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A solar panal at the Sarnia Solar Project, the largest operation photovoltaic facility in the world, in Sarnia, Ont.DAVE CHIDLEY/The Canadian Press

Ontario's domestic-content rules could cost the province $2-billion in lost investment next year and threaten its ambitious targets for adding renewable power to the grid, says a coalition of foreign and Canadian solar-power manufacturers.

The group, led by Japan's Mitsubishi Electric Corp., commissioned a study that tallied the costs of the province's feed-in-tariff (FIT) requirement that solar-energy projects have 60-per-cent local content in exchange for premier power rates.

The study concluded that Ontario's rules would result in increased costs for solar projects of all sizes, 9,000 fewer jobs and $2-billion less in investment than would occur if the solar industry were granted higher rates but without provincial content rules.

"We are very encouraged by the FIT as far as a tariff program is concerned," said Takashi Sato, president of Mitsubishi Electric Sales Canada Inc. "However, the program contains some poison because of the domestic content requirement."

Mitsubishi has had a lengthy presence in Ontario, and supplies components for photovoltaic panels. But Mr. Sato said the company may have to leave the province if it faces a closed market owing to Ontario's domestic supply rules.

Mr. Sato said the solar industry is poised for solid growth worldwide, but it would be uneconomic to build new factories in each jurisdiction, particularly on the basis of a government program that may be changed in the coming years.

He added Ontario is unlikely to meet its target for solar-power generation, since investors will have trouble finding enough locally produced components.

Other non-Ontario suppliers who are opposing the Green Energy Act procurement provisions include U.S.-based First Solar Japan's Sanyo Electric Co. Ltd., and Timminco a Toronto-based silicon processor with operations in Betancourt, Que.

Japan has challenged Ontario's Green Energy Act at the World Trade Organization, with the European Union and the United States seeking third-party status in the dispute. A Japanese delegation is due in Ottawa next week to begin consultations on the dispute, which could take years to resolve.

Timminco's chief financial officer, Robert Dietrich, said it is "ridiculous" that his Canadian company can't supply the Ontario market with solar-grade silicon under the province's local content rules.

Timminco had to close its solar-grade processing plant earlier this year after the collapse of the polysilicon market led customers to purchase cheaper supplies elsewhere. Mr. Dietrich said the company is currently talking with potential customers but is furious that it has essentially been shut out of the Ontario market.

But Elizabeth McDonald, president of the Canadian Solar Industries Association, said her members generally favour the Ontario approach because it is provides premium prices for solar power and is building an industry.

Ms. McDonald noted that the Ontario government is paying top dollar for solar power not only to generate clean electricity but to attract manufacturing jobs to the province that has seen its industrial base hit hard by the recession. "Clearly, Ontario has said they want jobs and they want manufacturing jobs - and that's what this policy aims to achieve," she said.

There have already been several announcements under Ontario's feed-in-tariff program of companies that are locating manufacturing facilities in the province, said a spokesman for provincial Energy Minister Brad Duguid. However, critics question whether the economic activity is worth the cost that power users will have to pay.