Poet, a privately owned ethanol producer, plans to expand its dry-mill ethanol plant in Emmetsburg, Iowa, to produce alternative fuel not only from corn kernels, but also the cobs and stalks normally left behind in the fields.

The new plant isn't expected to begin operation until 2011, but the agreement allows Poet to move forward on project design and engineering, environmental engineering and biomass collection, the company said Thursday.

This first phase is expected to last about 20 months. Poet and the Energy Department will then negotiate a second-phase agreement to cover the cost of construction, which is expected to last about two years.

The Energy Department earlier this year awarded $385 million to six companies hoping to build the nation's first large biomass-to-fuel plants. Poet is slated to receive up to $80 million in grant money, which is part of the Bush administration's goal of making cellulosic ethanol competitive by 2012.

Poet plans to convert its 50-million-gallon-per-year Emmetsburg plant into one of the nation's first commercial cellulosic biorefineries.

Once complete, the biorefinery will produce 125 million gallons per year -- 25 percent of them from corn cobs and fiber.

Poet officials say the company's cellulosic ethanol research should allow it to squeeze 27 percent more fuel from each acre of the crop.

The company has been testing the process in its Sioux Falls lab as it prepares to set up a pilot-scale model at its research center in Scotland.

Cobs, which are the densest part of corn, are easy to harvest and can be removed from the field without causing soil erosion or stealing soil nutrients.

Poet is working with a number of equipment manufacturers to test cob collection equipment. The company plans to harvest about 4,000 acres of cobs using various methods and equipment this fall in South Dakota.

Poet, formerly Broin Cos., has been making ethanol from corn for more than 20 years.

With last month's grand opening of its Portland, Ind., biorefinery, Poet now has the capacity to produce more corn-based ethanol than any of its domestic competitors, including agriculture giant Archer Daniels Midland Co., according to the Renewable Fuels Association.

Poet's 21 plants across South Dakota, Minnesota, Iowa, Missouri, Indiana and Michigan can pump out 1.1 billion gallons of the alternative fuel, and additional biorefineries under construction or development will eventually add 375 million gallons of capacity.

That puts Poet just ahead of ADM -- at least for now. ADM has an annual capacity of 1.07 billion gallons with another 550 million gallon under construction or development, according to the RFA.