SYDNEY (Reuters) -Australia's Victoria state has postponed its inaugural auction for offshore wind farm funding, citing global investment hurdles, in a setback to an industry deemed vital to the country's transition from coal-fired power to renewable energy.

The state government confirmed on Tuesday that it would delay the auction process, which had been scheduled for this month, and would release a revised timeline by the year-end.

Minister for Energy and Resources Lily D'Ambrosio said global investment headwinds meant an auction now would risk attracting too few participants.

"As the global market for offshore wind investment changes, we're making sure the auction is competitive and attractive and will release a new timeline for this process later this year," she said.

The Gippsland zone auction would have been Australia's first opportunity for developers to bid for government underwriting support.

Winning projects would be guaranteed a fixed price for power generated through a system known as contract-for-difference.

The guarantee would help give companies investment certainty needed to build the large, expensive farms Australia wants due to their capacity to generate more power than existing onshore farms.

Ben Carrozzi, an energy and infrastructure partner at law firm Norton Rose Fulbright, said the delay would avoid the "danger of rushed auction programmes" that have occurred in other markets.

"We hope to see continued dialogue and clarity on next steps in order to ensure that the sector receives the comfort it requires to continue to invest," he said.

But the announcement deals another blow to the nascent sector, which is facing rising costs and regulatory hurdles, as well as market uncertainty, partly driven by criticism from U.S. President Donald Trump targeting the industry.

It comes days after Origin Energy said it would pause plans to develop an A$8 billion ($5.33 billion) farm in Gippsland as it was unable to meet the Victorian government's original auction timeline.

Other developers have also walked away. Spain's BlueFloat Energy in July abandoned one of Gippsland's most advanced projects, citing market conditions. In August, Norwegian energy company Equinor pulled out of the A$10 billion Novocastrian wind farm in New South Wales, after a series of earlier withdrawals in Australia.

D'Ambrosio said the state would focus now on securing environmental approvals for building ports to support construction of future offshore wind projects.

"Offshore wind is critical to the nation's energy security and pushing down energy bills for Victorian families and we continue to engage with the Commonwealth on renewable energy projects including a timeline and support package to deliver Australia's first offshore wind auction."

($1 = 1.5015 Australian dollars)