Tuesday, February 16, 2010

Gem of a Deal

In our February 8th post “Chicken Project Is All Pork” you might have surmised I am a bit biased toward algae-based fuel. It is not algae per se that has me interested in algae. It is the economics that the algae science appears to support. Of the Department of Energy grants that we have reviewed so far, I am most interested in the $50 million that has been awarded to Sapphire Energy, a cultivator or algae for biofuel production.

As we noted in our post last week Sapphire Energy has already had some success with its algae technology. The company successfully tested algae-produced renewable jet fuel with Continental Airlines. The company will use the grant money to build its Integrated Algal Bio-Refinery in Southern New Mexico

The National Algae Association estimates current algae technology could produce up to 3,000 gallons of biocrude per acre per year and that the cost of algae-crude could drop to $10.00 per gallon on volume production. The economies derive from inherent efficiencies in algae biology. Scientists estimate that algae can produce a finished product in two weeks.

Volume is also a factor. To present a meaningful alternative to oil for fuel, renewable fuel must be produced in high volumes. Pilot projects suggest that one acre of algae can deliver more fuel than one acre of just about any feed stock plant. This means algae can be cultivated economically in volumes far surpassing available chicken and animal by-products.

Sapphire must match the DOE grant with $85.1 million of its own. The matching money is not likely to be a problem as the company has had plenty of private supporters. Bill Gate’s put $100 million into Sapphire, probably because he and his advisors can see that algae-based renewable diesel shows great promise. Yet Gate’s generous support begs the question, why must renewable fuel development rely on government handouts when private money is forthcoming?

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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