A leading American power company is hoping to turn science fiction into reality by supporting a project to set up solar panels in outer space and beam the electricity generated back to Earth.

Pacific Gas and Electric Company, which serves San Francisco and northern California, has agreed to buy electricity from a startup company claiming to have found a way to unlock the potential power supply in space.

The firm, Solaren Corp, says it will launch solar panels into orbit and then convert the power generated into radio-frequency transmissions, which will be beamed back down into a depot in Fresno, California. The energy would then be converted into electricity and fed into the regular power grid, PG&E said.

Although spacecraft and satellites routinely use solar panels, the project marks the first serious attempt to take advantage of the powerful and near-constant supply of sunshine in space.

Nasa and the Pentagon have been studying the idea of orbiting solar farms since the 1960s, and a number of private researchers have been looking at ways to tap into space-based solar energy.

But Solaren Corp, founded by a former spacecraft engineer, says it has developed a technology that would make it commercially viable within the next seven years to transmit electricity generated in space to a terrestrial power grid.

PG&E announced this week that it had agreed to buy 200 megawatts of electricity from Solaren starting in 2016. The deal has yet to be approved by California state government regulators and PG&E has not put any money into Solaren, but the promise alone has turned the notion of space based solar power from fantasy to reality.

"There is a very serious possibility they can make this work," said PG&E's spokesman Jonathan Marshall.

Unlike on earth, with its cycle of nights and days and where there can be clouds, sunshine in space is practically constant – aside from a few days around the spring and autumn equinoxes. That means the space-based solar panels could potentially produce a steady supply of electricity.

The sunlight hitting solar panels 200 miles in space would be 10 times as powerful as the light filtering down to Earth through the atmosphere. The satellite would then convert the energy into radio waves and beam them down to a receiving station on Earth. Spirnak did not give details of how this would work but said the technology was based on that now used by communications satellites, describing it as "very mature". He added that power losses via the radio-wave route are lower than transmission cables used on Earth. Another advantage of the plan is that it does not require large amounts of real estate. Ground-based solar installations require huge tracts of land.

Solaren has released relatively few details about the project. But Solaren's CEO, Gary Spirnak, said the company, a group of about 10 former satellite and aerospace engineers, was confident in the technology and timing behind the venture.

He argued that the science behind the orbiting solar farms was little different to that of communications satellites. "This is the exact same thing that satellites do every day. The basic technology is there," said Spirnak. "The bottom line is that this is not really a technology issue."

Daniel Kammen, a professor in energy and resources at the University of California, Berkeley, agreed: the most daunting challenge to Spirnak is cost.

"The ground rules are looking kind of promising. Whether we can do it at scale, whether we can do it affordably, whether it is too much of a technological leap or not, those are all factors," Kammen said. "It is doable. Whether it is doable at a reasonable cost, we just don't know."

Spirnak argues that a confluence of recent events now make the project more commercially viable. The cost of rocket launches – though still prohibitive – has been dropping because of the commercialisation of space, making it cheaper to send up and service solar panels.

Spirnak will face a difficult task raising funds for his project though, especially in this time of global economic recession. He said he was seeking in the low billions of dollars in investment – much higher than the usual $100m (£67m) to $200m costs for projects in renewable energy.