The partners are Epuron, a subsidiary of German renewable energy firm Conergy, German agricultural cooperative Agravis Raiffeisen and MAN Ferrostaal, part of German engineering group MAN.

It will be built in Buelstringen in east Germany and construction should start this year, said Epuron spokesman Clemens Thoma.

He said the partners believed use of bioethanol for blending in fossil fuels will increase substantially as the issue of global warming intensifies.

"We expect a very strong market for bioethanol," he said. "Currently blending is at a very low level in Germany but it will rise every year because of the government's compulsory blending rules."

"We have a market which is secured by law."

"The European Union has said it wants to achieve 10 percent biofuel use by 2020 and we believe this will happen."

Oil refineries and the chemical industry would be the main target markets. The site had good connections to Germany's inland waterway system allowing delivery of bioethanol by river tanker.

The project would create substantial new markets for east German grain farmers, Thoma said. Agravis as the agricultural specialist would be responsible for grain procurement.

Agravis had 550,000 tonnes of wheat storage capacity close to the new plant.