Signaling that alternative energy could one day provide massive amounts of the state’s power, PG&E said Wednesday it signed a contract to buy electricity from what will be one of the world’s largest solar plants.

The deal provides enough power to serve more than 400,000 homes and is big enough to help the company meet aggressive state rules that demand utilities provide 20 percent of their power from renewable energy sources by 2010.

“People who have sort of looked down at renewables because it’s nice and cute but small-scale will now see that the 800-pound gorilla in the room does not have to be a coal plant,” said Dan Kammen, co-director of the Berkeley Institute of the Environment at the University of California-Berkeley.

But as the state’s large publicly owned utilities strive to meet the state goals, they are also running into another formidable challenge: Expensive and sometimes unreliable energy options.

Experts say it is impossible to say how an increase in renewable energy use will affect customer bills because there are a number of factors that contribute to the price of power. But it is clear that new environmentally friendly sources of energy cost more than traditional sources.

While natural gas and clean-coal technologies cost about 9 cents per kilowatt-hour, solar technologies can cost four times that. Even more, renewable fuels provide intermittent power, working only when the wind blows or the sun shines.

“Getting away from fossil fuels costs money if all you consider is the direct cost of power,” said Severin Borenstein, director of the University of California Energy Institute. “If you consider the environmental consequences, I think it makes a lot of sense.”

Still, the direct costs can be steep. Solar photovoltaic, which usually uses panels on rooftops, costs about 39 cents a kilowatt-hour.

Solar thermal, the system to be used in the PG&E contract project, uses the sun’s heat to create steam energy and costs about 22 cents a kilowatt-hour, according to 2007 data from the California Energy Commission. The price includes the cost of constructing a new plant.

Wind power, another popular form of renewable energy, is cost-competitive at about 7 cents a kilowatt hour, according to the energy commission.

PG&E declines to talk about the cost of renewables and how much they may affect customer bills, citing competitive reasons. However, the company confirms that renewables usually cost more than natural gas or coal.

The company would not disclose how much its deal with Solel Solar Systems of Israel to buy power from a 553-megawatt plant in California’s Mojave Desert.

Solel President and Chief Executive Avi Brenmiller said he believed the new plant would be “cost competitive” with natural gas.

Construction of the plant – the same size as natural gas plants – will begin in 2009 and finish by 2011. PG&E has signed a 25-year contract for the energy.

Solar thermal’s renaissance is in part because of rising natural gas prices and also because larger plants makes the technology more economical.

“We think it’s one of – if not the – most promising technology,” said Keely Wachs, PG&E’s environmental communications manager.

Thermal is so attractive, utilities said, because it provides energy when and where California needs it most: hot sunny days.

“The U.S. is perfectly situated to be able to build large-scale solar thermal plants because we have an abundance of flat, arid land close to large populations,” said Rhone Resch, president of the national Solar Energy Industries Association.

In California, PG&E said the Solel plant will help increase the company’s renewable-energy portfolio of contracts by two percentage points to 18 percent – bringing it another step closer to reaching the state goals. The utility expects to contract for more than 20 percent of its power from renewable sources by the end of this year.

But does the race to build renewable power mean California’s utility customers will pay higher prices?

Experts say that’s hard to answer. While renewables cost more, there are many factors that contribute to the price of power.

Michael Peevey, president of the California Public Utilities Commission, which regulates utilities and the rates customers pay, has said the factors that make California’s prices higher include not using coal and relying on volatile natural gas prices.

Californians already pay some of the highest electricity prices in the nation – about 15 cents per kilowatt-hour in April compared with a U.S. average of about 11 cents per kilowatt-hour, according to the federal Energy Information Administration.

Advocates argue that prices will go down as more renewable power sources are built.