Jul. 14--A local nonprofit that has developed a method for turning rice straw and wood waste into diesel fuel has attracted some big business backers.

Sacramento's Renewable Energy Institute International plans to announce today that it will join forces with industrial giants PACCAR Inc. -- maker of Kenworth trucks -- and a subsidiary of Caterpillar Inc., among other companies.

The group will invest $5 million in a demonstration bio-refinery at the Port of Toledo, Ohio, REII founder and President Dennis Schuetzle said Monday. He said the partnership plans to one day build a factory at the port, whose operator, Midwest Terminals, has been a major financial backer of the effort.

The demonstration refinery will test whether the technology, which now works on a small scale, can handle larger-scale production. The factory, to come later, would make more of the refineries that convert vegetation to fuel.

REII's research and development operations will remain in Sacramento, Schuetzle said. He expects local employment to double to 24 positions at the nonprofit and an affiliated startup company, Pacific Renewable Fuels, run by his son, Robert.

The new infusion of money comes on top of $12 million in private funds already spent on the technology, mainly by Midwest Terminals. Federal and state governments have contributed $6 million to date, and REII has applied for an additional $20 million in federal stimulus funds.

The Toledo refinery would be the first in the nation to take crop residues, such as rice straw, and produce a fuel functionally identical to diesel made from petroleum, as well as a significant amount of electricity. Schuetzle says the process produces a fuel with one-ninth the carbon footprint of conventional diesel.

The demonstration plant should produce about 350,000 gallons of diesel a year as the company looks for weak links in the system.

"It's a stress test of the technology," said Schuetzle, a Sacramento native who headed Ford Motor Co.'s international research and development arm before starting REII in 2004.

Researchers and companies around the world are now experimenting with a range of methods for producing next-generation biofuels that aren't made from food and that are more climate-friendly than the corn-based ethanol and soy-based biodiesel produced in the United States today.

Sharon Shoemaker, a biofuels expert who heads the California Institute of Food and Agricultural Research at the University of California, Davis, said it probably won't be clear for another five to 10 years which technologies will prove viable. But Schuetzle and REII, she said, are well-positioned to compete.

"It's not simple what he's trying to do," she said, "but he comes at this with big-time knowledge of the industry and what it's going to take to make it work."

If the Toledo test goes well, the first full-scale plant likely would be built starting as soon as 2011 in the Butte County town of Gridley.

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Call The Bee's Jim Downing, (916) 321-1065.

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