Thomas White Global Investing
Green Reports

March 31, 2010

The Green Report

Algae Biofuel Might Drive the Future
Algae Biofuel Might Drive the Future

Rows of big glass flasks shimmer with bubbling green liquid. Winking like magic potions, these flasks contain what might be the future of fuel – algae biofuel. An emerging industry, in the fast-changing world of green technology, algae biofuel is rapidly rearing its head in answer to worried calls for clean fuel.

Algae grows naturally just about anywhere, from pond surfaces to oceans to rocks and trees. So how can this unassuming plant, generally regarded as a surface spoiler, help clear the skies? The secret lies in the structure of algae- about 50%, and in some cases 70%, of this plant’s weight is made up of oil, which can be processed into biofuel for vehicles and even airplanes. Oil can be squeezed out mechanically using pure physical pressure, or it can be derived chemically, where various chemicals are used to separate the oil.

For many reasons, the use of algae is an attractive energy alternative. Algae grow through the process of photosynthesis, which means the plants absorb carbon dioxide and produce oxygen. For environmentalists seeking an elixir to clean a blackened atmosphere, this seems the perfect backdrop. But algae’s trump card lies in the fact that these plants produce 30 to 100 times more oil per acre than other natural counterparts like corn or soy. Moreover, this vegetation is flexible. Enclosed bioreactors in labs can sprout up healthy algae, saving precious arable land. Biofuel companies that are exploring the benefits of algae consider this one of its biggest advantages.

In fact, the concept of algal fuel germinated three decades ago when the U.S. Department of Energy researched this possibility from 1978 to 1996. Rising oil prices and a concern for a rapidly deteriorating environment once again pushed algal fuel to the forefront of possibilities. Algae’s potential has received considerable backing from the U.S. government, with the Energy Department granting $44 million in January 2010, for research into the commercial uses of algal fuels and another $97 million to bolster algae demonstration projects.

The plant’s potential has lured much investment, which has leapt in the past three years from just $15 million in 2006 to around $180 million in 2009. Ironically, the most prominent investor is oil baron Exxon Mobil. Last year, the company signed a deal worth $600 million with Synthetic Genomics, a biotechnology firm, to help in the development of algae biofuel.

In fact, around 150 companies across the world, 60 in the U.S. alone, are now collectively bent over this green pond froth, contemplating ways to commercialize algal fuel. Chief among them is Sapphire Energy of California. With projects backed by eminent figures like Bill Gates, who assisted Sapphire in raising $100 million in capital in 2008, the company is one of the few that has come close to developing marketable algal fuel. Although still being tested, Sapphire’s algal fuel can be used in existing infrastructure built for fossil fuels, unlike ethanol or other biofuels, which require large modifications. Already in 2009, Sapphire’s jet fuel underwent testing for commercial use by a few airlines. Another California firm that has achieved considerable progress is Solazyme, which entered into a deal with Chevron in 2008 to produce algae that can be grown in the dark, fed on sugars in huge industrial fermentation vats, a less costly alternative. “It’s around a thousand times cheaper per gallon to make the oil by feeding it biomass than by growing it in the sun,” says Harrison Dillon, president and chief technical officer of Solazyme.

Algal fuel, however, is not free of challenges. Expense is one of the biggest disadvantages of this fuel. Of the 500 odd species of algae, the search is on to pick out those strains, which can yield maximum oil with minimum expenditure. In order to be commercially viable, a mossy bunch of algae has to sport a price tag much less than the current $5 to $30 per kilogram. Biofuel companies are rushing to grow algae in the most economical way possible, and so far the open pond system is preferred over the convenient but extremely expensive bioreactors. And environmentalists are quick to point out that when algal fuel is burned, it still emits carbon, albeit a far less amount. Yet, according to tests conducted by U.S. trucking firm J.B. Hunt, algal fuel emits around 82% less greenhouse gases than fossil fuels. Not bad at all.

Despite its challenges, the lowly algae plant seems to have a bright future. The European Algae Biomass Association (EABA), a newly formed body, expects algal fuel to be produced on an industrial scale in the next 10 to 15 years. “There is no impact on land use and algae absorb CO2 as they grow,” points out Raffaello Garofalo, executive director of the EABA. He envisions algae production becoming a competitive industry with prices per ton of biofuel made from algae dropping to a more reasonable $500 to $550 compared to the present rate of around $3000 per ton.

What’s more, Sapphire is confident that it can produce more than 100 million gallons of algae based fuel by 2018. This is enough to cover 3% of the U.S. Renewable Fuel Standard (RFS), a program stipulating that 36 billion gallons of renewable sources be mixed into transportation fuel by 2022. With more funding and research, algae fuel does show promise. And it appears that it won’t be long, before fuel shines with the green sparkle of algae.




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