An expansion of the state’s only geothermal plant will save Hawaii island residential utility customers about 70 cents a month on their electricity bills under an agreement approved by state regulators.

The savings are projected to increase over time, reaching $1.89 a month by 2020 due to the favorable pricing of geothermal energy compared with energy that would have otherwise been produced with oil, according to the agreement between Hawaii Electric Light Co. and Puna Geothermal Ventures.

Puna Geothermal recently increased the production capacity of its geothermal plant in the Puna District to 38 megawatts from 30 megawatts. As a result HELCO renegotiated its power purchase agreement, which resulted in a reduced pricing structure. The Public Utilities Commission approved the agreement Dec. 30.

The old agreement was priced on an "avoided cost" basis, meaning HELCO paid Puna Geothermal a rate that was equivalent to what the utility would pay for electricity produced with diesel.

Under the revised agreement HELCO will continue to pay avoided cost for the first 25 megawatts of energy and lower rates for amounts from 25 to 38 megawatts. The reduced rates range from 6 cents a kilowatt-hour to 11.8 cents a kilowatt-hour depending on a variety of circumstances.

HELCO paid $136.09 a barrel for diesel fuel in November, which would translate into an energy cost of about 35 cents a kilowatt-hour.

Avoided cost pricing was developed in the early days of renewable energy production as an incentive to developers to assume the risks associated with such endeavors.

HELCO has been paying Puna Geothermal an avoided cost rate since the geothermal plant went online in the early 1990s. That is one of the reasons Hawaii island utility customers have not been able to benefit from what would normally be a the lower cost of geothermal-produced electricity. HELCO customers paid 40.6 cents a kilowatt-hour for electricity in December, the highest of any island in the state.