Houston is set to become a major player in clean burning fuel production, with three new eco-friendly "biodiesel" plants scheduled to open in the next two years.

Boston-based Natural Fuel and Energy is building a $36-million plant on the Houston Ship Channel. Dow Halterman Custom Processing, a division of Dow Chemical, Midland, Mich., is converting a processing plant in Houston to produce biodiesel under an exclusive agreement with World Energy, the leading domestic distributor of biodiesel. Texas Biodiesel Inc. also is building a multimillion-dollar plant in the Houston area.

Biodiesel is a low-emission, renewable, fuel made from plant oils or trap grease. It is produced by adding one part methanol to 10 parts oil. The resulting product, 10 parts biodiesel to one part glycerin, is mixed with diesel at a varying rate from 2 to 20%. The 20% mixture reduces sulfates and unburned hydrocarbons, as well as particulates and carbon monoxide, according to the U.S. Environmental Protection Agency.

Lurgi PSI, Memphis, has design and construction contracts for Natural Fuel and Energy’s 36-million-gallon-per-year plant, for which construction is to begin this summer. Construction costs will be largely offset by incentives offered by the state Dept. of Economic Development to firms that produce alternative fuel. Natural Fuel and Energy expects to receive $3 million a year for the first 10 years of production, says Lauren DeMore, senior analyst at EnCapital Inc., Boston, which is financing the project. "The company has leased enough space for two more plants of the same size to accommodate future increases in demand," she says.

Natural Fuel and Energy CEO Ronald Reilly notes that a U.S. mandate for ultra-low sulfur diesel that takes effect in 2006 will spur the U.S. market. He says manufacturing the product in Houston and shipping it to Europe, where biodiesel is more popular, is cost-effective. World Energy President Gene Gebolys says the current market is 600 million gallons per year in Europe and 30 million gallons per year in the U.S.