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Solar startup Ausra added a small notch to its belt today, by becoming the first of a new generation of solar thermal companies to open a full-sized electricity generation plant. The Palo Alto, Calif. company cut the ribbon on a 5-megawatt facility about 250 miles southward in central California, where it will generate enough electricity at peak hours to power 3,500 homes.

The new plant is being lauded as the first solar thermal installation to begin generating electricity in California in 20 years, but it is also many times smaller than the plants that will be considered standard in the future. To be specific, it will generate about 35 times less power than Ausra’s own planned 177MW plant that will be constructed nearby in San Luis Obispo County, and a string of similar installations will be built by Brightsource for a total of 900MW.

Plants in the range of the 5MW installation won’t be unknown either, though. They’ll just be used for different purposes. A number of companies are looking at (relatively) small-scale solar thermal lines to generate steam for industrial processes. ESolar has told me it’s planning to roll out small modular plants for that purpose, and on an even smaller scale, Sopogy can use miniature solar-thermal dishes for heating and cooling large buildings. There’s more on those alternate uses at Green Wombat.

For the moment, it doesn’t look like the credit crunch is delaying plans for larger, utility-scale deployments of 50MW and upward, at least according to what company execs have told me. Most plants haven’t yet begun construction, and can spend time locating funding sources during permitting, while others have already secured debt or equity money to build. However, an extended recession could trim the number of plants that go online over the next four to five years.

When we talk about solar power projects, the cost is generally counted in the millions, not billions, of dollars. But a new deal between the California utility PG&E and a solar thermal company heralds the next age of renewable energy, when capital begins to flow in earnest.

BrightSource, which has signed a contract with PG&E to supply 900 megawatts of energy (enough to supply over half a million households), will require between $2 and $3 billion to build several plants in the Mojave Desert. It’s the biggest solar project planned to date.

To get the full 900MW, BrightSource will need to build five separate plants. The first, a 100MW facility, will be running by 2011, CEO John Woolard told the San Jose Mercury News. The remaining four 200MW plants will be built over the following five years.

Solar thermal, in a nutshell, uses fields of mirrors to concentrate lots of sunlight on a single point, usually to boil water that in turn drives turbines. Specific designs vary; BrightSource uses a central tower with a boiler chamber mounted on top. But like a race horse, it’s performance that matters, not appearance.

Among current technologies, BrightSource and its rivals — Ausra, Solel and some smaller players — offer the cheapest way to generate electricity from the sun’s rays, far outstripping solar cells. But their real competition is energy from every other source, including coal, nuclear and oil.

The rates at which PG&E agrees to buy electricity from renewable sources aren’t disclosed, but the utility will likely pay prices close to those on existing energy sources — and if PG&E got the upper hand at the bargaining table, it might even pay rates low enough to be competitive with coal, which could drive some solar thermal players out of business. To date, PG&E has also struck deals with Ausra for a 177MW plant, and with Solel for 553MW.

BrightSource is perhaps more familiar with the cost equations than any other company. In fact, it’s chaired by one of the few people in the world with decades of experience in large-scale solar thermal — Arnold Goldman, whose Luz International built nine plants in the 1980s. The plants still exist, but Luz is long gone. BrightSource, which has a subsidiary called Luz II, is its spiritual and technological successor.

While Luz I didn’t survive, its extinction can also be attributed to the return of cheap oil, a scenario we aren’t likely to see again. When oil prices dropped, California and the federal government saw less reason to subsidize oil alternatives. In 1990, the company even admitted that if goverment incentives dried up, it would need “a miracle” to survive.

Those miracles — peak oil and global warming — are here, even though they’ve arrived 18 years too late for Luz. Under those twin threats, BrightSource and other solar thermal companies will likely benefit from incentives and rebates until they definitively succeed (or fail) in their quest to provide cheap energy.

There are a few more rays of hope for BrightSource. According to the company, its current technology is almost twice as efficient at converting solar power to electricity as Luz’, and the cost per kilowatt-hour has dropped to 70 percent of what it was. It also switched from curved to flat mirrors, making production cheaper. And if it doesn’t survive with all those positives — well, at least the plants will keep operating.

BrightSource is based in Oakland, Calif., while its Luz II subsidiary is in Israel. It has taken less than $50 million in venture funding from Draper Fisher Jurvetson, the J.P. Morgan Bay Area Equity Fund and VantagePoint Venture Partners.

