May 30 (Reuters) - The California Public Utilities

Commission on Thursday approved a new solar energy program that

the industry had said would not go far enough to incentivize

smaller community projects.

The decision marked the latest disappointment for the solar

industry in California, which is the top U.S. solar market

overall but ranks eighth out of 50 states in community solar.

In the last two years, California has reduced incentives

for the clean energy technology, in part because regulators

worried the subsidies were being funded by ratepayers who do not

have solar.

The CPUC voted to expand two existing programs and create a

third, which was supported by utilities, in a 3 to 1 vote. The

new program will be able to tap $250 million in federal funds

provided under President Joe Biden's climate change law, the

Inflation Reduction Act.

The program update, which was required by state law, was in

part meant to expand solar energy to lower-income Californians

who may live in apartments or cannot afford rooftop systems.

Despite its reputation as a leader in solar energy,

California has lagged other states in building community solar

projects. As of the end of 2023, California had 163 megawatts of

community solar, compared with more than 2 gigawatts in New York

and 1.1 GW in Massachusetts.

"It's disappointing that the CPUC's decision fails to

provide meaningful improvements to California's lackluster

community solar program," Steven King, a clean energy advocate

with green group Environment California, said in a statement.

"Utilizing spaces such as rooftops, parking lots, and roadside

land for generating solar power is essential to address the

climate crisis and reach 100% clean energy as soon as possible."

California has among the most ambitious climate change

goals of any U.S. state, and Governor Gavin Newsom has pledged

to decarbonize the state's economy by 2045.

The CPUC decision marked a rejection of a scheme backed by

solar project developers, ratepayer advocates, environmental

groups and others that would have compensated project

subscribers for energy exported to the grid based on the value

of the electricity at that time.

The PUC said that proposal would have increased costs for

ratepayers not participating in the program.

Instead, the regulator embraced a proposal to treat

community solar projects like wholesale facilities and

compensate them at a rate they would pay for power elsewhere,

known as the avoided cost. That scheme was backed by utilities

including Southern California Edison and Pacific Gas & Electric.

The PUC said it would sweeten the returns for project

developers with state and federal funds.