State regulators have cleared Hawaiian Electric Co. to buy about 10 million gallons of locally produced biofuel annually to burn at the utility’s Kahe Power Plant on Oahu.

The biofuel, to be made by Hawaii BioEnergy from plant material grown on Kauai, will replace about 5 percent of the oil currently burned at the HECO power plant, according to a fuel contract approved Friday by the Public Utilities Commission.

Replacing petroleum with biofuel allows HECO to move closer to its mandate of generating 40 percent of its electricity from renewable sources by 2030.

"Having a diverse renewable energy portfolio that includes renewable biofuels  for the electricity sector wil also help the state achieve a clean energy transformation that may benefit the transportation sector in the long term," said Hermina Morita, PUC chairwoman.

HECO did not disclose the price it will pay for the biofuel. The utility is continuing to negotiate biofuel contracts with other companies, and disclosing the price it is paying could cause those companies to increase the asking price for their biofuel, a HECO spokesman said.