LIHU'E, Kaua'i — Kaua'i Island Utility Cooperative will buy electricity by April 2012 from a new power plant that burns both sugar cane and wood, it announced yesterday.

Pacific West Energy LLC and the utility have agreed on key issues regarding a 20-megawatt, biomass-to-energy plant that could supply up to one-third of Kaua'i's power needs from renewable sources.

The Vancouver, Wash., company and KIUC have discussed versions of such an energy project for years.

"We feel really good about this," said Randy Hee, KIUC president and CEO. "This is a major step toward what we've been working on."

PacWest considers the power plant the first phase of a two-part, $135 million project that will also produce 15 million gallons of sugar ethanol each year and employ 325 people, said William Maloney, PacWest president and CEO.

Kaua'i's last sugar plantation, Gay & Robinson, is harvesting its last crop of sugar cane this month and will lay off about 200 employees.

Planting new sugar cane as soon as next spring "is a real win for the people of Kaua'i, for Gay & Robinson, the (seed) corn companies (that are leasing some Gay & Robinson former sugar lands) and KIUC," Maloney said.

With certain business issues now settled, PacWest and KIUC expect to sign a formal power purchase agreement within 60 days, a news release from KIUC said. When approved by the KIUC and PacWest boards of directors, it will be submitted to the Hawai'i Public Utilities Commission.

"Green" electricity from the plant will boost KIUC's renewable energy generation to 30 percent or 35 percent from about 5 percent currently, Hee said. The PacWest plant also will allow KIUC to postpone building any new fossil fuel-generated power plants for the foreseeable future and scale back its current use of diesel generators, Hee said.

The deal won't affect KIUC's application for a 10.5 percent rate increase, which is pending before the PUC, Hee said.

The next steps for PacWest include:

• Firming up its financing.

• Leasing 12,000 to 15,000 acres of land to grow either sugar cane or fast-growing wood to produce the electricity.

• Leasing the Kaumakani sugar mill from Gay & Robinson and retooling it, or finding another location for the sugar ethanol plant.

"The key at this point is land commitment," Maloney said in a call from the Mainland. "If we use a fast-track approach, we'll be planting within six months."

PacWest is open to farming the land itself or having others cultivate it, Maloney said. It hopes to plant two-thirds of the land in sugar cane, which could be processed for sugar before the cane is burned, and the rest in woody biomass crops.

The focus of the project is west Kaua'i but viable land elsewhere on the island would be considered, Maloney said.

"This is probably the most important milestone thus far in a long process," Maloney said of yesterday's announcement.

"We're building momentum but there are still a lot of obstacles and milestones we have to pass."