State regulators have approved a biomass plant on the Big Island that is expected to satisfy up to 10 percent of the island’s electricity needs and help Hawaii in its shift from fossil fuels to renewable energy sources.

The ruling by the state Public Utilities Commission Friday marks a major step forward for Hu Honua, the company that has been developing the project in Pepeekeo since at least 2008.

But perhaps even more significant, the PUC’s decision signals the beginning of what could be a much more efficient planning process on the part of the electric utility.

In granting approval of the project, the PUC also required Hawaii Electric Light Co. to develop a detailed strategy to reduce the amount of renewable energy on its grid that is wasted and to reduce electricity rates.

The utility has four months to submit the plan.

“The commission concludes that HELCO has the responsibility to make major changes to both its existing fossil generation portfolio and its current power supply operational practices in order to reduce power supply costs and to provide significant customer rate relief,” commissioners wrote in their decision.

On average, Big Island residents pay four times the national average for electricity, and about one-third more than Oahu residents.

About 40 percent of the utility’s electricity comes from renewable energy sources, including geothermal, wind and solar.

But HELCO has been criticized for not retiring its oil-powered generators as more renewables come online, burdening customers with additional costs because customers are paying operating costs for both types of power generation. The utility has promised to take its Shipman power plant offline next year.

Hu Honua’s biomass plant, unlike other proposed biofuel projects in the state, relies on traditional technology in which steam turns a turbine to produce electricity.

To this end, Hu Honua has been upgrading an old sugar mill power plant at Pepeekeo on the Hamakua Coast to burn biomass from eucalyptus and other locally grown plants for the utility. In the past, the mill burned bagasse, which is the dry pulpy residue left after juice is extracted from sugarcane.

In 1994, it was converted to burn coal before being shuttered a decade later.

Developers of the new biomass facility say that the project will provide a local source of renewable energy, jobs for local residents and a new market for farmers.

But the project has encountered opposition from local residents unhappy about the prospect of living near an active power plant and it has faced a pair of lawsuits relating to a special management area permit and its land lease.

Hu Honua announced last month that it laid-off workers while it awaited final regulatory approval.

John Silva, CEO of Hu Honua, did not immediately respond to an interview request. But in a prepared statement, he said that the PUC approval allows Hu Honua to move forward with capital expenditure plans, while awaiting the resolution of additional regulatory and permitting matters.

“The PUC’s decision is certainly a welcome development,” he wrote. “While the prolonged approval period proved challenging for our investors and construction partners, we appreciate the thorough and exhaustive review the commissioners undertook as Hawaii moves further into diverse forms of renewable energy.”

Silva said that construction, which is expected to last another nine months, would restart based on the availability of labor and materials.

HECLO will purchase the energy at an average cost of 25 cents per kilowatt-hour over the course of the 20-year contract. The rate is higher than the current cost of producing electricity from oil.

Still, the biomass plant is expected to save $40 million in costs over the course of the contract, which is based on projected energy costs, according to PUC documents.