Brazilian sugar and ethanol giant Cosan on Friday signed an agreement with Japanese trader Sumitomo to form a joint venture (JV) that will be the world’s first company to produce and sell sugarcane biomass pellets.

The deal sees Sumitomo acquiring a 20% stake in Cosan’s existing subsidiary, Cosan Biomassa, in return for an investment of up to Brazilian reais (R) 70m ($17.5m).

Cosan Biomassa owns a production facility near Jau in Sao Paulo state with capacity to make 175,000 tonnes/year of pellets.

The new JV’s output is expected to hit 2m tonnes/year by 2025 and up to 8m tonnes/year in the future, if returns and demand reach expectations, Cosan said.

The deal is subject to regulatory approval from Brazilian and European antitrust authorities.

“Brazil is already among the largest producers and exporters of agricultural commodities in the world,” said Cosan Biomassa CEO Mark Lyra. “By making use of sugarcane residues and the growing concern about climate change, Brazil is positioned to become the Saudi Arabia of renewable energy.”

Cosan’s technology uses sugarcane bagasse and straw to produce pellets that can substitute for coal, natural gas and fuel oil in energy and heat generation.

Brazil’s sugarcane sector could produce 80m tonnes/year of pellets, according to Cosan. At the moment, the main raw material to produce pellets are forests in the US, Canada and Europe.

The JV plans to make its first shipment to Europe later this year. Other target markets are Japan and Korea, the company said.