California utility Pacific Gas and Electric Company said Tuesday it has signed the first commercial wave-energy contract in the United States, in an agreement to buy wave-generated electricity from Canada's Finavera Renewables.

The contract calls for PG&E to buy 4,000 megawatt-hours of energy annually from a wave-energy project that Finavera (TSX-V: FVR) will build and operate about 2.5 miles off the coast of Eureka, Calif.

PG&E and Finavera kept quiet on some contract details, including the length of time the utility would buy energy and for how much, but said the contract calls for Finavera to deliver electricity from the project by 2010 after a permitting process expected to take two to three years.

The contract is the latest in a series of commitments that PG&E is making to grow its renewable-energy supply.

For example, the utility earlier this year signed deals with Solel and Ausra, two solar-thermal electricity companies. PG&E agreed to buy 553 megawatts of power from Solel's Mojave Solar Park, expected to be constructed in California by 2011, and 177 megawatts of power from Ausra, expected to be generated at another California plant starting in 2010 (see FPL and PG&E Back Solar-Thermal and Ausra to Build 177-Megawatt Solar-Thermal Plant).

PG&E is not alone. Many California utilities have been signing renewable-energy contracts in the past few years in an attempt to meet the California renewable portfolio standard, which requires utilities to get 20 percent of their energy from renewables by 2010.

On Friday, for instance, Southern California Edison announced it had signed its eighth contract with Ormat Technologies for between 30 to 100 megawatts of geothermal power from a new plant in California's Imperial Valley, as well as a contract for between 79.5 and 85.5 megawatts of wind power from DaggettRidge Wind Farm, an affiliate of AES Corp.

PG&E said it expects to have at least the contracts to reach that 20-percent goal in place in two years.

Of course, contracts don't always translate into energy generation.

According to the California Energy Commission, 12 percent of the renewable-energy contracts signed by publicly owned utilities since 2002 -- when the state's renewable-energy portfolio was established -- have been canceled and another 20 percent have been delayed.

The commission also said these contract failure rates are conservative and are likely to increase -- perhaps substantially -- because many of the projects are at such early stages.

But the push toward more renewable contracts has been a boon to Finavera and an ocean-energy sector still in its infancy.

Wave energy is alluring because, due to water's density, waves and tides can easily generate more electricity than renewables such as wind and solar power.

"Ocean wave energy is one of the most concentrated and widely available forms of energy in costal areas," said PG&E spokesperson Jennifer Zerwer.

And this contract "helps illustrate the way this technology can be commercialized," Finavera CEO Jason Bak said.

The company's wave-power system acts as a sort of hydraulic pump that converts the vertical motion of waves into pressurized sea water, which in turn drives a piston that forces sea water through a turbine.

Finavera wants to prove the advantages of its technology, and of wave energy as a whole. But first, it has to build a sea-faring project that can do the job.

Among the biggest challenges is making the system strong enough to survive the ocean's relentless beating.

"Mother Nature is a tough mistress," Bak said.

Bak speaks from experience.

In late October, the company watched its wave-to-energy test buoy sink off the shores of the central Oregon coast. The buoy, which cost about $2 million to develop and build, had been in the water for just less than two months and was only a day away from the end of the test.

Although Bak said he still doesn't know yet exactly why the buoy sank, Myke Clark, vice president of policy and public relations for the company, speculated in November that the pump responsible for removing water from the flotation part of the buoy might have failed.

Bak also said the buoy was a prototype that wasn't built to handle being in the water for long.

The company's setback didn't scare PG&E, however.

"We are confident in their ability to continue to develop their device design to become commercially viable in a time frame that supports our contract," Zerwer said.

Finavera plans to find outside investors to help fund the project. But investors haven't exactly been eager to throw their money at ocean energy, considering no company has been able to commercialize energy from the ocean so far.

Industry watchers say companies are hard-pressed to show investors inspiring economic data, such as the costs associated with the amount of energy produced, making it more difficult to raise capital (see Pulling Energy From the Sea).

Bak expects the new contract will help investors feel more confident about placing their money with Finavera. "[PG&E] is a utility company that has done their due diligence," he said.

PG&E has been attracted to the idea of using moving bodies of water for energy for some time.

In June, the utility said it would provide up to $1.5 million for a study, with the city of San Francisco and Golden Gate Energy Company, to assess the possibilities of harnessing the tides in San Francisco Bay.

And in February, the utility filed permit applications for a swath of sea water where it hopes multiple wave-energy companies will test their technologies.