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TORONTO (Reuters) - Ontario's renewable energy sector breathed a sigh of relief on Thursday as the province announced rate reductions for solar and wind power that were more modest than some had feared and it repeated its commitment to renewable power targets.
Following a review of its ambitious clean-energy program, Canada's most populous province said it will cut the rates it pays for power from new solar projects by more than 20 percent and wind rates by about 15 percent, reflecting lower prices for generating equipment such as solar panels and wind turbines.
Ontario's feed-in-tariff plan, aimed to spur job creation and help replace coal-fired power in the province, has been a source of anger for ratepayers facing higher electricity bills.
Launched in 2009 with a global recession underway, the program paid green energy producers generous above-market rates for power that they could "feed" into the provincial grid. The current rates will still apply to existing projects.
"The reduction is certainly not insignificant, but I don't believe it's a knock-out punch," said Bruce Cousins, CEO of solar power equipment maker Carmanah Technologies. "It is going to put pressure on (profit) margins throughout."
The program, which contributed to rising electricity bills in Ontario, became a flashpoint in last year's provincial election, in which the Liberal Party was re-elected but with fewer seats in the legislature. The opposition Progressive Conservatives campaigned on a promise to slash the program.
Analysts and clean energy companies say the rates announced on Thursday appear adequate to produce profit from renewable power projects, but the reductions mean developers will need to work more efficiently.
"These are a lot higher prices than, say, Germany or even Italy," said Michael Carten, chief Executive of Sustainable Energy Technologies, which manufactures solar inverters.
"You should see the industry move itself to streamline installation processes and costs and try to drive some of the costs out."
The government said it will cut the rate it pays for power from new small solar projects to 54.9 Canadian cents a kilowatt from 80.2 Canadian cents. The rate for large solar installations will drop to 35 Canadian cents from 44.3 Canadian cents a kwh.
Considering the plunge in equipment prices, Ontario's rate reduction is not as bad as some anticipated, said National Bank Financial analyst Rupert Merer.
Prices for solar modules have fallen to as low as C$1 per watt from close to C$4 per watt since the feed-in-tariff program was introduced in late 2009, he said.
"It's never good news to see cuts in prices, but maybe the industry was bracing for something that could have been much worse," he said.
Wind power project rates will fall to 11.5 Canadian cents from 13.5 Canadian cents per kwh.
Still, the reduction will make it more difficult for small projects and new entrants, said Canadian Wind Energy Association president Robert Hornung.
"We believe that this new price will prove extremely challenging for many projects and could prevent a number of them from proceeding," he said.
Prices for water, biogas, biomass and landfill gas will remain at current prices.
The province said it plans to create a new renewable energy committee to help shorten the project application process by up to 25 percent.
To date, the program has resulted in the signing of almost 2,000 contracts that provide about 4,600 megawatts of power, enough electricity to power 1.2 million homes, the province said.
More than 200 projects that represent a further 2,900 megawatts of power are currently in the approval process.
"We moved very quickly in the beginning, what we're seeing now is a slowing down," said Association of Power Producers of Ontario president David Butters.
"The important thing is that the government is still committed to continue on with the acquisition of renewables, but obviously at a slower pace."
The province said it will study whether it needs to increase its renewable capacity target at the end of 2013, based on power supply and demand forecasts. It expects to hit its target of 10,700 megawatts of renewable energy generation by 2015.
The government is also recommending that about 10 percent of remaining clean energy capacity be reserved for projects that have significant participation from local or aboriginal communities. The review recommends a new point system that will give priority to such projects.
The government says the plan has attracted C$27 billion ($27.19 billion) in new investments and created more than 20,000 clean energy jobs, adding that it was on track to create 50,000 such jobs.
Editing by Frank McGurty