ARENA is contributing up to $1.8 million (€1.6 million) for the development and construction of the facility in Yarwun town.
Once completed in March 2019, the facility will examine the feasibility and design of a proposed commercial-scale biorefinery in the country.
ARENA CEO Ivor Frischknecht said in a written statement on Thursday there was clear potential for biofuel production and refining in Australia.
“Our agricultural industries have an abundance of plant waste that can be ideal biocrude feedstock and there are several potential markets for selling green fuels including aviation, shipping and defence,” Frischknecht said.
The project paves the way for Australia’s first biorefinery capable of producing renewable diesel and jet fuels from plant material.
“A new biorefinery would be the first step in providing the missing link in the development of an Australian biofuels industry,” Frischknecht said.