Algae-based biofuels hold enormous promise as an alternative transportation fuel, but investors had better have patience. Fuel made from algal feedstocks is forecast to reach commercial availability by 2012, according to a report released today by Pike Research on the global biofuels industry, but isn’t expected to have a significant effect on the market until 2016. Algae startups like Solazyme with aggressive production timelines, however, might disagree.
Pike Research expects algae-based fuels to be the third key wave of next-generation transportation fuels in coming years, just after those based on waste greases hit the market followed by jatropha-based fuels. Yet while algal oil, which can be used to make biodiesel, ethanol and more, might be a late comer, it has enormous appeal, according to the report. “Algae is the only feedstock that has the potential to replace the world’s demand for transportation fuels,” the report said.
But there are several technical and economic hurdles to be overcome before algae-based fuels are viable. The biggest problem is that production costs are too high today, with some scientists estimating the price of producing a gallon of algae oil at $33 using current technology. Some technical challenges that remain are ensuring consistent growth of the organisms and harvesting the oil they produce.
But while Pike Research predicts commercial production will occur in 2012, a handful of algae-based biofuels startups have announced more aggressive timelines. South San Francisco, Calif.-based Solazyme, which uses synthetic biology to produce algae-derived fuels and has raised a total of $76 million in venture financing, has said it plans to build a commercial plant by 2010. And San Diego-based Sapphire Energy, which has raised more than $100 million in venture funding, has said it’s ramping up production estimates to 1 million gallons of algae-based diesel and jet fuel per year by 2011. The company’s technology uses photosynthetic microorganisms, such as algae, to produce what it calls renewable gasoline, a fuel that is chemically identical to molecules in crude oil.
Of course, biofuel startups have been known to make aggressive claims about their growth trajectories, only to fall short once the realities of competitive fuel markets took hold. GreenFuel Technologies, a Cambridge, Mass.-based algal-derived fuel maker, had daring production estimates before it started struggling to raise funding. It went on to cut nearly half its staff and then finally closed down last month.
Pike Research forecasts that the combined biodiesel and ethanol markets will reach $247 billion in sales by 2020, up from $76 billion in 2010. Clint Wheelock, managing director of Pike, said in a statement that the biofuels market in the near term looks like a “train wreck” (expensive feedstocks, global recession, oversupply) but that in 10-15 years’ time, its outlook is very positive. While startups like Sapphire won’t be waiting on the sidelines for another decade to ramp up production, the reality is that it will take that long (or longer) before these technologies are ready to compete against crude oil.