The Iowa Power Fund Board this afternoon approved a $14.75 million contract to assist POET LLC in developing a commercial-sized cellulosic ethanol plant, state officials announced this afternoon.

The Sioux Falls, S.D.-based ethanol producer plans to use the first $5 million of those funds for further research and development to convert an existing ethanol plant in Emmetsburg to include production of ethanol from corncobs and corn fiber.

“This is an important step in advancing Iowa’s strength in the biofuels industry through second-generation biofuels development, while spurring economic development,” Roya Stanley, director of the Iowa Office of Energy Independence, said in a press release.

Under the agreement, the state will receive fees from POET ranging from $100,000 to $800,000 for each additional plant built based on the Emmetsburg design, depending on the location and ownership of the plant.

“The board is very pleased with the quality of this contract,” said Fred Hubbell, Iowa Power Fund Board chair. “The contract includes terms that will provide the Power Fund with the opportunity for payback, if the technology is successfully replicable. It also provides a win for Iowa with the job potential in second-generation biofuels production.”

The Office of Energy Independence and Power Fund Board will receive quarterly reports to track POET’s activities in relation to collection, storage, and transportation of the fuel to measure cost-effectiveness and replicability.

POET announced last month that its research center in Scotland, S.D., is now producing cellulosic ethanol on a pilot scale of 20,000 gallons per year. POET expects to begin production at the expanded Emmetsburg plant in 2011.