Report on Algae Economic Viability

The lines on the graph depict what are called “zero net present value (NPV)” curves. These lines represent what a project would need to achieve in total installed and O&M costs to be economically viable from a commercial market perspective. Based on the economic assumptions shown in the lower right box, projects that can achieve costs on or below these NPV lines will be capable of providing the required returns to the equity and debt providers – which will ultimately be the financing mechanism for funding such projects. _Diversified Energy

Diversified Energy has recently released a report on the economic viability of algal biofuels. The image above is a summary of the findings.

The solid green NPV line may represent a more reasonable case for algae biomass systems focused on biofuels production. In this case it was assumed that the algae being grown contain 25% total lipid content, of which 80% is extractable and of the desired characteristics (i.e., nonpolar lipids) for biofuels production. 25% total lipid content represents a reasonable and substantiated claim for an algae strain that can be grown sustainably, at large scale, in outdoor systems. In this scenario, for every ton of algae produced 400 pounds of oils for biofuels and 1600 pounds of biomass for animal/fish feed would then be available. Assuming $2/gallon for the oils sold out of the algae project, and $0.10/lb for the remaining biomass, this equates to roughly $266/ton for the algae produced. Based on the earlier discussion of O&M costs, one can quickly see that even at $266/ton the economics appear very challenging given the state of the industry today and for the near-term future.

On the other hand, NPV lines such as the solid blue or dashed green line begin to show an entirely different and much ore plausible story for the potential of algae biofuels. The blue line represents achieving almost twice the $/ton sales price of algae biomass discussed previously. How is this possible? Using the same assumptions as earlier, algal oil would have to be sold for prices in excess of $6/gallon – which could be possible should corresponding petroleum prices reach these levels. Alternatively, this could be achieved by focusing on strains and production architectures that extract other, higher-value components from the algae such as nutraceutical products. The dashed green curve represents the same assumptions as the solid green line, but in this case assumes achieving productivity numbers twice that deemed reasonable today (i.e., 50 grams/m2-day).

Quite possibly the eventual answer will be a combination of greater productivities coupled with a focus on co-generation of higher value products from algae. In addition, emphasis needs to be placed on reducing O&M costs across all elements of the algae production value chain. By assessing the viability of algae projects from a true market perspective, it is clearly apparent that total installed costs and O&M costs will be a major hurdle to future commercialization.

Technologies must be developed to reduce costs and increase yields. This can be accomplished only through a focused, comprehensive, and well-funded R&D program. In parallel, the industry should consider business models that not only look at the bioenergy potential of algae through the transportation fuels market, but also consider other higher-value products in order to make the economics achievable. And this is ever so important in the early phases of this promising, yet challenging industry. _Report_via_GCC

In other words, we are not yet close to large scale economical algal oil production. Realistically, it will take 5 years to solve most of the problems of species selection and modification, continuous growth and harvesting technologies, efficient separation methods, the best means of oil to fuel conversion, and the best uses of algal biomass and byproducts.

The report recommends an early emphasis on the production of high value chemicals that can be priced economically, and produced on smaller scales -- as opposed to production of fuels. Fuels are a "depressed market" currently, and there are no current economic methods of scaling up algal production to the levels that are needed, to impact fuel supplies.

Investment toward achieving all the needed breakthroughs in algal biofuels is necessarily slower in a depression than it would be in an economic boom. But the fact that investment and research continues even during the current economic downturn and oil glut, suggests that the breakthroughs to economic algal biofuels will indeed occur.

This story was also coverd at Next Big Future