A New York-based ethanol company facing a number of class action lawsuits from shareholders has announced a new pilot program in Florida to covert waste citrus peels to ethanol.

Xethanol Corporation (AMEX: XNL) has formed a venture with Renewable Spirits, LLC to build a biomass-based pilot production facility in Bartow, Florida. The venture is expected to establish a pilot plant to produce up to 50,000 gallons of ethanol this coming harvesting season.

The pilot plant, which is to increase to over 500,000 gallons per year (GPY) the companies say, is to be co-located at a facility owned and operated by Peace River Citrus Products, Inc., a leading producer of orange and grapefruit juice and other citrus products.

Slated to begin production by the second quarter of 2007, the companies plan to use a production technology process they say was developed in conjunction with the U.S. Department of Agriculture (USDA) that will convert waste citrus biomass into ethanol, as well as other marketable co-products, such as limonene and citrus oil, to improve the economics of fuel production.

Renewable Spirits, an investor group, says it's spent the last two years working with the USDA laboratory in Winter Haven, FL to develop the technology to be used in the pilot plant, and has been successful in removing limonene from the peel, allowing for the fermentation of the sugars in the peel.

In the new plant, Xethanol plans to use equipment and production processes moved from a former facility in Hopkinton, Iowa. Company officials said they felt the Hopkinton plant, given that it was located in the middle of town, wasn't an ideal test location, anyway.

Adopting Renewable Spirits' cellulosic ethanol approach in Florida is not a repudiation of its own ongoing cellulosic ethanol research & development, Xethanol executive vice president of strategic development Robin Buller told Cleantech.com. "Breakthroughs in the fermentation of wood, for instance, are not necessarily useful in citrus fields. If you're going to do different types of biomass, you need to look at different types of technologies to process biomass in different ways."

Xethanol's own cellulosic research, according to the company, includes a Clean Fractionation program it has been pursuing with the National Renewable Energy Laboratory (NREL), a separate agreement with the USDA, as well as a research alliance with Virginia Polytechnic Institute.

Earlier this fall, shareholders filed a series of class action lawsuits against Xethanol, calling into management's experience into question and accusing the company of financial obfuscation (see Ethanol maker Xethanol served with class action lawsuits.) In response, Xethanol appointed a new CEO and says it's working to resolve the lawsuits.

"We would like to resolve them as soon as possible, but we don't know how long it's going to take," said Xethanol's Buller.

Shares of Xethanol rose 16.4 percent to $2.58 in late day trading on the American Stock Exchange. They have ranged between $2.17 and $16.18 over the past year.