Starwood Energy Group Global has canceled its deal with Arizona Public Service Co. to sell power from a yet-to-be built, 290-megawatt solar thermal power plant, APS said Wednesday night.

The two companies signed the agreement only in May this year, and the project symbolized a grand entrance into the terrestrial solar market by defense contractor Lockheed Martin. Bethesda, Md.-based Lockheed was to be the general contractor for the project.

"APS understands that after the major subcontractor agreements were negotiated, the size and the final risk profile of the engineering, procurement and construction contract, among other factors, were the reasons Lockheed Martin decided not to go forward," the utility said in a statement.

Lockheed and Starwood couldn't be reached Wednesday night. We will follow up with the companies Thursday morning.

Although few details were available to explain the contract termination, the brief statement by APS provided a glimpse of how difficult it is to plan and build such a large-scale power project. There has been no shortage of super-sized projects being announced by solar thermal power plant developers, but whether they would be built remains a big question.

Lining up financing is one significant hurdle. Investors are typically leery of betting on technologies in an emerging market, even if the technologies were first developed decades ago. They want lots of guarantees from the project developer, and that increases the costs and risks associated with each project. There aren't many large-scale solar thermal power plants in the world, and the largest cluster was built throughout the 1980s in California. 

UPDATE: Lockheed's spokeswoman Kimberly Ricker Martinez said Thursday morning that Lockheed's risk assessment of the project showed that the likely cost of the project would be too high. The company has declined to disclose the cost. 

Here is a statement from Lockheed: "This decision was based primarily on the unexpected high supply base costs realized since the PPA signing, combined with the magnitude of this particular project. These factors increased Lockheed Martin's risk profile and drove a cost structure that ultimately would make this project difficult to finance in today's economic climate."

The Starwood project, called Starwood Solar I, would have been the largest solar thermal power plant to serve the Phoenix-based APS, the largest utility in Arizona.

APS also has signed a deal to buy power from a 280-megawatt solar thermal power plant to be developed by Abengoa Solar. This project, called Solana,is set to materialize near Gila Bend, about 70 miles southwest of Phoenix. The developer plans to disclose the project's financing in the first half of 2010, APS said.

Greenwich, Conn.-based Starwood teamed up with Lockheed in 2007 to pursue solar power projects, and the Starwood Solar I was the first publicly disclosed project. Starwood would line up the financing and own the power plant while Lockheed would draw from its deep experience in engineering and construction.

Starwood and Lockheed had intended to complete the project in 2013.

The power plant would've been located on 1,880 acres in Harquahala Valley, about 75 miles west of Phoenix. Martinez said Lockheed is working with Starwood on a smaller solar thermal power project at the same site. 

The solar thermal power plant would have made use of 3,000, 100-meter parabolic troughs, which are curved mirrors that concentrate and direct the sunlight to heat oil-filled tubes running along the mirrors. The heated oil is would be used to generate steam to run a turbine for electricity generation.

The parabolic trough technology is considered more proven than other approaches to produce solar thermal power because nine parabolic trough plants totaling 354 megawatts in capacities have been operating in California's Mojave Desert the past three decades.

APS said it's working on deals to replace the lost contract with Starwood. The utility plans to announce a small centralized power project and a distributed power project by the end of the year.