The US Department of Energy will be providing funding to a partnership comprised of Ricardo, Bosch and the University of Michigan for research on an optimized flex-fuel engine (see related post). The team will start with an existing gasoline optimized engine that is turbocharged and direct injected. After characterizing the engine, Bosch and U of M will focus on developing quick accurate means of measuring the ethanol content in the fuel blend.
The partners will then work at using all the available performance parameters that can be adjusted to optimize the combustion performance when running on ethanol blends in order to try and match the fuel efficiency when running on gasoline.

A turbocharged engine is a good place to start since the boost can be adjusted to take advantage of the higher octane rating to ethanol compared to gas. Companies like Saab have already shown clearly that a turbocharged flex-fuel engine can achieve better performance on ethanol that overcomes the lower energy density. Now they just have to get the mileage.

[Source: Ricardo]

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