Hawaiian Electric Co. said it has signed a contract for biodiesel produced from animal waste fat and cooking oil to power its new $137 million generating plant at Campbell Industrial Park.

The state's largest utility said a contract with Iowa-based Renewable Energy Group calls for buying 3 million to 7 million gallons of Mainland-manufactured renewable fuel annually.

The utility is seeking state Public Utilities Commission approval for the two-year deal, but did not release costs for the supply deal because it includes proprietary information.

The startup of the new 110-megawatt combustion turbine was set back last year when its original supply contract with Imperium Renewables was rejected by the PUC as being possibly too costly and risky for the utility.

That forced a delay in the start of the plant that will be used during peak electrical use periods and for emergencies. But HECO was able to secure a biodiesel supply for testing the new plant with Renewable Energy Group and now has selected the company from eight proposals it received for a two-year contract.

Renewable Energy Group, the largest U.S. biodiesel producer, and similar other companies have been affected by the expiration of a tax credit at the end of 2009, Bloomberg News reported yesterday.

Bloomberg reported biodiesel producers are waiting to see if Congress renews the credit, which provides $1 to refiners for every gallon of biodiesel blended into conventional diesel.

HECO spokesman Peter Rosegg said the pricing the utility receives from Renewable Energy Group will in part rely on whether the tax credit is reinstituted.

The utility had originally committed to burning 100 percent renewable fuel at the new plant, but it has asked the PUC to allow it to burn a mix of 99 percent biodiesel and 1 percent diesel to take advantage of pricing that can be obtained if the tax credit is brought back.

HECO also is asking for a quick approval of the contract by the PUC. If that occurs the plant could start taking deliveries of the fuel within four months and put the generator into use by the second or third quarters, Rosegg said.