The state has approved Hawaiian Electric Co.’s plan to add biodiesel to the fuel mix at one of its oil-fired power plants in a move that could give the utility a major boost in its effort to increase the use of alternative energy sources.

If the "demonstration project" at the Kahe Power Plant proves successful, HECO could adopt the technology at oil-burning power plants around the state, potentially saving billions of dollars that would result from not having to build new power plants, HECO said.

The Public Utilities Commission last week cleared HECO to spend $4.7 million to install equipment at Kahe that would allow one of the generating units at the plant to run on a blend of biodiesel and the low-sulfur fuel oil that it currently uses.

"This test will determine how much biofuel we can mix with petroleum in existing steam turbines that provide power on Oahu, Maui and Hawaii Island," Robbie Alm, HECO’s executive vice president, said in a statement.

Reducing oil imports would help the state reach its goal of supplying 40 percent of its energy with renewable sources by 2030, Alm said.

HECO will test mixture levels with anywhere from 50 percent to 100 percent biofuel in the 90-watt generating unit. The utility will monitor the efficiency of the unit as well as emission standards, HECO said.

The PUC also gave HECO permission to import 1.6 million gallons of biofuel from Malaysian supplier Sime Darby that will be shipped to Kalaeloa Harbor and delivered to the Kahe plant via pipeline. The test will use crude palm oil blended with palm stearin, a byproduct of palm oil refining usually used to make candles and soap. The 30-day test will begin about seven months after the equipment is installed.

In a separate decision, the PUC earlier this month approved a two-year contract that allows HECO to buy 3 million to 7 million gallons of biodiesel annually from Iowa-based Renewable Energy Group to power its new 110-megawatt generator at Campbell Industrial Park. The biodiesel for the Campbell plant will be made from used cooking oil and waste animal fat.

In the same decision, the PUC cleared HECO to import 1 million gallons of biodiesel from Sime Darby for a demonstration project at the utility’s Maalaea Power Plant on Maui. The plant, which normally runs on diesel, can be converted to burn biodiesel with minimal changes, HECO said.

HECO said its plan is to eventually meet its alternative fuel needs from local sources once such an industry is established. It plans to use biodiesel and other fuels made from plants, animal waste or organic material.