Question 1) Cable selection; UTP vs STP; Grounding:

Modbus standard requires shielded cable[1], so you must use STP.

Modbus standard also requires shield to be connected to protective ground, on one end only, so that there can not be any current flowing between devices via the cable shield. If there is a connector, cable shield must be connected to connector shell, so it gets grounded via connector.

Modbus standard says data wires must be 24 AWG, or thicker, but not thinner.

Modbus standard says CAT5 cabling is rated up to 600 meters only, so it is not so good as cable that is actually rated for Modbus or RS-485, and the 100 ohm differential impedance of CAT5 cables may not be so good as cable with higher impedance.

So just as a warning, CAT5 may not be a good choice, so bear that in mind when you choose to use CAT5 instead of cable actually meant for RS-485 or Modbus. So if it does not work, change the cable.

Question 2) Cable Wiring; Termination:

Yes, there is a definite problem to what you suggest. RS-485 or Modbus does not simply work with two data wires. There must be a common ground for data signals as well between devices. The Modbus standard requires a third wire for connecting common ground for data between devices. The common ground for data bus is meant to keep the voltage potential of the transceivers at the same common ground potential, so it is not meant to have power supply currents flowing in it. Especially since you intend to use switch-mode power supplies, you need a separate power supply wire and power supply return wire, and to keep these separated, it basically means isolated power supplies, or isolated RS-485 interfaces on the sensors, so that no sensor connects the common ground for data to common ground for power supply.

The termination definitely does not belong to at each sensor device. The Modbus standard mandates that the buses are terminated, that there must be only two terminators in the bus, at both ends of the bus.

[1] "A MODBUS over Serial Line Cable must be shielded. At one end of each cable its shield must be connected to protective ground. If a connector is used at this end, the shell of the connector is connected to the shield of the cable." From: MODBUS over Serial Line Specification & Implementation guide, V1.0 | Modbus.org page 32.