For a tiny plant, algae can garner big attention. But are algae's investors seeking tomorrow's energy answer or are they in pursuit of other products from this tiny, prolific plant?

Whatever environmental benefits an alternative energy source boasts, economics will make or break it, and estimates for algae-based cultivation have varied greatly. Selecting the most efficient algae strains, scaling up the process for commercial production, and the cost of extracting oil have also bogged down algae's development as a fuel.

Still, algae's champions believe in its potential and are willing to back those beliefs with sizable investments. A benefit algaederived fuels boast is that the alternative is a straight replacement for petroleum. When used as fuel, no modifications are needed to the vehicles we use today.

And for many, investments are also looking beyond biofuels to algae's potential as a protein source, a supplier of valuable chemicals, a means of carbon sequestration or even for its wastewater remediation properties.

THE BASICS

To understand algae's rise from the pond, it helps to understand the basics of its cultivation. Although most people recognize macroalgae, or seaweed, it is microalgae that garner the most attention from biofuels companies due to its greater oil yield. Most algae considered for fuel production can contain up to 40 percent oil and a mixture of carbohydrates and proteins.

Macroalgae has been cultivated in seas or oceans with floating farms or line systems, while microalgae are grown via open ponds, photobioreactors and fermentation vessels.

Harry Boyle, Bloomberg New Energy Finance, London, England, says that fermentation reaction without light holds the most immediate promise for commercialization since it can be easily scaled up. It features relatively high oil yields and fairly low costs in relation to other methods.

Open ponds and photobioreactors both use photosynthesis, requiring light. Photobioreactors are generally accepted as superior to open pond cultivation, primarily because of water use, lower risk of contamination, and higher yields, although open ponds are much less expensive. Both are difficult to scale up to commercial production. Biofuels produced from macroalgae are lower in cost, but oil yields are lower as well.

A SPENDY PROCESS

A company's ability to realize additional benefits from multiple products and take advantage of energy-saving practices can help defray costs. In order to compete with oil, companies are hoping additional breakthroughs can whittle down costs.

Bloomberg New Energy Finance's recent algae study shows would-be investors that those technological breakthroughs are necessary in order to make algal oil competitive. The study estimates the current cost for photosynthetic pathways to be around $7 per liter or about $26.53 per gallon. Costs could fall between $17 and $24 per gallon for photobioreactors and between $7.50 and $15 per gallon for openpond technologies. Algal biofuels, produced via fermentation vessels, are currently being produced at a level that enables them to be sold for around $24 per gallon. Companies may find it cheaper to produce algal oils via a hybrid method.

Harvesting and extraction are the most costly stages, representing about 60 percent of total costs on average, because both are energyintensive and have high capital-cost requirements.

A TREMENDOUS UNDERTAKING

Last year, energy giant ExxonMobil announced it was devoting $600 million to an algal biofuels partnership with Synthetic Genomics Inc. Still, the company admits fuel from algae presents significant challenges, not the least of which will be getting it from the lab to the local gas station, a feat the company describes as "a tremendous undertaking -- one that could require decades of work by experts in engineering, chemistry, biology and a host of other scientific fields."

In fact, the company says it does not yet know whether affordable, large-scale quantities of algal fuel are possible.

Pearse Lyons, President of Alltech, a science-based animal nutrition and aquaculture company based in Lexington, Ky., says understanding algae's potential begins with the realization that it has been around for a long time.

But some worry that development of algae, as with many alternative energies, has been too slow, hindered by lack of public investment, leaving private companies to do their own research, a situation that tends to slow advancements in the broader realm.

AVAILABLE RESEARCH

Recent federal programs targeting R&D of biofuels, including those algae-based, have focused on development projects and large research consortia, says Ken Reardon, Associate Department Head, department of chemical and biological engineering, Colorado State University, Fort Collins. He believes the U.S. needs more moderate-level research grants as well as focus on less obvious areas, like infrastructure and environmental impacts.

"In the absence of that kind of funding, companies have been sponsoring research but that usually means that the results are not shared freely among scientists and engineers," explains Reardon.

A University of Virginia study, published in the Environmental Sciences and Technology journal and publicized further in a New York Times January 25, 2010, article on energy and the environment, questions whether algae is as green as it seems.

The rub comes in the use of fertilizers to produce algae, raising questions as to whether algae cultivation could produce more pollution than it can absorb. Algae are grown in water, unable to draw nitrogen from soil the way corn and other plants do, sometimes requiring additional fertilizer.

"We can retrofit existing facilities at minimal cost to produce algal oil, which then can be refined in existing refineries without modification."
-Harrison Dillon, President and CTO of Solazyme But proponents of algal biofuels production say the study exaggerates costs and the size of algae's carbon footprint because it is based on old data. Andres Clarens, an Assistant Professor of Civil Engineering, University of Virginia, and a lead author on the paper, has stated in a follow up column appearing in The New York Times January 26 that the study was based on the most recent information available to him. He was further quoted as saying he welcomed working with companies willing to share more recent and relevant data with him for a possible follow up study.

REDUCING COSTS

Based in San Francisco, Calif., Solazyme, focuses on heterotrophic (using sugars) fermentation of microalgae.

Harrison Dillon, President and Chief Technology Officer of Solazyme, explains, "Using proprietary methods, Solazyme selects and genetically engineers microalgae for maximum oil productivity at minimal cost."

To reduce costs, Solazyme utilizes standard industrial fermentation equipment that is already widely used today for other manufacturing capabilities.

