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Working Paper

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Once considered infeasible and unviable, recently there has been renewed interest in the development of algae-derived transportation fuels. Currently, there are no commercialized algae to fuel ventures, and much debate is centered on the economic viability of such a process. Research conducted by NASA, among others, has expressed skepticism that terrestrially cultivated algae can ever compete with conventional fuels. The purpose of this project is to evaluate the economic feasibility of an algae-to-fuel venture that incorporates the state-of-the-art technologies available in the open literature.

Our challenge is to produce 20 thousand barrels per day of n-alkane product that meets the current diesel fuel specifications. To arrive at a recommendation, separate models were built for algae cultivation, lipid extraction, and lipid processing at a scale necessary to reach this target.

This analysis departs from prior studies on two major fronts. First, this analysis considers OriginOil’s new method of lipid extraction instead of conventional hexane extraction. Second, the objective of the lipid processing module is to produce n-alkanes from triglycerides, as opposed to producing FAME biodiesel. The n-alkane product from this process is comparable to petroleum-based diesel fuels. Thus it can be readily incorporated into existing energy infrastructure as a diesel blending stock or as a feedstock for other processing units in the refinery.

Our economic analysis shows that an algae-to-fuel venture is profitable if the fuel is sold at $3/gallon, the current price of diesel. However, the commercialization of such a process is difficult due to the large total capital investment. At $2.2 billion, the capital investment of algae cultivation is nearly 40 times that of processing, which results in annual depreciation and fixed costs of nearly half of the revenue. Investors would be hesitant to invest such a large amount of money in an algae cultivation process where there is high uncertainty in the cost requirements.

Algae-to-fuel economics can be improved by realizing higher value uses of the algae biomass. Biomass composes of over half of algae product, and their potential uses in pharmaceuticals, chemicals, and biomass power generation far surpass their value as animal feed. Proposed carbon-cap-and-trade programs may bring additional revenue. Thus, any algae-to-fuel venture should seek to optimize the value of its byproducts. Governments can support algae-to-fuel ventures by offering tax credits or mandating a market for renewable fuels, but the benefits of these measures are unclear. Additional analysis should address the uncertainties of various costs and look to reduce capital investment.



Date Posted: 18 November 2010