MILLINOCKET (AP) — The Finance Authority of Maine has approved a $25 million loan guarantee for a company planning to launch a northern Maine operation to produce biomass-based, coal-like wood pellets.

Officials said Thursday that with the loan guarantee, Thermogen Industries is one step closer to investing in a shuttered Millinocket paper mill to manufacture what’s known as torrefied wood. Thermogen is a subsidiary of Portmouth, N.H.-based Cate Street Capital, which acquired two idle paper mills in Millinocket and East Millinocket in 2011.

Torrefied wood is turned into wood pellets that would be shipped primarily overseas as an alternative cleaner-burning fuel for coal-fired power plants.

The operation, which requires a $70 million investment, could be up and running by the end of 2014, initially with 36 jobs, Thermogen spokesman Scott Tranchmontagne said.

The plan now is to start with one machine capable of producing 100,000 tons of pellets per year, Tranchmontagne said. Over time, the company hopes to have five machines producing 500,000 tons of pellets annually with a workforce of about 120.

There is demand domestically and overseas from institutions that now use coal to generate power, he said. But the biggest demand is from European coal-fired power plants that have to reduce emissions because of strict environmental regulations, he said.

“These power plants are faced with a choice: Do we invest hundreds of millions of dollars in new equipment? Do we shut down? Or do we take advantage of torrefied wood pellets to reduce emissions,” he said.

The company also hopes to open another plant in Eastport, he said.

Department of Economic and Community Development Commissioner George Gervais said Thermogen is a natural fit in Millinocket.

“This is the kind of economic diversification we need in Maine,” he said in a statement.