"We can retrofit existing facilities at minimal cost to produce algal oil, which then can be refined in existing refineries without modification. Additionally, because we are creating fuel from oil, our algal-derived diesel and jet fuel are straight drop-in replacements to the fuels we use now and no modification to vehicles or airplanes is necessary," Dillon says.

Government support of next generation energy solutions has helped the company significantly. Most recently, the Department of Energy awarded Solazyme a $21 million grant to build an integrated biorefinery.

Dillon sees a bright future for algal oil, not far down the road.

"Because we are making oil that is a straight replacement for petroleum in a variety of applications, including fuels, plastics, chemicals and oil-based personal care products, combined with the fact that we can produce and utilize this algal oil within our existing infrastructure, we believe the cost per barrel will be at parity with petroleum within two years," Dillon asserts.

NOT JUST A BIOFUEL

For companies like Alltech, with an eye to a broad spectrum of end products, the choice to continue investing in algae is clear.

"Alltech's fundamental business is fermentation. That is our core competency," explains Lyons. "For some years now, we have been investigating systems for growing algae...not just as a biofuel, but as a protein. We believe that we can exploit algae to produce nutritious proteins with high values."

Lyons explains that algae supplies high-protein, low-fat, nutritious, healthy food, with more vitamins and minerals than land plants. Alltech sees the opportunity to become one of the world's largest producers of algae.

"We are committed to developing fermentation capacity over the next year in excess of 400,000 gallons," Lyons says. "This is an incredible investment of time and money." Lyons says Alltech is committed to a sustained investment in algae that will be at least in the $18-20 million range per annum for the foreseeable future.

Companies like Alltech that look at deriving multiple products from algae cultivation could be more likely to find success. Boyle says algal biofuel developers producing a range of mid- and high-value algal products with short and mid-term market potential are best positioned to develop algal biofuels in the longer term. Using algae to treat waste water or sequester carbon dioxide could be another profitable avenue, according to Boyle.

BASIC ECONOMICS

Durwood Dugger, Founder and President, BioCepts International, Inc., Vero Beach, Fla., is less confident that algae's ability to compete is just around the corner. In a response to the New York Times article on the University of Virginia study, Dugger writes, "This study reaches the conclusion that many would-be alternative energy investors such as my company (commercially producing algae for 30-plus years) reached a couple of years ago -- algae as a primary source of energy is nutrient limited at scale."

Dugger continues, "The long and short of algae's potential as a standalone alternative fuel source comes down to very basic economics... If you are losing money on the algae processing costs, it means the more you grow, the more you lose -- and that essentially describes the current algae oil development predicament."

But Dugger says the issue of cost for algal fuel production is more complex than most realize.

"All forms of significant commercial-scale algae production -- enough to contribute significantly to solving our energy problems -- will require substantial amounts of fertilizers and those fertilizers are produced from petroleum," he says. "Fermentation also requires petroleum-based fertilizer to produce the sugars that the algae convert to lipids."

He believes most investors assume that algae needs to compete with petroleum at the current commodity price, but he says that isn't true.

"Algae has to compete with the actual cost of petroleum to gain any kind of credible energy production status in the near term. That cost -- petroleum production -- is not something that is widely publicized, but given that the petroleum industry was able to operate just fine below $11/barrel as recently as 1998, it is definitely well below that price."

Dugger says business media coverage of last summer shows him there are expansive oil fields with production costs of less than $2.50 per barrel.

"You can get a better idea of what algae oil producers are up against in any kind of head-tohead competition with petroleum producers in the near-term," Dugger says. "It isn't a lack of technology that is limiting algae fuel development. It is a failure of our government and developers to address the economics -- financial and energy budgets, life cycle analysis -- of alternative energy, and especially algae, in an informed and basic business-like manner. Until this changes, we will not have an effective alternative energy development strategy."

Some hope that breakthroughs -- sparked by public dollars -- can help. At last October's Algae Biomass Summit in San Diego, Curt Rich of Van Ness Feldman, a law firm practicing energy and environmental law based in Washington D.C. and Seattle, Wash., provided an overview of federal dollars available to algal biofuel producers. Current production tax incentives do not include algae-based biofuels.

However, Rich noted that the Department of Energy's (DOE) federal grant funding to support biofuels research and development provided $85 million for algal and advanced biofuels, $50 million for algal biofuels consortia to accelerate demonstration of algal biofuels, $480 million for demonstration of integrated biorefinery operations and $150 million for "transformational" energy R&D projects.

He also noted that the next farm bill should increase program funding for United States Department of Agriculture (USDA) bioenergy programs, with hopes those programs are expanded to include algae-based fuels and products. There are also a number of guaranteed federal loan programs for biofuels available through the DOE and USDA.

In May, the USDA and DOE jointly announced up to $33 million in funding for research and development of technologies and processes to produce biofuels, bioenergy and high-value biobased products.

ALGAE -- HOPE OR HYPE

Is there hope for algae or is it all just hype? With a price tag of nearly $30 per gallon, many believe the production of this alternative fuel at a commercial scale is still decades away.

Reardon is also skeptical whether public funding is at levels necessary for the kind of research and development he believes all alternative energy sources -- not just algae -- require. If adequate funding could be made available, he sees enough room for a variety of renewable energy sources.

"It would be good to work on developing all of them since our future energy portfolio will probably be more diversified than it is now. Each has strengths and limitations when factors like location, infrastructure, scalability and resources are involved," he notes.