Led by Southern Oil Refining, the project has set out to create crude oil from biosolids at their plant near Gladstone in Queensland, which can then be further refined.
Australia produces a lot of biosolids, with hundreds of thousands of tonnes of soil-like solids being created every year, much of which is stockpiled, landfilled or diverted to other low value uses such as fertiliser.
ARENA is providing up to $4 million to get the project off the ground, seeing potential to make use of a waste product, while also decarbonising the transport fuel sector.
Costing a total of $11.8 million, the project's centrepiece is a demonstration scale hydrothermal liquefaction reactor, which will convert wastewater solids into biocrude, which can then be refined further into diesel or even jet fuel.
The pilot will take place at Southern Oil's Northern Oil Advanced Biofuels Pilot Plant in Yarwun outside of Gladstone, where a biofuel and biocrude laboratory was constructed in 2015 with funding from ARENA and the Queensland state government.
Southern Oil Refining have used the laboratory to determine the best ways to make useable biofuel from biocrudes, as well as undertake research to inform their entrance into the commercial fuels markets.
The two-year pilot could be scaled up to a commercial scale, if the demonstration projects goes well - opening up the potential for sewage sludge across the country to be converted into oil that can, in turn, be refined into diesel.
The process isn't new - biomass was first converted to crude during the oil crisis in the late 1970s, but the technology is coming back into focus as demand builds to create renewable transport fuels with smaller environmental footprints.
Managing director of Southern Oil Refining Tim Rose predicts a bright future for biofuels on the back of their pilot.
"With wastewater treatment stockpiles across the country, this project is entirely scalable and I believe will ultimately lead to the production of hundreds of millions of litres of renewable fuel each year in Australia," Rose told ARENA Wire.
Southern Oil Refining plans to refine crude oil created into high-quality renewable biofuels, which can be used in place of conventional petrols.
"This ARENA funding will facilitate Australia's largest ever demonstration scale reactor using wastewater treatment biosolids to produce renewable crude oil," Rose continues.
"We will then refine this crude oil into 100% drop-in renewable fuels.
"This outcome would greatly benefit the environment, be tremendous for the economy, while improving Australia's fuel security."
Keen to find new uses for the growing stockpiles from their processing facilities in Werribee and Carrum Downs, Melbourne Water Corporation are partnering on the project.
Melbourne Water have more than three million cubic metres of biosolids stocked across the two treatment plants, which they have committed to finding ways to reuse to avoid further stockpiling.
Feedstock for the demonstration project will be sourced close to Southern Oil Refining's Gladstone plant, but in future, the process could be scaled up to take advantage of the Melbourne Water Corporation's significant volume of by-product.
According to ARENA CEO Ivor Frischknecht, the project offered a new opportunity to a divert waste product into a renewable source of energy.
"A crucial service like wastewater treatment unfortunately produces a significant amount of waste, so we're particularly excited to see Southern Oil Refining's project deliver an option to divert this biosolid waste into a recycled, renewable form of crude oil," Frischknecht told ARENA Wire.
"The project is beneficial in continuing to provide decarbonisation in the transport fuel sector, particularly in the airline industry with the production of renewable jet fuel, which is a key focus area in ARENA's Exporting Renewable Energy Priority."
This article first appeared on the ARENA website, which can be found by clicking here.