Algae Could Grow Into A Biofuels Leader

Trevor Curwin, |Special to CNBC.com
Sunday, 18 Apr 2010 | 12:06 PM ET

While corn ethanol dominates the current biofuel market, the future of clean liquid-energy looks more likely to be found floating on ponds than growing in fields.

Algae-derived biofuels have garnered a lot of attention and investment over the past year due to their potential market-disrupting economics, even if they have become more common in research labs.

"We estimate the pricing of our diesel products at as little as $30 per barrel," says Bill Sims, CEO of Joule Biotechnologies, a bioengineering firm focusing on the renewable biofuels market. "The big prize is to be competitive with fossil fuels, not with other biofuels."

How It Works

His firm's "Helioculture" technology takes their genetically engineered organisms—to protect their intellectual property they won't name them, but Sims says they are "algae-like"—and exposes them to sunlight and carbon dioxide in what look like solar panels.

The organisms then secrete diesel, along with other usable chemicals.

Sims is aiming high. He estimates his technology can take a large share of potential $1-trillion markets in diesel and related chemicals.

"The reality is there are going to be several winners in this space," he says. "But we're well ahead."

While it comes from a non-fossil-fuel source, Joule's process produces diesel, not biodiesel, Sims notes with emphasis.

Joule's diesel is chemically the same as fossil-fuel diesel, he says, which means it can go straight into the engines now powering the nation's commercial vehicle fleet and get a similar energy output as fossil fuel-derived diesel.

Biodiesel usually needs to be blended with fossil fuels and can require modifications to some engines.

"Biodiesel faces additional challenges and has a substantially smaller market opportunity than a direct 'drop-in' replacement for petroleum-derived diesel," says Sims. "There's high value in the ability to make liquid hydrocarbons that are fungible."

He adds that compatibility allows Joule's diesel to use the same storage and distribution methods as fossil fuel diesel.

Host Of Advantages

As a fuel crop, algae stacks up well against other biofuel feedstocks currently in production or in development.

A report from cleantech research firm Greener Dawn on the sector says most algael biofuels firms working on products now expect to get 4,000 to 6,000 gallons of fuel per acre.

Joule's Sims says his firm is targeting annual output of 15,000 gallons per acre.

By comparison, corn-based ethanol produces about 400 gallons of fuel per acre, its cellulosic ethanol counterpart up to 800 gallons per acre and soybean biodiesel a mere 40 gallons per acre, according to research from Sandia National Laboratories cited in Greener Dawn's report.

"This is several orders of magnitude larger than anything being used today for either ethanol or biodiesel," says George Santana of Greener Dawn.

Algae's growth cycle is much shorter than that of corn, soy or other biofuel sources, and like cellulosic ethanol that uses grasses and agricultural waste, it also doesn't compete in the agrifood market for its feedstock.

Algae also requires less water—for growth and for processing—and less handling by heavy, fossil-fuel-burning equipment in being harvested and processed.

Santana points out that the basic process for mass production of algae isn't new, either.

Companies like Martek Biosciences grow algae for specialized pharmaceutical and nutritional supplement use, and Santana says you can expect to see these firms try to leverage that knowledge in the biofuels market.

(Martek received a $10-million investment from British oil giant BP

last year for biofuel research.)

Shell, Chevron , ConocoPhillips and ExxonMobil are all exploring algae-based fuel.

But despite the promise of the sector, don't expect cheap algae-based fuels overnight, says Santana.

The top eight companies that his firm has identified in the sector have attracted over $350 million in capital over the past three years, he says, and all of them have aggressive commercialization dates for their technologies, ranging from this year through 2013.

"We're probably five to ten years away from any kind of scale in algae," he says. "The media is a little bit ahead of where companies are as far as production."

Obstacles And Disadvantages

Few large-scale production plants exist yet, and producing a fuel with the consistency both in quality and quantity of an oil refinery isn't simple.

The industry also needs to get Washington on its side. Currently, algael biofuels aren't eligible for tax breaks and subsidies going to other biofuels, such as cellulosic ethanol.

"The biggest problem is they don't have tax parity with other biofuels," says Garvin Jabusch, chief investment officer at investment firm Green Alpha Advisors.

He adds that any "anti-algae" bias is more likely due to the rapid growth of the sector than to any political meddling.

"It's just an oversight," he says. "Their scale is so small. But if they get parity, it'll unlock a lot of capital."

With the combined potential of dramatically cheaper production costs and huge scalability, algae-produced biofuels may have the clean energy market's brightest future.

"Our research leads us to believe that algae has the potential to revolutionize the field of biofuels," says Greener Dawn's Santana. "Unlike previous promises from the corn, sugar cane and soybean lobbies, algae have the potential to make a significant impact [on] countries' dependence on foreign oil imports."

And while the race between competing biofuels has some lengths to go, analysts advise putting too much faith in the early leaders.

"The [biofuels] that compete with food crops are in the lead right now," says Jabusch. "I think they'll fall to a mix of cellulosic ethanol and algae fuels."

  Price   Change %Change