Vestas, which has its headquarters in Denmark, said it would be starting talks with its 91 employees about the future of its site in Campbeltown, Argyll, because it does not make enough money.
However, insiders say the factory has been dogged by problems from the start, particularly the lengthy planning process in Scotland that has led to a lack of stability in the turbine market.
Vestas made the announcement on the same day it revealed its orders for wind turbines, and its share price, had increased.
The decision comes just weeks after Alex Salmond gave the go-ahead for Europe's largest wind farm to be built in Scotland, as he expressed a desire for this country to become the green capital of Europe.
An industry insider said from the start the lengthy planning system brought difficulties for the factory.
"In 2002 there was an awful lot of confidence that the wind industry would be able to grow in Scotland quite significantly and quite quickly," he said.
"That gave confidence for a lot of positive investment decisions at the time from people like Vestas. They were hoping the industry would have a regular throughput of planning decisions that would lead to orders."
However, he said the reality of the Scottish planning system – which has taken up to four years to make decisions about whether to give the go-ahead to wind farms – put an end to the initial optimism.
It is believed the factory has also struggled because it is not set up to build the larger turbines that are expected to be in high demand with the growth in offshore plants. It is thought Vestas was also at a disadvantage due to its remote location in Campbeltown that makes transportation of the turbine towers difficult.
Hugh Scullion, regional political officer for the union Unite Scotland, said he could not believe Vestas had made this decision at a time when the renewables industry was thriving.
He called for government intervention to make sure the manufacturing industry that builds turbines becomes established close to the wind farms, to make sure jobs are brought to the area.
Scotland's enterprise minister, Jim Mather, said he was seeking an urgent meeting with senior management at Vestas.
He added: "As a government, we are ready to do whatever we can to try and find a sustainable future for the yard."
In a statement Vestas said: "Evaluations have shown that the products for which the factory was designed and streamlined do not generate satisfactory earnings."