesn't blow and the sun doesn't shine. Tidal power is predictable. Wave power is also more dependable. The more sources of energy we can call on, the less vulnerable we will be to losing power in any one sector.

Yet in marine renewables, too, the government has risked Britain losing its competitive edge. The world's first commercial-scale wave-generating array, while built by a UK-based company, is being launched off the Portuguese, not the British, coast. And, mirroring the disaster of the Low Carbon Buildings Programme, the Marine Renewables Deployment Fund - supposed to support the fledgling sector with capital grants and other financial aid - has a tiny budget and a cap per project of £9m, far too little for any British design to make it past the prototype stage into commercial production. Once again, we are wasting a historic advantage.

With the right policy levers pulled, we could in the not-too-distant future be generating 20 per cent of all our electricity out at sea using wave and tidal power, and far more from onshore and offshore wind. We could lead the world in a new manufacturing sector and generate thousands of new jobs. We could have a zero-carbon electricity grid as early as 2030. We could also lead the world in reducing greenhouse-gas emissions.

But, for this to happen, the government will need to admit that its policies have been a cala mitous failure and put clean energy at the top of its long-term agenda, before it is too late.