Bioethanol company Green Spirit Fuels has announced its intention to build a new plant on Humberside, creating a market for 600,000-700,000t of wheat a year.

The company has negotiated an option to buy a site and is now applying for planning permission.

If all goes smoothly, the plant is expected to be running by 2010 at the latest.

It will produce 200,000t of bioethanol a year, for inclusion in road fuels as required under the government's Renewable Transport Fuel Obligation.

This, the rising price of crude oil and supply security issues are driving the market.

Malcolm Shepherd, managing director of Green Spirit Fuels, said:

"Government announcements made in the past six months have given a considerable impetus towards the establishment of a biofuels industry in the UK.

"We intend to be the leading producer of bioethanol in the UK, and a multi-site strategy is critical to our plans.

We will be announcing other potential sites, but we regard a plant on Humberside as among our top priorities."

Green Spirit, which is 68% owned by Wessex Grain and the rest by City money, already has advanced plans in place for another bioethanol site at Henstridge, Somerset.

That site will produce about half the planned Humberside output, and building is expected to begin in the next few weeks.

The first bioethanol will be shipped in spring 2008.

The company is in the final stages of securing a 75m finance package to fund the build in Somerset and provide development monies for the Humberside and further plants, possibly in East Anglia.

Green Spirit says it intends to push bioethanol production to 700,000t by 2010.

The firm has formed a strategic partnership with two big engineering companies, M&W Zander and GEA Wiegand, to build the factories. Mr Shepherd said:

"Credible experience and capacity for building bioethanol production facilities are rare in Europe at the present time and we are fortunate in securing their services."

Green Spirit will offer a variety of contracts to secure the grain, including energy crop contracts and min/max contracts linked to feed wheat prices.

So far, it has hedged 50% of the grain needed for the Henstridge plant for the harvest 2007 year.

Paul Temple, NFU vice-president, said the announcement was good news for farmers.

"Processing these fuels in the UK gives us another marketing opportunity.

And anything that puts tension in the market is welcome.

I think it will strengthen it."

It was also imperative that farmers had real markets for their grain, given the likelihood of increasing output from new EU member states, coupled with big reductions in market support measures and the threatened removal of EU import tariffs and set-aside, he added.

robert.harris@rbi.co.uk