State-owned coal miner Solid Energy has entered the biodiesel market with the purchase of producer Canterbury Biodiesel.
The move means Solid Energy can aim to lift annual production to 70 million litres within three years, which will meet more than half the Government's 2012 target for biofuels.
Thebusiness trade as Biodiesel New Zealand, and its founder, Paul Quinn, has been appointed general manager and will retain a minority interest.
Solid Energy chief executive Don Elder said entering the biofuels sector was "a logical, but significant step" from its other bioenergy business, Nature's Flame, which makes wood pallets.
Mr Quinn, who founded Canterbury Biodiesel in 2005, said the buyout would move his business "to the next level" . The company has four staff.
Biodiesel New Zealand currently produces about 1 million litres of biodiesel a year from its Christchurch plant by converting used cooking oil collected from restaurants and other food businesses.
The company is also investigating the potential for producing biodiesel from energy crops such as canola.
New Zealand currently uses about 3,500 million litres of diesel a year.
Biodiesel's current customers are fleet operators which operate very high ratio blends of biodiesel, but Solid Energy also plans to assess the use of biofuel in its own operations.
In its existing coal and biomass businesses, the company currently uses about 15 million litres of mineral diesel a year and its contractors an additional 25 million litres.
Biodiesel also offers safety advantages over mineral diesel in underground mines because of the lower emissions.
Solid Energy's goal will equate to around 2 per cent of the country's total diesel use, at an estimated cost of $20 million.
The Government wants to lift the use of biofuels to 3.4 per cent of all fuel sold by 2012.
"New Zealand is one of the richest countries in the world in indigenous per capita energy resources," Dr Elder said.
"Increased use of biodiesel will offer greater energy security and, as imported oil prices continue to increase, better affordability while at the same time reducing environmental impacts."
Solid Energy is investing $100 million in new energy technologies , including a pilot scheme to extract methane from coal seams in the Waikato.
