January 6, 2012

The Importance of Due Diligence for Algae Startups

Algae holds promise as a next-generation biofuel, both for heat and electricity and especially for transportation fuels. Algae could potentially be a game changer for biofuels in the future. Critical to algae entering this game as a true contender is productivity.

Energy & Environmental Research Center research has shown that algae may be able to produce 100 times more gallons of oil an acre per year than soybeans. This is the one metric that has driven the algae-to-fuels industry to where it is today. Metrics are important, especially to biofuels. Of course, many important metrics must enter the conversation and be understood in order to determine if algae will be a successful biofuel feedstock of the future.

Water usage, chemicals and byproducts produced, nutrient utilization or removal, CO2 capture, capital expenses, operating expenses, and energy balances are all metrics of great importance.

Some metrics have been poorly used and reported by algae-to-biofuel startups in the recent past. For example, several years ago when I started working at an algae biofuels startup, the main metric was gallons of fuel an acre per year. At the time, this was the golden number. The higher the advertised fuel productivity, the more attention one received. As more and more startups joined the race, it became a runaway number. The largest number I remember hearing advertised was around 175,000 gallons an acre per year. In a situation like this, it is important for investors, journalists and scientists to know what is even possible.

For a time, the investment community seemed to freeze new investments because new startups were making more and more dramatic claims, into the hundreds of thousands of gallons an acre per year. The rapid change slowed or nearly stopped investments. These rising productivity claims, however, were simply not possible based on photosynthetic algae production and the annual average amount of energy that the sun provides at a given spot on the globe. Due diligence suddenly became extremely important. A white paper published in 2009 walked through the calculations to arrive at 4,350 to 5,700 gallons per acre a year (realistic).1 This paper helped the industry as a whole by plainly stating a theoretical possibility. That kind of order-of-magnitude analysis is important for investors, the media, and government regulatory and funding agencies to know what productivity can be expected.

Besides productivity, other metrics are important for defining the success of an algae startup. These metrics are not always the result of simple calculations. It will take a well-organized and technically diverse team of engineers and scientists to determine all of the intricacies of water usage, energy usage, CO2 capture, product generation or overall economics for an algae facility.

In summary, it is important to get all the facts straight about an algae project before diving in. Productivity and other metrics related to the life cycle of an algae biofuel must be carefully determined. The EERC has conducted several due diligence studies and research projects related to algae biofuels, tapping into a wide variety of expertise from mechanical and chemical engineers, microbiologists, and chemists to ensure project success. This approach, if repeated by good project developers, will at least give algae a chance to be a contender in the world of biofuels.

Original post here.

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