Some $3 million has been offered to RDA to build a business case for a renewable biofuel production facility in Pentland, near Charters Towers in North Queensland.

If the project takes off, RDA's facility, which would produce up to 350 million litres of fuel grade bio-ethanol per annum and increase Australia's production by 80%, would be the country's largest biofuel production facility.

ARENA CEO Ivor Frischknecht said the fuel is earmarked for sale under a proposed off-take agreement with a global agriculture and energy corporation and export through the Port of Townsville.

"RDA intends to grow its own sugarcane and sweet sorghum for biofuel production and will also process biomass waste with advanced and innovative processing techniques that would make the plant entirely self-sufficient, renewable and independent of the grid," Frischknecht said.

"A 'lignin' by-product that would fuel a purpose-built 32 megawatt co-generation power plant, with excess lignin sold as biofuel pellets. This approach would mean nothing is wasted and add to the plant's commercial viability.

"Importantly, the anticipated fuel price could be competitive with petrol, making ethanol a much more viable long-term renewable fuel."

ARENA's funding will go towards growing and irrigation trials, due diligence activities required for financial close and preliminary work to support the procurement of engineering and construction services.

Knowledge gained from these activities would not only inform RDA of the commercial viability of the technology, it would also be shared with the bioenergy industry.

"RDA will identify technical, financial and regulatory developmental roadblocks affecting projects of this scale and type. The project will also provide insights on the performance of super sweet sorghum and sugar cane for biofuels," Frischknecht said.

The business case is due for completion by November 2016 and ARENA can recover its funding amount if the plant proceeds.