Right now algae is simply too expensive to produce-and the process uses more energy than we get back. But by around 2017, with more money being dumped into research, we should start seeing enough advances to close the cost gap. For the Obama administration, 2022 is the Year of Algae-the year it hopes to see commercial viability. We're not entirely convinced of the timeframe, but we're giving algae the benefit of the doubt-for now, especially since it has plenty of commercial applications beyond fuel.
Politically, algae is a sore topic. The right uses it against the left, setting algae up as the butt of all manner of jokes. But the Obama administration has a thing for algae, and that translates into dollars to further the research necessary to catapult algae into the economically viable biofuels playing field. In fact, earlier this month, Energy Secretary Ernest Moniz announced $16.5 million in support for the development of algae biofuels.
So that's the politics. Let's look at the realities of algae as a biofuel.
The potential is more amazing that one would think, though it's still prohibitively expensive and cannot yet be produced commercially anywhere in the world. While corn can grow up to 8 tons of biomass per acre, algae can grow up to 40 tons of biomass per acre, according to Green Plains Renewable Energy CEO Todd Becker. But this is just the potential.
While algae is already produced for the aquaculture and animal feed markets, it's…
Right now algae is simply too expensive to produce-and the process uses more energy than we get back. But by around 2017, with more money being dumped into research, we should start seeing enough advances to close the cost gap. For the Obama administration, 2022 is the Year of Algae-the year it hopes to see commercial viability. We're not entirely convinced of the timeframe, but we're giving algae the benefit of the doubt-for now, especially since it has plenty of commercial applications beyond fuel.
Politically, algae is a sore topic. The right uses it against the left, setting algae up as the butt of all manner of jokes. But the Obama administration has a thing for algae, and that translates into dollars to further the research necessary to catapult algae into the economically viable biofuels playing field. In fact, earlier this month, Energy Secretary Ernest Moniz announced $16.5 million in support for the development of algae biofuels.
So that's the politics. Let's look at the realities of algae as a biofuel.
The potential is more amazing that one would think, though it's still prohibitively expensive and cannot yet be produced commercially anywhere in the world. While corn can grow up to 8 tons of biomass per acre, algae can grow up to 40 tons of biomass per acre, according to Green Plains Renewable Energy CEO Todd Becker. But this is just the potential.
While algae is already produced for the aquaculture and animal feed markets, it's hasn't managed to break into the biofuels market yet because the product isn't of a high enough quality. But this is the next step and this is where the key research is focused.
Not only does algae have greater value potential than corn, it also has the potential to turn the carbon dioxide byproduct from corn ethanol plants into feedstock. This is currently being done by BioProcessAlgae (of Green Plains Renewable Energy) at an $11 million pilot plant in Shenandoah, thanks in part to a $6.4 million grant from the Department of Energy.
The target year for commercially viable algae biofuel is 2022 that can directly replace gasoline, but we expect a closing of the gap somewhere around 2017, when the Obama administration is eyeing a cost-competitive boost for algae.
And there is a precedent. The military is using algal oil. In November last year, the Navy took a remote-controlled destroyed on a 17-hour jaunt for about 150 miles running on 25,000 gallons of a 50-50 blend of algae-derived hydro-processed oil and standard petroleum fuel. This was the largest-scale alternative fuel demonstration ever.
The Hurdles
The National Research Council outlines the hurdles for algae before large-scale development can become a reality, but while challenging, the general consensus among experts is that algae will move forward, and that these are not "definitive barriers".
The key concerns include the amount of water necessary for algae cultivation, as well as the amount of land and nutrients (nitrogen, phosphorous, CO2) required in the process. No one's really sure, either, how much greenhouse gas emissions we will see with the large-scale production of algae. Right now the main problem is that it might take more energy to produce algae than we get back through end biofuels products.
In terms of greenhouse gas emissions for algae, the jury is still out according to the Council's most recent study. "Estimates of greenhouse gas emissions over the life cycle of algal biofuel production span a wide range; some studies suggest that algal biofuel production generates less greenhouse gas emissions than petroleum-based fuels while other studies suggest the opposite."
Australia is probably at the head of the algae game, and is more uniquely positioned to take advantage of development. It's got the land for it and research is progressing full speed ahead. Scientists at the University of Queensland have made notable advances in algae biomass. They have identified hundreds of native species of freshwater and saltwater microscopic algae that could lead to new strains that are more efficient and cheaper, but also of a higher quality for production of biofuels. Right now they are testing these to determine the top performers.
The new logic is that the focus should be on microscopic algae, which is more stable and less attractive to predators, while the focus up until now has been on the most oil-rich strains.
Where To Put Your Money
For investors, follow the money. In the case of algae, this means following the DOE grants. While $6.5 million of the $16.5 million the DOE has just earmarked for biofuels research will go to university research projects, there are two companies in on this algae largesse:
• Kauai-based Hawaii Bioenergy's algal oil project is getting $5 million from the DOE to develop a cost-effective photosynthetic open pond system for algal oil
• San Diego-based Sapphire Energy will get $5 million from the DOE to develop a new process for producing algae-based fuel that will be compatible with existing refineries
We're also looking at Solazyme (SZYM), the renewable oil and bioproducts company that supplied the Navy for its historic algae trek last year. Solazyme produces Soladiesel HRD-76, a 100% algal-derived renewable marine diesel fuel. And the Navy trek was a major success for this company-a very high-profile testing ground for Solazyme's future. That makes it somewhat of a pioneer. Solazyme is partnered with Dynamic Fuels LLC for a nice Navy contract, which represents the single largest purchase of advanced biofuel by the government.
Solazyme is also de-risking its algae ambitions but not hedging all its bets on algal-derived biofuels. It's making steady gains for algae applications in cosmetics. We like the diversification. Solazyme already boasts the Algenist line of algae-based cosmetics and now it's teaming up with cosmetic market darling Sephora.
Bottom Line: We're not there yet-barely even close; but look for companies who see the long-term value of algae-based biofuels but aren't dumping all their cash into one application. As we mentioned above, algae already has secured market share for animal feed and aquaculture-not to mention cosmetics-so this is the way to play the algae game. It grows on you-however slowly.