Warrenville, Ill.-based Coskata, which is developing cellulosic ethanol from waste, announced today that it picked Madison, Penn., as the location for a 40,000 gallon per year demonstration facility.

The startup said the $25 million project would be located at the Westinghouse Plasma Center, the current site of a pilot-plant gasifier owned and operated by a unit of Calgary, Alberta's Alter Nrg (TSX: NRG).

"Coskata has been eager to reach this milestone, because it will be a significant demonstration before building our first commercial plant that we can produce ethanol from non-food based sources for less than $1 a gallon," said Bill Roe, president and CEO of Coskata.

"This facility is being built with some of the leading gasification technology, supplied by Alter NRG, and in one of the most progressive states for next generation ethanol."

In February, Coskata said it was teaming up with Colwich, Kan.-based ICM to design and construct a larger, commercial scale plant (see Coskata, ICM to build ethanol plant). A location for the larger facility has not yet been announced.

Founded in 2006 with funding from Khosla Ventures, Advanced Technology Ventures and Great Point Ventures, Coskata came out of stealth mode in January when Detroit, Mich.'s General Motors (NYSE: GM) announced that it would invest an undisclosed amount in the company (see Khosla-backed Coskata, EcoMotors come out of stealth).

Coskata said the demonstration plant is expected to begin delivering ethanol in early 2009 using a variety of input materials, including woody biomass as well as agricultural and industrial wastes.

The company said it plans to break ground on a commercial scale plant this year. The 50 million to 100 million gallon per year commercial scale facility is expected to be commissioned by 2011.