The state Public Utilities Commission has approved a plan by SunPower Corp. to build a 5-megawatt solar farm on Oahu and sell the electricity it generates to Hawaiian Electric Co.

The cost of energy per kilowatt hour will start at under 20 cents and will escalate at a fixed rate. A price reduction will take effect during the second half of the contract.

The solar photovoltaic farm will be built in Kalaeloa, on land leased from the Department of Hawaiian Home Lands at Roosevelt Avenue and Boxer Road.

The agreement between California-based SunPower and HECO is the first utility-scale solar project on Oahu approved by the PUC.