The Energy and Climate Intelligence Unit's (ECIU) "Blown Away" report finds the average onshore turbine size of turbines installed in 2016-17 is less than 2MW, ahead of only Spain.
Many other countries in the EU are installing turbines with an average nameplate capacity of around 2.5MW, while Sweden's average for 2016 installations was 3.3MW, ECIU said.
The report found the UK — which has some of the best wind resources in the Europe — is missing out due to leglislation limiting turbine tip heights to 125-metres in England, meaning recent technological advances in the form of more powerful turbines and greater rotor diameters cannot be utilised.
"Increasing size is one of the main drivers of higher turbine efficiency and falling wind power costs," ECIU's report said.
"The power output of a wind turbine increases with the square of rotor radius and the cube of wind speed; therefore, installing larger turbines in windier areas can have a dramatic effect on generation," it added.
Despite this constraint, ECIU argued, onshore wind is still the cheapest form of new energy generation, with a rough estimate of £50/MWh, lower than the £66/MWh the government forecast for new gas-fired generation.
ECIU said its £50/MWh figure is an over-estimate should larger turbines be used and onshore wind be tendered in a competitive mechanism.
In the report, ECIU envisages a scenario where 1GW of onshore capacity is supported by a 15-year support contract at £50/MWh. It estimates this capacity would produce 2.7TWh of electricity a year.
It concludes the onshore capacity would cost £165.5 million to produce the 2.7TWh, compared to the £271.3 million it would cost nuclear generation to produce the same amount, and £197.9 million for offshore wind.
"Generating this power from new onshore wind farms would be over £100 million per year cheaper than doing so from new nuclear reactors... and more than £30 million cheaper than under the latest offshore wind contracts," ECIU said.
ECIU energy analyst, Jonathan Marshall, said: "Changing tack on onshore wind would be widely supported. People are overwhelmingly in favour of renewable forms of energy, and onshore wind is one of the most popular forms of generation; surveys show that people are far keener on living next to an onshore wind farm than a fracking site or a small nuclear reactor.
"The opportunity of repeating the British success story on offshore wind should also be a powerful motivator, and there would be added benefits in diversifying the UK's energy mix. A policy rethink on onshore wind looks increasingly overdue," he added.
Reports surfaced in September that the governing Conservative Party, which initially brought about the moratorium on onshore wind in England, may be softening its stance on the technology.