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The project, with an estimated capital cost of about $75 million, was expected to bring $12 million into the local economy and employ 20 to 30 people during construction.
TrustPower's board of directors approved the first stage of the wind farm - a 36MW development, including the installation of 12, 3MW Vestas V90 wind turbines from Denmark, Mahinerangi wind farm spokeswoman Pip Tschudin said.
Long term, it was expected the wind farm would generate enough power to supply about 13,000 Dunedin homes.
The 105GWh a year generated by the turbines would be fed into the local circuit at the Waipori hydro-electric power station, which is connected to Dunedin's Halfway Bush substation and then through to the Aurora electricity network.
Downer New Zealand's Dunedin branch would complete the "civil component" of the work.
Detailed planning, including when and how the turbines would arrive, had yet to be determined, Ms Tschudin said.
Construction was expected to be completed by April next year and commissioned a month later.
TrustPower chief executive Vince Hawksworth said the wind farm would improve Dunedin's security of supply and free up for use elsewhere electricity being brought into Dunedin from Roxburgh and the Waitaki system.
The company has resource consent to erect up to 100 turbines on the Mahinerangi site and generate 200MW of electricity.
Whether the company expanded the wind farm to its consented capacity depended on issues regarding the Cook Strait cable, she said.
By feeding the electricity from stage one into the local circuit, the company avoided having to connect to the national grid and pay a charge for the link to the Cook Strait cable and its upgrade.
"That would be a major cost for us, so until the issue is resolved, there will be no decision."
New Zealand Wind Energy Association chief executive Fraser Clark said the synergy between wind and hydro-electricity was highlighted by the Mahinerangi scheme.
"Put simply, the use of wind enabled water to be saved in storage lakes until the water is needed for meeting peaks in [electricity] demand."
New Zealand has 11 wind farms operating, plus one in the Waikato under construction.