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Maybe diesel electric might be the way to go?

Like AndrewC mentioned, maybe Diesel Electric might be the way to do this, just like the big locomotives, the small diesel engine could power a generator that drives an electric motor.

Would this work?
Small Diesel Engines

There is a salvage yard in Iowa some where that deals in nothing but what they call utility tractors, Kabota, John Deere, Yanmar and so on. I have a 20 HP John Deere utility tractor, it has a verticle 2 cylinder Yanmar diesel. If you were buliding a 1 1/2" or larger, I'd bet one of these would work.:cool:
Actually it's been done on 7 1/2 inch gauge tracks. I think that the scale was 1 5/8 per foot. A three cylinder diesel from Kubota or one of the other makers gives a real nice sound. the generator from a heavy duty truck and a smaller generator for the exciter would be the other consideration. I have operated a model of a GP-20 in 1 1/2 inch scale that worked just like the prototype. It had three single cylinder engines in line at 90 degree and using a common carburater. A single three cylinder diesel would have been good but not available back then.

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