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California energy utility PG&E has agreed to buy power from a 177-megawatt solar thermal plant to be built by Silicon Valley company Ausra.

Ausra, of Palo Alto, Calif., is applying for a regulatory permit to build on 640 acres of ranch land in California’s San Luis Obispo county.

The idea behind solar thermal power is focusing mirrors on contained water, which then turns to steam that can drive turbines. We last reported on Ausra two months ago, when it raised $40 million from Khosla Ventures and Kleiner Perkins Caufield & Byers.

Ausra’s execution of the deal, if it goes through will help the company catch up with competitor BrightSource, which just cleared the regulatory hurdle for a 400-megawatt plant in the Mojave Desert last week, according to Green Wombat.

Although PG&E has now committed to buying over a gigawatt of solar thermal energy in coming years, it remains to be seen which startup’s designs are most effective.

Technology used by companies like BrightSource and Solel uses special curved mirrors to focus more light, and thus create more steam than Ausra’s plants. However, the latter’s approach, which uses mass-produced flat mirrors, is cheaper, the company says, potentially bringing the cost for solar thermal energy as low as coal-fired plants.

The technology for solar thermal itself has existed for decades. Photovoltaic cells, which directly capture sunlight, may possibly become cheap enough to be a viable replacement.

Ausra, an ambitious Silicon Valley company wanting to build a solar thermal electric power plant double the largest ever built, has raised somewhere north of $40 million in a first round of capital.

However, just as Ausra was preparing to make its announcement Monday that it has applied for a permit to produce a record 175 megawatt plant, its Oakland Calif. competitor, BrightSource, stole some of the thunder late last week by saying it has applied to build a larger, 200 megawatt solar plant and two smaller ones.

The Ausra investment is significant, though, because it’s the largest best so far made by Khosla Ventures, the firm started by successful venture capitalist Vinod Khosla. Khosla has made dozens of investments in the area of green technology, but the size of his bet on this technology reflects his enthusiasm for the Palo Alto, Calif. company, he said. He invested $25 million of the total.

Another top venture firm, Kleiner, Perkins, Caufield & Byers, joined in the investment too.

Solar thermal is different from photovoltaics, the popular technology used for residential solar power. Ausra’s solar thermal technology uses large mirrors, made of steel and glass, to concentrate the sun to heat water into steam. (See Forbes’ explanation of how the two processes are different). Ausra’s process drives a turbine with the steam, to generate electricity. Notably, the energy can be stored in pressurized tanks, so that electricity can be generated day or night. The electricity can also be transported for long distances. In an interview, Khosla and Executive Vice-President John O’Donnell told VentureBeat that if a 92 square mile region of Nevada were covered with the technology, Ausra would be able to fulfill the nation’s entire electricity needs. (They are actually half-serious about this being a possibility, pointing out that much of Nevada’s land is owned by the federal government. Only 10 percent of that land would be needed.)

The technology has been around since the 1990s, when Ausra’s founder David Mills, conceived the idea at Sydney University, and worked on it with scientist Graham Morrison between 1995 and 2001, but Ausra was formed late last year. Khosla and Kleiner Perkins’ Ray Lane met with the company and moved it to the U.S from Australia.

The idea is to help California utilities meet requirements to install 17 gigawatts of clean power by 2020.

Within a year, Ausra will match the price of natural gas plants, which generate electricity at about 9.2 cent per kilowatt hour, O’Donnell said. Within three years, it will match the cost of coal-fired plants, which is about 6 to 8 cents per kilowatt hour (without clean coal processes such as carbon sequestering or gassification). Existing competing solar plants, including one in Nevada, generate electricity at between 16 and 22.4 cents per kilowatt hour.

Among Ausra’s competitors is Brightsource, formerly named Luz II (which we covered here), backed with $30 million from VantagePoint Venture Partners and others. The difference is that Ausra has cut the cost of producing the solar reflecting mirrors — making them on a mass production line, in return for slightly less efficiency, says O’Donnell. (Here’s a Pdf presentation about the company, including a look at its technology.) Ausra said it wants to build a 175 Megawatt plant, more than twice as large as the reigning champ, an 80 megawatt plant in the Mojave desert built in the 1990s.

Other players include France’s Acciona Energy, which recently raised $266 million in debt-and-equity project financing facility to cover the capital costs of constructing a 64-MW solar thermal plant in Nevada (see overview here), and Seville, Spain’s Abengoa Group, which has built a plant in Europe. There are several other smaller players, too.