A SCOTTISH company is leading the race to commercialise a process for producing biofuel made from whisky by-products.

Celtic Renewables, a spin-out from Edinburgh Napier University's Biofuel Research Centre, will initially focus on Scotland's £4 billion malt whisky industry to develop bio-butanol and other renewable chemicals.

Researchers say it has "huge global potential" to be adapted to other biological by-products.

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Unlike other biofuels, biobutanol – which is now being developed globally – can be used as a direct replacement for petrol, or as a blend, without the need for engine modification.

Celtic Renewables, Scotland's first biobutanol company, is now working with Scottish Enterprise to produce the fuel from sustainable resources on an industrial scale.

Its fermentation process uses the two main by-products of whisky production – "pot ale", the liquid from the copper stills, and "draff", the spent grains.

Each year the industry produces 1600 million litres of pot ale and 500,000 tonnes of draff.

Professor Martin Tangney, founder of Celtic Renewables and director of the Biofuel Research Centre, said: "The pot ale and draff could be converted into biofuel as a direct substitute for fossil-derived fuel, which would reduce oil consumption and CO2 emissions, while also providing energy security – particularly in the rural and remote homelands of the whisky industry."

Dr Doug Ward, founder of Scotland's largest biofuel producer, Argent Energy, is chairman of the start-up, which has secured significant private investment from Adelphi Distillery co-owner, Donald Houston.

Celtic Renewables will be launched at the University's Sighthill Campus today by Fergus Ewing MSP, Minister for Energy, Enterprise and Tourism.

He said: "Scotland's whisky has a worldwide reputation for excellence and generates huge benefits for our economy. It's fitting, then, that the by-products of this industry are now being used in an area where we have so much promise – sustainable biofuels."

The project has received £337,000 of support from Scottish Enterprise.