The state Public Utilities Commission has approved a contract to build the largest solar farm connected to a battery system in the state.

On Friday state regulators approved the contract between Kauai Island Utility Cooperative and AES Distributed Energy Inc., a subsidiary of Arlington, Va.-based The AES Corp., to build the 28-megawatt solar photovoltaic plant with a 20-megawatt, five-hour energy storage system.

KIUC President and Chief Executive Officer David Bissell said the approval of the facility will boost KIUC’s renewable sourced generation to make up more than 50 percent of its energy portfolio. Bissell said the cooperative is working to reach that in the next 18 months.

“The AES project will account for 11 percent of our energy at a price of 11 cents per kilowatt-hour, and will displace 3.7 million gallons of diesel annually during our evening peak,” Bissell said. “This is great news for KIUC and its member-owners, as we continue our leadership in deploying utility-scale dispatchable solar with batteries.”

AES is set to build, operate and maintain the facility over the course of its 25-year contract with KIUC.

KIUC said in its application that it will save members more than $97 million over the life of the project.

The facility will be able to dispatch the stored energy to help KIUC’s system ramp up to meet the power needs during the afternoon and evening peak and reduce the need for nighttime generation that traditionally relies on oil-fired plants. KIUC said the facility will also help with grid stabilization.

The system will be built on former sugar land between Lawai and Koloa on Kauai’s south shore.

When construction is complete, the facility will be the largest solar-plus-utility-scale-battery system in Hawaii and have the capacity to power roughly 8,500 homes. KIUC expects it to be finished by late 2018.