Commercialization of Algae Projects: Hurdles Remain

By Anna J. Wildeman | April 19, 2011

Algae-based biofuels remain one of the most promising opportunities for domestic development of sustainable renewable fuels. Several hurdles remain, however, including the lack of demonstrated projects, the need for large equity investors and waning public support for the use of government incentives to promote alternative fuel development.

Laboratory- and pilot-scale algae-based biofuels projects have long promised high yield-per-acre production numbers compared to those of first-generation ethanol production, but without the environmental footprint, consumptive water use or perceived competition with food supplies. Algae-based biofuel production is not only less resource-intense, it actually requires the consumption carbon dioxide, the most prolific of the so-called greenhouse gases and the recent target of the U.S. EPA’s new regulatory and air permitting agenda. This element promises a potentially symbiotic partnership with some of the largest carbon dioxide sources and some of the most innovative technological advancements of our time. Promises and potentials aside, the challenge now is to bring those opportunities to bear in commercial-scale production facilities. 
The challenges are many. To realize commercial-scale, algae-based biofuel production, a company needs strong investors, proven and bankable technology, an effective business development and deployment plan and the intellectual property portfolio to demonstrate its ability to develop and protect its technology. 

A number of developers have brought algae-based biofuels to pilot-scale, but far fewer are on the verge of commercial-scale production. Companies thought to have the greatest opportunity to produce at commercial scale in the near-term are those that have partnered with large, private investors and traditionally petroleum-based fuel producers. Petrol-based producers have a unique opportunity to invest in biofuels, have more access to necessary infrastructure and are more likely to invest in drop-in, fungible fuels that can be used in existing infrastructure and engines, as opposed to the ethanol- and biodiesel-blended fuels. 

To date, almost all of the major petroleum-based fuel producers, including Chevron, ExxonMobil, BP and Royal Dutch Shell, have partnered with investors to promote the development of algae-based biofuels. In February, however, Royal Dutch Shell announced that it was pulling the plug on its algae investment to focus on other alternative technologies. That move does not appear to have shaken the algae industry and proponents remain confident of the biofuel’s long-term success. Algae developers have also enjoyed significant attention from the aviation-fuel sector, as a number of major airlines have entered into off-take agreements with producers. The U.S. Navy continues to conduct test flights in an attempt to reach its stated goal of buying 336 million gallons of biofuel a year by 2020. Despite these successes, continued economic and political uncertainty present significant barriers to the domestic commercialization of algae-based biofuels.

At the time this article was drafted, President Obama had just presented to Congress a proposed budget that included $8 billion in federal expenditures for renewable energy project research and development and financing support, while calling for significant cuts in tax breaks for the oil industry, amounting to $46 billion in cuts over the next 10 years. At the same time, Republican members of the House of Representatives have introduced continuing budget amendments that would significantly curtail incentives for the domestic development and production of biofuels; specifically, the Republican amendment currently being considered would eliminate funding for the DOE loan guarantee programs, which have helped fund numerous alternative fuels development projects, and would significantly curtail EPA’s ability to implement its renewable fuel program, a significant driver for the research and development of alternative fuels.

Internationally, continued unrest in the major oil-producing countries in the Middle East—witness the uprisings in Egypt and Libya—have driven up oil prices, providing the biofuels industry with an opportunity to grow since oil price increases drive increases in feedstock prices and overall energy costs. What this all means for the future of commercialization of advanced biofuels such as algae is unclear.  What is clear is that market forces in the near-term are more likely to determine winners and losers than will policy developments.

Author: Anna J. Wildeman
Attorney, Michael Best & Friedrich
(608) 283-0109