NEW YORK (CNNMoney.com) – Bill Gates is buying into the ethanol business.

The investment vehicle for the world's richest man, Cascade Investment, has acquired a 25.5 percent stake in Pacific Ethanol, a Fresno, Calif., based outfit that distributes ethanol throughout California, Nevada, Arizona and Oregon.

Gates acquired 5.25 million shares convertible preferred stock on April 13 for $16 per share, according to SEC filing.

According to a filing with the Securities and Exchange Commission, Cascade obtained its stake, 5.25 million preferred shares, on April 13 at $16 per share ($84 million). The preferred stock can be converted into 10.5 million common shares.

Cascade said in its filing that it acquired the stock "for investment purposes only." It said it would continue to evaluate its ownership stake and voting position and that it would leave open all possibilities. Those include continuing to hold the stock, adding to it or disposing of it through open market or private transactions, and entering into short sales or other hedging transactions.

Most U.S. refiners are in the process of switching from methyl tertiary butyl ether, or MTBE, which has been found to pollute water supplies, to ethanol.

It is estimated that refiners will annually use up to 7.5 billion gallons of ethanol by the year 2012 - nearly double the current total of roughly four billion gallons per year.

Pacific Ethanol said it will use the proceeds from the Cascade deal, plus a $34 million debt deal with Hudson United Bank and Comerica Bank, to complete construction of an ethanol production plant in Madera County, California. The plant is scheduled to be completed and begin operations in the fourth quarter of 2006.

The remaining portion of the proceeds from the preferred stock offering will be used to pay a portion of the costs of construction of other ethanol plants on the West Coast.

"Closing these debt and equity financings solidifies our near term growth strategy of building five ethanol plants on the West Coast," said Neil Koehler, Pacific Ethanol's CEO, in a statement.

Pacific Ethanol (Research), founded in 2003,plans to have five ethanol plants in operation in the Western United States by the end of 2008 with an expected combined installed annual ethanol capacity of at least 200 million gallons. The Madera facility is the first of those plants.

Pacific Ethanol shares were up over 6 percent in Monday morning trade.

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