LONDON (Reuters) - Over-reliance on offshore wind farms to meet European renewable energy targets will lead to supply problems and drive up costs for investors, according to a new report by the Cambridge Energy Research Associates.

The European Union wants to generate a fifth of its energy from renewable resources by 2020 but the majority of that will likely have to come from wind turbines and the industry may not be able to cope with the demand.

"Big things are expected of offshore wind but this fledgling sector could be at risk given ongoing increases in capital costs, especially if government subsidies do not keep pace," said Matt Brown, CERA senior director and head of the European power service.

"Further increases of 20 percent in offshore wind capital costs over the next few years should be expected."

CERA said capital costs could increase from 2,300 euros ($3,586) per kilowatt to 2,800 euros per kilowatt as a result, because of increases in raw material and engineering costs.

The report says a lack of purpose-built installation vessels to install the turbines could be a major problem for wind farm developers.

"With this pinch point companies should consider investment in installation vessels, as this part of the supply chain is where the higher value will be found," Brown said.