By Pacific Business News (Honolulu)

Aina Koa Pono plans to build a biofuels processing facility on the Big Island at a cost of $320 million now that Hawaiian Electric Co. has awarded it the first contract for locally grown biofuels to be used in HECOâ¿¿s generators. The contract, which was announced Thursday, is one of several that is expected to be made public in the coming weeks.

Aina Koa Ponoâ¿¿s project is expected to create approximately 300 jobs during the construction phase and then 150 jobs for the length of its 20-year contract with Hawaiian Electric. Jobs at the facility will include chemists and IT professionals as well as local farmers.

Honolulu-based Aina Koa Pono will be growing agricultural feedstocks on 13,000 acres of leased land on the Big Islandâ¿¿s Kau Energy Farm. Aina Koa Ponoâ¿¿s contract with Hawaiian Electric includes an undisclosed fixed price for the biofuel and an escalator to account for operational expenses. The negotiated price is expected to add $1.55 to $1.86 per month to a typical residential electric bill for customers statewide. The fuel has the potential to be exported to other islands, according to Robbie Alm, executive vice president of Hawaiian Electric.

Aina Koa Pono is designing the plant to produce 16 million gallons of biofuel by 2015, which is expected to account for 16 percent of the Big Islandâ¿¿s energy needs. As of 2014, the company expects to be providing 14 million gallons. In addition to electricity needs, there also is potential to use the fuel for Hawaiiâ¿¿s transportation needs.

A total of $4 million in seed money has been raised to start work on the biofuels processing facility, with the remaining $2 million in startup costs expected to be accounted for in the next couple of weeks, said Melvin Chiogioji, president of Aina Koa Pono. The project also is getting attention from heavyweight investors, including the likes of Goldman Sachs and JPMorgan Chase. Their support will be needed to complete the funding for the project. In addition to the actual processing facility, Aina Koa Pono will need funding to plant and harvest feedstocks, including sweet sorghum and eucalyptus.

The Aina Koa Pono contract was awarded following a request for proposals issued by Hawaiian Electric last summer that attracted 11 proposals. How many contracts ultimately will be awarded by Hawaiian Electric has not been disclosed.

The Aina Koa Pono agreement hopefully signals the start of a significant role for biofuels in Hawaiiâ¿¿s clean energy future, helping meet the stateâ¿¿s goal of 40 percent renewable energy statewide by 2030. The Big Island leads all counties by already producing 30 percent of its energy supply from renewable sources.

Other local companies that responded to the RFP include the algae biofuel companies Phycal and HR Biopetroleum. Hawaii-based HR Biopetroleum has been testing algae strains on the Big Island for the past few years. Both companies have said they are currently negotiating with Hawaiian Electric on contracts.

In addition to meeting Hawaiiâ¿¿s energy needs, local biofuel companies are attracting national and international attention for the potential to deploy their model elsewhere, even though they have remained in the pre-commercial stage. Hawaii is considered an ideal testing site, thanks to its high energy costs, natural environment and aggressive commitment on the part of the state and Hawaiian Electric to wean Hawaii off of oil.

Biofuels are a particularly attractive source of energy for Hawaiian Electric as they can be used in generators that already have been built and paid for by ratepayers.

Biofuels are expected to join other sources of renewable energy, including solar, wind and geothermal energy, as sources of energy for the electric grid.

Copyright 2011 American City Business Journals

Copyright 2010