The large scale renewable energy industry in Australia faces another extended period of stagnation and uncertainty after the Abbott government refused to cede ground on its plans to slash the renewable energy target, causing Labor to walk away from the negotiations.

A bi-partisan deal with a target not significantly reduced from the current 41,000GWh was the best hope for the large scale industry, which wants to spend more than $20 billion to build wind farms, solar farms and biomass plants.

But it appears that the Abbott government, represented by the Industry minister Ian Macfarlane and environment minister Greg Hunt, insisted on its “real” 20 per cent target, effectively a cut from 41,000GWh to 26,000GWh, or a reduction of 2/3 of new construction over the next five years.

Labor’s decision has been applauded by many in the industry, who did not want compromise, and enables them to seize the high political ground. The problem for the industry is that without an agreement, it has nowhere to go.

The Coalition knows this and its position should not be a surprise, given its rhetoric over the last few weeks and its long held determination to gut the renewables industry. Many of its key players have strong ideological opposition to wind in particular. Treasurer Joe Hockey and others just don’t like the look of them.

The Coalition’s only hope to legislate a cut – and manage the political fallout – is now by possibly striking a deal with the Palmer United Party, with which it is also negotiating, Macfarlane confirmed on Wednesday.

PUP has said it will support a 41,000GWh target – at least until 2016. But given its backflip on Direct Action, which it had previously opposed, and comments by Clive Palmer recently flagging potential changes – a compromise should not be ruled out. See our story, Can Clive Palmer be trusted to protect the RET. (Update: Palmer says he has endorsed Labor’s position and will not negotiate).

The problem for the large scale industry is that it needs certainty to meet the current target. The industry has been at a standstill for nearly two years, with no new commitments apart from those obtaining finance from agencies such as the CEFC and ARENA.

Macfarlane and the Coalition know that without the Abbott government, the large scale renewables industry will remain moribund. Macfarlane continues to play that card.

“The reality is that without a bipartisan position from Labor the renewable energy industry will be left in limbo,” he told ABC. “So it is the renewable energy industry that will lose as a result of Labor walking away from these negotiations.”

The rooftop solar industry is in a better position, because the nature of the small scale component of the scheme means that it has the certainty – and the upfront credits – to continue investment. Its big fear has been that the government will respond to pressure from the fossil fuel industry and cut the eligibility to the small scale scheme from 100kW to 10kW – effectively killing much of the burgeoning commercial market.

The decision by Labor to walk away from the talks appear to have been designed to maximize the embarrassment for the government ahead of the G20 meeting, where Australia will be the only country to ditch a carbon price, and the only to seek to slash the scope of its renewable target.

Labor’s environment spokesman, Mark Butler, wrote to Macfarlane this seek, saying Labor ould not accept the “deep and devastating cut to the sector” and saw no point continuing the talks.

Labor, it is thought, was prepared to negotiate a target in the mid to high 30,000GWh. Butler said on ABC Radio on Wednesday morning that it was a “minimal adjustment”. But the government would not budge.

“Considering the Government’s fundamental position remains a 40 per cent cut to the RET, I do not see there being any value in continuing discussions at this point in time,” the letter says.

“Labor will not stand by and watch billions of dollars of investment in the Australian renewable energy sector – along with thousands of jobs – go overseas because of deep cuts in the target,” Butler wrote, adding “the importance of a strong RET cannot be overstated”.

Butler told Fairfax that Labor held a number of talks with Abbott government ministers to “explore any options we could find to get this policy back on the rails and restore investor confidence.”

“It is clear from the discussions that the Abbott government remains committed to making deep cuts to the renewable energy target that will be enormously damaging to the industry.

“On that basis Labor has reached the view that there’s no value in continuing these discussions because there is no prospect of reaching an agreement.” He told ABC Radio that Labor would consider resuming talks if the Abbott government indicated a more moderate position.

The Climate Institute says the inability to deliver a bipartisan outcome marked another “sorry day” for Australian climate change policy.

“With the collapse of renewable energy negotiations our political leaders are institutionalising uncertainty in Australia’s energy policy as well as smashing investment in renewable energy,” said John Connor, CEO of The Climate Institute.

“This is not only an issue for renewable energy investments: playing political football with the power sector risks making any investment in the sector impossible. This limbo will increase costs to households and other energy users, and see damaging pollution levels continue to rise.”

The Australian Wind Alliance condemned the government’s refusal to provide certainty to the renewable energy industry.

“This is the worst possible outcome. Jobs will be lost and billions of dollars of investment will be stripped away from regional Australia,” said Andrew Bray, the Wind Alliance’s spokesman .

“The ALP should be applauded for walking away. These negotiations were completely unnecessary and the government has been completely unreasonable.”

John Grimes, CEO of the Australian Solar Council, said it became apparent that the government was intent on decimating the industry, not making fair adjustments. He said the ALP rightly concluded there was no prospect of a reasonable outcome that could offer the industry the certainty it needs.

“The Australian Solar Council knew throughout the process that Minister Macfarlane’s statement claiming no change to rooftop solar was a hollow promise,” he said in an emailed statement.”The Abbott Government remained intent on targeting rooftop solar in the Small-Scale Renewable Energy Scheme (SRES).”

“The plan was to cap the SRES (leading to an annual boom and bust cycle), rapidly phase out the scheme, and lower the threshold from 100kW to 10kW, all of which would decimate the solar industry, and lock Australians into higher power bills.”