BrightSource Energy has broken ground on a 29-megawatt solar steam plant at a Chevron oil field in Coalinga, Calif.

The 100-acre project’s 7,000 mirrors will focus sunlight on a water-filled boiler that sits atop a 323-foot tower to produce hot, high-pressure steam.

In a conventional solar power plant, the steam drives a turbine to generate electricity. In this case, the steam will be injected into oil wells to enhance production by heating thick petroleum so it flows more freely. Oil companies typically rely on steam generated by natural gas or other fossil fuels to maximize oil recovery in places like the oil patch in California’s Fresno and Kern counties, where the petroleum is heavy and gooey.

That part of California also has some of the state’s strongest sunshine and several large solar power plants are planned for the region.

Chevron is an investor in BrightSource, a solar power plant builder based in Oakland, Calif., and solar-powered oil extraction offers the oil giant an opportunity to reduce its carbon footprint while gaining a hedge against volatile natural gas prices.

For BrightSource, which has signed contracts to supply 2,610 megawatts of solar electricity to California utilities, the Chevron deal is a chance to scale up its technology –- the company so far has only built a six-megawatt demonstration power plant in Israel -– and explore new applications for its technology.

“It’s potentially a very lucrative market for us,” said Keely Wachs, BrightSource’s senior director of corporate communications.

He declined to discuss the financial terms of the Chevron agreement, however. The solar plant will be built by BrightSource and owned and operated by the oil company and is scheduled to go online by the end of 2010. The project’s existence was first reported by Reuters after Chevron disclosed the BrightSource deal at a city council meeting in Coalinga on Thursday evening.

Besides Chevron, BrightSource counts the oil giants BP and StatoilHydro of Norway as investors.

Two BrightSource competitors, Ausra and eSolar, are also eyeing the oil industry as a potential market for solar steam. Ausra, based in Palo Alto, Calif., last year flipped the switch on a five-megawatt demonstration solar power plant outside Bakersfield, Calif., and the company’s chief executive, Robert Fishman, said he had held discussions with oil producers about deploying the company’s technology.

The economics of solar-powered oil extraction depend largely on the price of natural gas, which hit a seven-year low last week when gas futures fell below $3 per million British thermal units. A February 2009 report by New Energy Finance, a London-based market research firm, estimated that that solar steam systems would be competitive with natural gas at $8.50 per million British thermal units.

The report noted that natural gas prices in California had swung 300 percent over the last four years, and that beyond California, the Middle East is a prime — and sunny — potential market for solar steam extraction of heavy oil.

Solar steam, however, works only when the sun shines, so oil companies will still need to rely on natural gas-fired steam.