Huhne does not see a strategic case at this time for public funding after a feasibility study concluded that the cost and risk to taxpayers would be excessive compared to other low-carbon energy options.
Some estimates put the bill for the 16km barrage, which could produce up to five per cent of the UK's energy, at £30 billion.
The move was welcomed by conservation groups. The Wildlife Trusts branded the barrage a "catastrophe for the estuary's wildlife" and called on the government to find a sustainable option for harnessing the Severn's tidal power with minimal environmental impact.
But Corlan Hafren, a company launched to spearhead the development of the barrage, said the scheme will act as a catalyst for regeneration in Wales and the South West and that it remains viable without public funds. The company said it now aims to be a focus for other organisations that wish to contribute to the scheme.
"With one of the largest tidal ranges in the world, the site has the potential to provide guaranteed energy output for well over a century," said director Tony Pryor.
"The projected 120-year lifespan of the barrage means that the scheme also has the potential to provide an economic way to produce electricity in terms of cost per kilowatt as part of a mix of renewable energy sources."