Can pond scum become big business?

The “farms or fuel” debate is over, and algae is the answer. So proclaim excitable bloggers and the founders of algae-based fuel companies looking for venture capital investments. At first glance, it is an attractive business model: Grow simple organisms that feed off carbon dioxide (CO2) and then process them into biodiesel or ethanol.

It’s this simplified view of the algae business that has fueled a recent press storm: While some reporters are singing the praises of the new industry or quoting CEOs who claim they can make algae-based biofuel on the cheap, others are laying out conspiracy theories and looking at algae-based fuels as a high-tech pyramid scheme. Of course, it’s not that simple.

Algae first attracted attention as a fuel source during the 1970s oil crisis, when researchers at the National Renewable Energy Lab (NREL) were awarded hefty federal research grants to look into a variety of alternatives to oil. The NREL team looked at both the biology side of the equation — which strains of algae could be easily processed into fuel? — and the electrical and mechanical engineering side — what sorts of machines can be created to grow large amounts of the “right” algae? The research results were compiled into a dense and detailed report on the potential of algae to make fuel, a report today’s algae-based fuel proponents consider the algae Bible.

When gas prices went down, so did NREL’s funding, but the algae research was continued by various universities, including Ohio State University, the University of California at Berkeley and the Massachusetts Institute of Technology. Though research has continued, the final analysis has essentially remained the same: Algae-based fuel has enormous potential, but the industry is also facing some significant challenges.

Martin Tobias, CEO of Imperium Renewables, recently told a room full of cleantech venture capitalists in San Francisco that algae is a few years behind even cellulosic ethanol in terms of providing the quantities necessary to feed a commercial scale biofuel facility. Cellulosic ethanol, or ethanol derived from waste and quick-growing plants such as paper pulp and switchgrass, is largely viewed as a more sustainable alternative to oil than corn-based ethanol, which eats up land and is energy-intensive to produce. Still, no one is currently producing cellulosic ethanol at a commercial scale, and recent reports from the National Resource Defense Council and the University of Tennessee cite far-off dates such as 2050 when discussing cellulosic ethanol as a viable alternative to current petroleum-based oil consumption. Such estimates likely put algae even farther out, despite claims by most in the business that its heyday is coming in the next five to 10 years.

Still, it is possible to grow greater quantities of algae more quickly and in much smaller spaces than needed for even switchgrass. Imperium Renewables is constructing a 100-million-gallon-ayear biodiesel plant in Grays Harbor, Wash., set to open in May, and Tobias says he has a standing order for the first algae company able to feed that high of a volume.