Brazil’s state development bank BNDES’ venture group, BNDESPAR, will invest $294 million in advanced biofuels startup GraalBio, the bank said on January 21. Brazil, a leader in producing ethanol from sugarcane, is placing a big bet on next-generation ethanol made from the biomass residues left over from that process—bagasse and straw.

The funds will be disbursed in conjunction with a co-investment by the Gradin family, which controls GraalBio and has committed $147 million to ensure GraalBio’s growth, according to a report in Biofuels Digest. The investment will give BNDES a 15 percent stake in the company and a seat on its board.

GraalBio will use the money to develop cellulosic ethanol technologies at its first commercial facility located in Alagoas. The project was also accepted under Brazil’s program to support innovation in the sugar energy and chemicals sectors under which it will receive a $137 million low interest loan from BNDES to finance construction of the facility.

GraalBio announced its plans in May of 2012 to construct an 82 million liter commercial plant to produce ethanol from sugarcane bagasse and straw, an agriculture research station to develop new varieties of cane suitable for biorenewables, and a research center for the development of genetically engineered organisms to facilitate the process.

The industrial biotech signed agreements with Beta Renewables and Chemtex, divisions of Italian chemical company Mossi & Ghisolfi, to use Chemtex’ proprietary conversion technology. It also entered into an agreement with Novozymes for enzymes used in the process. The new plant will incorporate these technologies and is expected to be operational in 2014.

GraalBio was founded in 2011 with a strategy to unlock the value potential of Brazil’s vast reserves of biomass by converting it to renewable energy and chemicals. The company consists of five divisions that cover the supply chain of biorenewables from selection of optimal feedstock to the logistics of getting the end product to market.

One of the main impediments to the successful development of cellulosic is the cost of the feedstock with its aggregation a big contributor to its cost. But in Brazil, feedstock aggregation is already priced into the cost of processing the sugarcane into sugar and ethanol with the bagasse burned to power the mill. By law, by 2017 all sugarcane harvesting in Brazil will have to be mechanized and burning the straw that is normally left on the field will no longer be allowed. GraalBio’s strategy is to take advantage of the abundant biomass and turn it into higher value chemicals and biofuels.