The utility said that a feasibility study had shown the project to be economically unviable. This was due to "changing economic conditions" that had caused the estimated capital cost of the project to increase by around A$150 million ($132 million).
A lower Australian Dollar means that the cost of equipment, most notably the turbines themselves and high-voltage cables, has increased since the project was first proposed in 2012.
Power generated at the project was intended to have been transmitted across the Bass Strait to the state of Victoria via sub-sea cables.
The developer also blamed a "declining demand across the National Electricity Market" for lower projected revenues from the project.
In January 2013, Hydro Tasmania chairman David Crean said King Island's proximity to the 'Roaring Forties' meant the location was ideal for a wind farm. Although, he said he had "no definite ideas yet about the siting of turbines or what the wind farm would look like".
Last week, federal industry minister Ian Macfarlane indicated the government would push ahead with plans to reduce the Renewable Energy Target (RET) for 2020 from 41TWh to 26TWh.
However, while the company said that the likely cut to the RET had played a part in the decision to abandon the project, it was largely driven by economics.
"Our investigations eventually found that TasWind was not viable even if the RET was maintained at the existing level," said CEO Steve Davy.