BP (NYSE: BP) has agreed to invest $90 million in Verenium and to jointly develop technologies and refineries to produce and sell ethanol, the companies said Wednesday.

The two companies have formed a “special-purpose entity” to own the new technologies they will co-develop, as well as to license each other’s existing intellectual property. A company typically sets up a special purpose entity to make it easy to raise money, assume debt and shield the company from risk. 

BP will pay out the $90 million, which will buy it the right to use Verenium’s technologies, over the next 18 months. Of that amount, BP will dole out $45 million over the next 12 months to access Verenium’s ethanol production know-how and the details of its ongoing projects to build commercial refineries in the southeastern United States.

BP also will spend $2.5 million per month for 18 months for research and development. Scientists from both companies will work together at Verenium’s R&D center in San Diego to improve the firm's process for turning plants and agricultural waste  – nonfood materials – into cellulosic ethanol, said Verenium Chief Financial Officer John McCarthy during a conference call Wednesday morning.

“We need to bring more sustainable fuels to the pumps faster for the American consumers,” Verenium CEO Carlos Riva said during the conference call. Riva said he began looking for a business partner to accelerate Verenium’s technology development and refinery-construction projects last year.

The partnership represents BP’s latest investment in ethanol research and development. The company, headquartered in London, gave $500 million to consortium of research institutions led by UC Berkeley last year to develop new methods for making ethanol from plants, including corn, switchgrass and algae.

In April, BP said it would take a 50-percent stake in Tropical BioEnergia by investing $59.8 million in the Brazilian company. Tropical BioEnergia is building a sugarcane-fed refinery in the South American country that could produce 115 million gallons of ethanol per year. The joint venture also plans to build a second ethanol plant.

Verenium (NSDQ: VRNM) has been developing enzymes and a process that converts biomass into ethanol. The Cambridge, Mass., company is one of a slew of companies in the United States working to build the country's first commercial cellulosic-ethanol plant (see More Cellulosic Ethanol Will Soon Be For Sale. But Who’s Buying?). Most existing commercial ethanol plants use corn or sugarcane.

The high gas prices and the promise of a large U.S. ethanol market have lured many companies into investing and building cellulosic projects. A federal energy bill passed last year requires the country to use 36 billion gallons of different types of biofuels by 2022 (see House Passes Energy Bill). The law says 21 billion gallons of those fuels need to come from nonfood sources, including 16 billion gallons of cellulosic ethanol.

Vernium opened a demonstration plant in Jennings, La., in May. Located on 140 acres, the $70 million plant can produce 1.4 million gallons per year from sugarcane bagasse, switchgrass, wood products and other materials. The company is setting up the pilot plant and expects production to start in the fourth quarter of this year.

Operating the pilot plant would give Verenium researchers data to improve their ethanol-making process in preparation for building a commercial plant next year. The company aims to show that it could produce ethanol for around $2 per gallon. Verenium plans in 2011 to begin producing ethanol from the commercial plant, which will be capable of producing 30 million gallons per year, Riva said.

Last month, the company said it would receive up to $40 million from the U.S. Department of Energy for its demonstration plant.

The BP announcement Wednesday represented the first phase of the partnership, Riva said. BP and Verenium plan to form a joint venture later to build and operate ethanol plants.

The companies may also license their technologies to other businesses. Terms of the joint venture have not been finalized.

BP, the largest oil and gas producer in the United States, owns refineries and gas stations worldwide. The company said it blended and sold 763 million gallons of ethanol and 1 million gallon of biodiesel in the country in 2007. The company’s total sales of these two types of biofuels accounted for about 10 percent of the global biofuel market last year.

BP is one of several oil giants that have invested millions into the emerging cellulosic market – although critics have pointed out that the money makes up a small portion of the companies’ R&D budgets. In February, Chevron said it would create a joint venture with Weyerhaeuser called Catchlight Energy to develop cellulosic biofuel technology.

Shell has invested an undisclosed amount in Iogen, based in Ottawa, Canada. Iogen originally planned to build a commercial refinery in Shelley, Idaho, but has since relocated the project to Saskatchewan, Canada (see Plans for Two Cellulosic Ethanol Plants Scrapped).

Verenium shares grew 64.4 percent on the news to reach $3.32 per share Wednesday, while BP shares rose 2.3 percent to $61.59 per share. Verenium is scheduled to post second-quarter earnings Thursday.