Western Australia's public power provider has signed on to support the country's first renewable diesel plant, which will turn farm waste into fuel.

The Narrogin facility will process straw, oat husks and wood waste from farms in the area into diesel.

State-owned utility Horizon Power has signed a non-binding memorandum of of understanding to purchase the diesel for its off-grid regional generators.

"We would typically produce as much straw as we do grain — we're talking millions of tonnes through the area," Narrogin farmer Ashley Wiese said.

"A lot of that remains in the paddock and unfortunately some of it gets burnt."

The joint venture between WA-based oil and gas explorer Carnarvon Energy and Melbourne-based climate consultancy Frontier Impact Group received $2 million in state funding early this year.

Carnarvon Energy chief executive Adrian Cook said a final investment decision on the plant was expected this year and that the production of renewable diesel was expected to commence in "late 2023 or early 2024".

If successful, the consortium plans to build more facilities around the country.

"Each plant will produce around 18m litres [of renewable diesel] per annum," Mr Cook said.

What is renewable diesel?

Renewable diesel is made from natural material like straw and wood.

Unlike biodiesel, it can be used in conventional engines without additives or petroleum diesel mixed in.

That could be a big selling point for farms and other businesses that have invested large sums into diesel machinery, trucks, and utes.

It is already being produced and sold in the US and Europe.

If completed on schedule, the Narrogin plant is set to be Australia's first.

Mr Cook said the carbon emitted to produce renewable diesel was "70 to 80 per cent less" than petroleum diesel, but it did produce emissions when burned.

"That can be enhanced to net zero or net negative through the way you use feedstock," he said.

"Where we can grow our own feedstock, you create a more circular economy to bring that emissions profile down — our target is zero."

He hopes to partner with farmers to grow oil mallees and other trees for the plant in addition to taking excess biomass like grain stalks and husks.

How much per litre?

Mr Cook declined to reveal how expensive the renewable diesel produced in Narrogin was expected to be.

"At this stage [the target price] is commercially sensitive," he said.

Mr Wiese said the prospect of reducing farm carbon emissions without replacing existing machinery would be tempting for many farmers.

"The farming industry is targeting net zero just as the whole state is," he said.

"I know on our farm the diesel we use is about eight per cent of our carbon footprint — so it's significant, but nowhere near the biggest component."

He said some grain buyers were already offering premiums for sustainably produced grain, particularly local breweries and malt houses.

Horizon Power plans to purchase the diesel to back up its off-grid solar power systems, which are used in parts of regional WA where grid connections are impractical or unreliable.

"Horizon power has set objectives to decarbonise its power generation operations in remote regional communities by 2030," Horizon chief financial officer Mike Houlahan said.

Got wood?

Mr Cook said the Narrogin plant would require 50,000 tonnes of feedstock to produce 18m litres of renewable diesel annually.

"We have now secured about 75 per cent of the feed stock to supply the project for 10 years," he said.

He estimated 40 workers would be employed at the plant and that "two to four times" as many indirect jobs would be created to harvest and transport the feedstock and diesel.

Mr Wiese said there was a lot of farm waste and trees already in the ground that could be used.

"Having the option to get paid to remove [straw] is a nice option," he said.

"It has to be removed so you can get machinery through the next year."

"There were a lot of oil mallees planted through this area 20 years ago and that industry didn't really blossom — a lot of those trees are sitting there unharvested."

Energy offsets and funding

In announcements to the ASX, Carnarvon Energy revealed that its renewable fuel ambitions were intended to offset its main business of oil and gas exploration.

"Carnarvon holds equity in the Dorado [oil] field that recently entered the formal development engineering and design phase," Mr Cook said last year.

"We are also preparing to drill two exploration prospects near Dorado.

"Our focus on these first-rate projects has not diminished in any way.

"There is a clear link between the delivery of our core projects, securing carbon offsets for these through producing valuable products such as renewable diesel."

Frontier Impact Group owns the other 50 per cent of the project.