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Algae Growing on Investors as Technology Advances

It’s been a long and challenging road, but algae biofuels are finally at the point where investors should take notice as technology advances and variety of strategic partnerships—from oil and gas to power utilities, agricultural processes and chemical plants--are replacing subsidies to eventually make the industry commercially viable on its own merits.

Algae produces some carbon dioxide when burned, but it takes the same carbon dioxide in to grow. So when algae farms grow massive quantities to be turned into biofuels, the end result is that they actually suck greenhouse gas out of the air. It also has other advantages over biofuels from corn or soybeans, in that it does not require soil or fresh water to grow. It also has the potential to produce more energy per hectare than any land crop.

Currently, high cost of capital and operations limit bio-based materials and chemicals to a few facilities located where corn and cane are plentiful and cheap. Algae can change that.

All that’s been missing is the necessary technology to harness mass production.

A recent study put out by the respected energy research firm SBI predicts a compound annual growth rate of 43.1% and a $1.6 billion market in 2015 for algae biofuels. That is double digit growth for the emerging industry, which is receiving a sizable development boost as strategic partnerships are gradually replacing the millions in loans from the US Department of Energy since 2009.

SBI’s “Algae Biofuels Technologies: Global Market and Product Trends 2010-2015” specifically points out that the production of algae for biofuels is the “most viable and attractive” of biofuels because of its high yield per acre and minimum environmental impact.

"Strategic partnerships from ExxonMobil, Chevron, BP, Dow Chemical, Desmet Ballestra and many others will drive the investment needed to successfully commercialise algae biofuels. Private investment and venture capital will also provide funding through 2015,” according to SBI.

One particular area of promising investment is the technology being developed to harness algae’s potential.

One example is the US Department of Energy’s Idaho National Labs (INL) purchase order of two test-scale units for dewatering algae and removing contaminants from frack water from Origin Oil, Inc. The significance of this is that it boosts algae technological development as Origin Oil focuses both on cleantech processes for oil and gas and for harvesting algae.

INL is optimistic that the new equipment would significantly reduce the algal dewatering barrier, which in turn would allow for the dewatering of larger quantities of algae for use in the production of feedstocks blended from algae biomass. A key problem contributing to costs is the quick evaporation of pond water, which is expensive to continually replenish.

This is a strategic partnership between OriginOil and the INL, via a Cooperative Research and Development Agreement (CRADA). Specifically, OriginOil’s Algae Appliance Model 4 can continuously concentrate up to four liters of algae production per minute. OriginOil also has a joint venture in Ennesys, in Paris, where it is testing algae in urban energy generation also using the Algae Appliance Model 4.

Another boost to the industry is the 2 August Senate Finance Committee mark-up of the Family and Business Tax Cut Certainty Act of 2012, which contained a proposal to extend the $1/gallon biodiesel tax credit and make algae eligible for the credit. The proposal extends the tax credit for another year after it expires on 31 December 2013 and is effective retroactively to 31 December 2011. In addition, the algae tax credit will apply to producers who sell their fuel to refineries for further processing, rather than only to producers selling for end use as a fuel. This is a significant point and a significant victory for the biofuels industry.

There are plenty of naysayers, particularly when it comes to the current cost of using algae in biofuels production. According to Lux Research, right now algae is a “cost-intensive loser”. Lux analysts claim that algae cultivation yields a 48% loss because of the high capital costs for growing algae at an industrial scale. They put the price at about $202,000 per hectare.

The costs are high for the time being, but we view investment from a development perspective and we see forward movement in this emerging industry and are particularly upbeat about the shift away from energy department loans to strategic partnerships that will work to tap the vast potential of algae for biofuels production and render it commercially viable. Getting in now on the technology will translate into an advantage.

Check out the 6th Annual Algae Biomass Summit in Denver, Colorado from 24-27 September for more insight into technological advances and how innovators are working to unlock the full potential of algae as a feedstock for fuel, food and other co-products.

By. Oilprice.com analysts




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