By Catherine Hornby and Alberto Sisto

ROME (Reuters) - Italy will scale back financial incentives for solar and other renewable energy that have inflated consumer power bills more than expected, and also will raise national renewable energy targets for 2020, two ministers said on Wednesday.

Italy's green power industry has boomed in recent years as investors from around the world ranging from banks and private equity funds to utilities poured billions of euros into the sector, lured by generous support measures.

With incentives ballooning above expected limits, Rome has decided to cut the support, which has burdened household and industrial consumers who pay for it through power bills that are among the highest in Europe.

Under the new decrees approved by Industry and Environment Ministers, renewable energy incentives will be cut by about 3 billion euros a year below levels they would have reached under the current support scheme, the ministries said presenting the new measures.

Production incentives for solar power generation, keenly watched by investors, will be slashed by about 35 percent on average while incentives for non-solar energy sector will be cut by about 10-15 percent, said Leonardo Senni, head of the energy department at the industry ministry.

"The measures appear to be more penalizing for the solar sector and fairly neutral for other renewable energy," one analyst said on condition of anonymity.

Under the new support scheme for solar power generation, new spending on incentives will be capped at 500 million euros a year while a total cumulative annual incentives spending limit is set at 6.5 billion euros.

Incentives for non-solar renewable energy will be capped at 5.5 billion euros, according to a draft decree seen by Reuters.

Renewable energy operators had expected more generous support.

"The new measures are rather disappointing. They can undermine investments in the sector," said one solar market operator who declined to be named.

With generous incentives in place since 2007, Italy's solar market has become the world's second-biggest after Germany and was the fastest growing market in the world in 2011.

It has attracted major solar module makers such as Chinese group Suntech Power Holdings, Trina Solar, Yingli Green Energy Holding and U.S. firms First Solar and SunPower Corp.

MORE AMBITIOUS 2020 TARGETS Continued...