By Jennifer Kho

While some see algae as the ideal source for biofuels, industry watchers at ThinkEquity’s Greentech Summit in San Francisco on Thursday said the technology is likely to be years away.

“Algae, as a biodiesel feedstock, is further out than cellulosic ethanol,” said Martin Tobias, CEO of biodiesel company Imperium Renewables, referring to ethanol from materials like wood chips, switchgrass, and corn stover.

Algae simply aren’t available in large-enough quantities right now, he said.

“We’re opening a 100-million-gallon facility in June, and there won’t be 100 million gallons of algae available next year,” he said. “It’s not about whether algae can produce oil, but about whether it can meet a standard quantity needed for fuel. It’s going to take longer than anyone wants to say at an investor’s conference. Whereas with farming, we can make a significant replacement of fuel now, with what we have.”

Many consider algae an attractive alternative to current biofuel feedstocks—such as corn, soybeans, and palm—because of its high lipid density, which means it could theoretically produce far more oil per acre and could potentially reduce the cost of biofuels.

Mr. Tobias said algae could theoretically produce 10,000 gallons of oil per acre. That compares with the current highest-oil-yielding crop, palm, which yields 680 gallons per acre, he said.

Holy Grail

Because algae could be grown in a factory, instead of on farmland, it could also help counter the “food vs. fuel” argument about biofuels.

With current technology, the U.S. Energy Information Administration estimates that 20 percent of the land in Europe and the United States would have to be used to grow crops just for energy in order to replace 5 percent of gasoline and diesel with biofuels.

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And many—including Luca Zullo, director of bioenergy at Cargill, who attended the panel—worry that using farmland for fuel crops could jeopardize the food supply.

“It’s the 500-pound gorilla of the biofuel industry,” he said, referring to the food vs. fuel problem. “It’s a serious moral question, a serious national security question. I think we fundamentally need to look for feedstocks that can help with this issue, feedstocks that use underutilized water and underutilized land.”

Also, algae could be better for the environment because algae-growing takes about a third of the water as it takes to grow soybeans, said Lissa Morgenthaler-Jones, CEO of LiveFuels, a company developing “biocrude” from algae that, like petroleum-based crude oil, could be turned into fuels.

“In some ways, people think of algae as the Holy Grail of the feedstock issue,” said Ira Ehrenpreis, a general partner at the cleantech venture capital firm Technology Partners. “But there are shorter-term prospects than algae. Algae represents an opportunity that may occur over the longer horizon.”

a general partner at the cleantech venture capital firm Technology Partners. “But there are shorter-term prospects than algae. Algae represents an opportunity that may occur over the longer horizon.”

Fraught with Difficulty

The panel made it clear that the path leading algae to the mass biofuels market is fraught with difficulty.

“It’s very difficult to grow algae,” said Cary Bullock, CEO of Greenfuel Technologies, a startup developing a technology to turn smokestack emissions into ethanol and biodiesel, at the “Algae as a Biofuel Feedstock” panel.

Greenfuel is growing algae in open ponds, which has lower capital cost than other methods but does have significant issues to overcome.

Mr. Bullock described the process: First, you need a distributed light source to get light past the top layer of algae and deeper into the ponds. One you solve that problem, you discover that the algae runs out of food. To increase the food supply, you have to make significant changes to the nursery system. And once you’ve done that, you have to manage heat.

“Two of those problems would be difficult, but all four together are quite a problem,” he said, adding that Greenfuel expects to solve the problems with solutions it’s developing.

Also, the whole thing must be done at $42 a gallon to allow biofuels to compete with gasoline and diesel fuel, Ms. Morgenthaler-Jones said. “After that, you’ve got nowhere to run and nowhere to hide,” she said.

Mr. Bullock said he wouldn’t comment on Greenfuel’s current costs, but said the company is targeting costs of $100 to $200 per ton of algae “over the longer term.”

Aside from capital costs, reliability has been an issue, said Doug Cameros, the chief scientific officer for Khosla Ventures and the moderator of the “Algae as a Biofuel Feedstock” panel Thursday.

Also, while farm crops already have systems in place to distribute and sell them, and have additional value in byproducts other than oil, algae doesn’t have a ready-made market, Mr. Tobias said.

“The challenge for algae is going to be, what do you do with the parts that are not oil?” he said. “How do you expel it, what do you do with the leftover stuff, what is the value of the oil versus the value of the other stuff? You have to look at the total value you get out of the product, not just the oil.”

Worth Pursuing

Despite the problems, a number of startups—and their investors—think the potential for algae is worth the risk.

There’s no doubt a better feedstock is needed, and algae is worth pursuing, Mr. Tobias said. “Eighty percent of the cost of making biodiesel is the cost of the oil going in,” he said. “We need that to go down.”

He said he has an order waiting for the first algae supplier who can sell him enough quantity to feed the 100-million-gallon plant Imperium is building. “I’d be happy to be a customer,” he said.

But while he expects investors will back the idea, Mr. Tobias said he wouldn’t invest in algae himself.

“It’s not going to happen in my lifetime, which I define as three years,” he said. “It’s not that I expect to die in three years, but that’s the farthest out I can see.”

Contact: jkho@redherring.com