Ethanol manufacturer Poet on Wednesday announced it is building a $4 million pilot plant that will begin producing cellulosic ethanol by the end of the year.

The pilot plant will be attached to an existing ethanol plant in Scotland, S.D., Poet CEO Jeff Broin said at the American Coalition for Ethanol conference in Omaha, Neb.

The plant will have the capacity to make 20,000 gallons of cellulosic ethanol per year from corncobs and the fibrous outer layer of corn kernels.

The plant will also act as a testing ground for Sioux Falls, S.D.-based Poet's commercial cellulosic plant.

Poet nabbed $200 million from the U.S. Department of Energy last year to help build the commercial plant and plans to begin construction on it next year. The plant, expected to start making cellulosic ethanol in late 2011, will have the capacity to produce 25 million gallons of the biofuel per year. Most of the ethanol produced in the United States today is made from corn.

Cellulosic-ethanol advocates say that the technology to make ethanol from materials like switchgrass, wood chips and corn cobs could significantly boost the amount of the fuel that can be made without competing with crops for food. Companies developing the biofuel haven't yet been able to produce it affordably or in large volumes.

Broin selected corncobs because of the convenience - cornfields already surround the company's 23 existing ethanol plants.

"We believe the advantages of cobs as a feedstock provide the fastest route to commercialization," he said. "America's Corn Belt has enough cobs to produce 5 billion gallons of ethanol per year."

But picking up all those corncobs isn't so easy. Most farmers today use machinery that harvests the grain of the corn and leave the cobs in the field, Peter Hemken, the head of DuPont Bio-Based Materials, told Greentech Media last year (see Q&A: Harvesting Cellulosic Ethanol).

Poet spokesman Nathan Schock said the company, along with farmers and agricultural-equipment manufacturers, is already working to solve this problem.

Last fall, Poet harvested 4,000 acres of cobs with prototype machinery, Schock said. He also said the company has been working with manufacturers John Deere, Case IH, Agco Co. among others to build the machinery.

Poet is one of dozens of companies pursuing cellulosic ethanol plants.

In the last month, AE Biofuels announced the opening of a 9,000 square-foot demonstration plant, and BlueFire Ethanol and Fulcrum BioEnergy also announced plans to build new plants (see BlueFire Ethanol to Build $130M Plant in Mecca and Fulcrum BioEnergy Turns Trash Into Treasure).

Earlier this month, Verenium signed a $90 million deal with BP to develop cellulosic-ethanol technologies and last month, DuPont replaced Mascoma Corp. in a project to build a cellulosic-ethanol pilot plant with the University of Tennessee.