Fuel company Z says it has built New Zealand's first commercial-scale biodiesel plant, at Wiri, for $26 million.

The plant, which will move into the testing phase early next year, will turn inedible tallow into 20 million litres of biodiesel a year, with the potential to scale production up to 40 million litres a year.

A biodiesel distillation column has been installed at Wiri and expects to be in commercial production by the middle of next year.

"It will take time, but this $26 million investment is a step towards reducing New Zealand's reliance on fossil fuels," said Z's general manager of supply and distribution David Binnie.

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He said some of Z's large commercial customers, such as Fonterra, were supportive.

Fonterra's general manager of national transport and logistics, Barry McColl, said it was committed to reducing its environmental impact.

"Transporting more than 18 billion litres of milk around the country every year requires a lot of hours on the road ... so we're hugely supportive of initiatives like this that help to reduce our emissions."

Binnie said Z's B5 biodiesel blend - up to 5 per cent biodiesel blended with ordinary diesel - works across commercial, industrial and retail diesel vehicle fleets. Z's biodiesel would be available in the Auckland, Bay of Plenty and Waikato regions.