Renewable energy company Finavera and California utility Pacific Gas & Electric announced on Tuesday the first wave energy power purchase agreement in the United States, a sign that electricity generated from wave energy could soon be a viable technology in the country.

“It is a big step if a major utility is serious about ocean power,” said @Ventures principal Matt Horten. “This gives validation to the space.”

By 2012, Vancouver-based Finavera has agreed to deliver 2 megawatts of electricity generated by offshore buoys that capture wave energy. One megawatt of electricity can power about 750 homes. The plant will be located off the northern Californian coast.

The agreement marks the first time a U.S. utility has made specific guarantees to a wave energy company to buy a minimum amount of electricity at set prices. If successful, the Humboldt County Offshore Wave Energy Power Plant will become the first commercial plant of this type in the United States. 

In a study, the Electric Power Research Institute in Palo Alto, California, found that 6.5 percent of U.S. power demand could eventually be supplied by wave energy. The research group said regulatory constraints were the biggest hurdle for growth.

Europeans are a step ahead in usage of this technology. New Jersey-based Ocean Power Technologies began work this year on a 1.39 megawatt wave farm off the coast of Spain. The project is a joint venture with Spanish utility Iberdrola.

Mr. Horten said the utility takes on little risk in accepting a power purchase agreement and that it is up to Finavera to prove that it can generate the electricity at the agreed price. If it can’t, the deal will be meaningless, he said.

Pricing details of the agreement were not disclosed. Analysts say that renewable energy plants must get down to about $0.10 per kilowatt-hour to be competitive with fossil fuel plants, such as natural gas.

Finavera representative Mike Clark said that if the Humboldt County plant is allowed to scale up to close to 100 megawatts the company believes it could generate electricity near the $0.10 per kWh threshold.

But even if the plant doesn’t produce electricity at that low rate, it may still be attractive to PG&E and other utilities that want more of their power mix from renewable sources.

PG&E appears to be casting its net wide in the ocean energy sector. This year it launched its WaveConnect initiative and it has invited companies to submit project proposals. The utility said it envisions the successful projects each providing up to 40 megawatts of wave-generated electricity.