ABS: Is it time to invest in algae?

By Jerry W. Kram | October 14, 2008
Web exclusive posted Oct. 24, 2008 at 2:29 p.m. CST

Algae production for biofuels has immense market potential and a bright future, said Vinod Khosla, founder of Sun Microsystems Inc. and a venture capitalist who is funding many alternative energy start-ups. However, he's not quite ready to invest in algae.

Khosla told more than 700 people attending the Algal Biomass Summit in Seattle on Oct. 23 that he has five criteria for investing in cutting edge energy technologies. Algae meets four of those criteria but fails on the last. Khosla said he believes the engineering problems of growing and harvesting algae are manageable. He thinks eventually algae will be competitive with petroleum at a price of $50 per barrel and that algae production will scale up to industrial size with costs that will fall as projects are scaled up. And he believes algae will have manageable startup costs and a quick innovation cycle.

Where algae fails to meet Khosla's criteria is that he doesn't believe algae will be able to compete unsubsidized with petroleum and other alternatives unsubsidized in the next five to seven years. "But don't get me wrong," he added. "I believe in algae. I wouldn't be here talking to you if I didn't."

What algae needs, Khosla said, is a "black swan" solution. Black swans are those very important, industry disrupting ideas that may seem obvious in retrospect but no one forecast beforehand. "There are a lot of smart people in this room," Khosla said. "I wouldn't be surprised if the black swan for algae was in this room right now. I am convinced that someone here will break the code. What it will take is someone willing to look outside the box for answers."

Algae's ability to potentially produce thousands of gallons of oil per acre will be the factor that will allow it to become competitive in the marketplace, Khosla said. In this respect, he sees cellulosic ethanol as algae's main competitor. Algae will have to address the issues that face the cellulosic ethanol industry, such as nutrient and water management, harvesting and storage, as well as energy consumption. "Algae can get above the production of gallons per acre of cellulosic ethanol," Khosla said. "We believe that cellulosic ethanol can get down to a cost of $1.50 to $2.00 per gallon. That is what algae is missing today."
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