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By Robert Rapier on Oct 9, 2010 with 26 responses

Solazyme CEO Clarifies Costs

Prior to publishing the previous essay, U.S. Navy Pays Big Bucks for Biofuels, the editor for Consumer Energy Report asked why I didn’t go with a more descriptive title like “U.S. Navy Pays $425 per Gallon for Biofuels.” I told him that the reason I didn’t is that the source clearly said that some of the money was for R&D, and there was really no way to know how much. The information given for the second contract didn’t indicate that there was any R&D money involved, and the calculated price was much lower. Still, I considered that there were some other details of the contract that weren’t public, which is why I just said “Big Bucks” instead of specifying a cost in the title.

To me there were two key takeaways from those contracts. One was that whether the real price the navy is paying for fuel is $425 or $133 or $67 per gallon, the costs are clearly not yet down in the range that some of the hypesters claim. That doesn’t mean they will never get there, but they aren’t there yet. I have seen numerous claims algal fuel at $3 or $2 or even lower per gallon. If that was the case, then the navy wouldn’t need to throw in R&D money to get the fuel they need. They would just contract with the companies who can make it for $3 a gallon.

But the second takeaway was that regardless of what the real price was, Solazyme is actually delivering decent quantities of fuel. As I have written before, their approach is different than most, and I am not betting against them being eventually successful. (Ironically, I have defended their approach at times against some of their critics).

Following the previous essay, I received an e-mail from Solazyme CEO Jonathan Wolfson who wanted to clarify the details around the navy contract. The main takeaway was that because of the R&D focus, the costs weren’t really as high as I (and others have) suggested. He also discussed their approach and some of their milestones (100,000 gallons in 2010 — I am unaware of another algal fuel company that can make this claim).

His e-mail is published in full below, with his permission.

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Hi Robert,

I don’t believe we have met [RR note: That is correct; but I did meet with Solazyme's President and CTO Harrison Dillon at last year's Pacific Rim Summit], but I have been reading and enjoying your blog for quite some time. In your most recent post: U.S. Navy Pays Big Bucks for Biofuels, you spend some time commenting on Solazyme’s work with the U.S. Navy and the costs associated with those projects. One of the reasons that I have been a frequent reader of your blog is because of the incredibly sophisticated understanding you have regarding technology viability, scalability and risk assessment. That said, I wanted to take a moment to address your summary paragraph regarding our work with the Navy. You wrote:

“$8.5 million for 20,000 gallons comes to exactly $425/gallon. $200,000 for 1500 gallons is $133/gallon. What does this mean? I believe that it means nobody else could deliver the quantity and quality of fuel the navy was looking for at a cheaper price. Oddly enough, Wolfson is also quoted in that article as saying they “are quite close” to their target of $60 to $80 per barrel. If that’s the case, why is the navy paying hundreds of dollars per gallon for the fuel?”

I wanted to clarify that the $8.5 million contract is actually an R&D contract that also includes a fuel delivery. Since that funding is directed to R&D and includes a delivery of fuel, it is inaccurate to divide the contract price by the number of gallons delivered to get to a dollar per gallon figure (as done above). We also announced a new contract with DoD and the Navy in September following on the heels of the successful delivery of the 20k gallon contract, which is also an R&D contract and includes a delivery of 150,000 gallons of fuel to the Navy. That contract is valued at a little over $10 million, but like the previous contract is not dividable into a per gallon price because of the R&D focus. Even though these contracts include R&D, you should also assume that the actual fuel production cost (which we do not publish), is currently above commercial costs. Based on your writings, I am sure you would understand that currently we are tolling both the fermentation and downstream equipment to do this work. The tolling includes substantial profits for the facility owners, along with higher pricing for raw materials, and the equipment we are using, which was build decades ago to run other processes is not sized appropriately for a true “fuels scale” plant. These realities lead to higher than commercial costs. When I made the comment about being near our target of $60 – $80 dollar per barrel production cost, I was referring to our current productivities and process, running in an appropriately sized fit-for-purpose plant, sited at a feedstock source.

I know you appreciate how difficult it is to try to bring new technology to the world, and unlike many other companies in our space, Solazyme has dedicated many years and many millions of dollars to actually scaling-up our technologies and producing real volumes of “in-spec” fuels. Even in our current limited tolling situation, we will produce over 100,000 gallons of fuel and oil in 2010 and substantially more next year. In fact, I don’t know of other companies in this area that even discuss production volumes.

Solazyme is both a for-profit endeavor and a labor of love, and as I am sure you can guess, our current technology was informed by repeated failures before success. In order to run a company like Solazyme, I need to be an eternal optimist (remembering that Harrison Dillon and I started Solazyme in a garage), but we have also been very pragmatic about hiring the best and brightest scientists/engineers, admitting when we and our science were wrong, and in the process developing a technology that really works, both in scalability and economics. The scalability and large scale production economics have been tested, tested again, retested, then challenged again before being validated by some of the most sophisticated industrial fermentation companies and engineering firms in the world. I realize how competitive and political the energy industry is – but focusing on pre-commercial production costs is misleading.

Thanks again for the blog and keep up the great work.

My best regards,

Jonathan

  1. By Mac on October 9, 2010 at 8:19 pm

    RR

    Thanks for info on the octane rating of lacquer thinner. We laughed for years about how my buddy used it as a substitute for regular gas.

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  2. By Rufus on October 9, 2010 at 8:20 pm

    $60.00 to $80.00/bbl for biodiesel? Go get’em Tigers. We’re pulling for you.

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  3. By mac on October 9, 2010 at 8:28 pm

    Perhaps the military is especially interested in Solazyme for the claim that they can produce bio-fuels close to overseas military operations.

    From their website:

    “Uses flexible feedstock — Solazyme’s proprietary algal strains will exploit a wide range of non-food carbon feedstock, including, but not limited to switchgrass, miscanthus, molasses, bagasse, sugar beet, pulp, stover, wheat straw, energy cane, sorghum, industrial byproducts and other waste streams.
    Standard fuels can be produced at the point of demand with locally available feedstock on or near military bases within the US, or in strategic locations overseas to support theater operations. The flexibility in production of the oils reduces dependence on foreign oil and diversifies the refining and distribution infrastructure that is currently concentrated near the Gulf of Mexico.”

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  4. By paul-n on October 10, 2010 at 12:50 am

    Well, if Solazymes’process is that good, and can process any organic feedstock into oil, then we can dispense with corn ethanol and do corn to algae to biodiesel.

    At least then the corn farmers would have no excuses for not using it in their own machinery.

     

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  5. By Rufus on October 10, 2010 at 1:47 am

    They can only use what their tractors are warranteed for, Paul.

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  6. By Jack on October 10, 2010 at 1:56 am

    This may sound petty, but I did want to comment on Solazyme’s claim on the front page of their website that they were:

    Ranked #1 Bioenergy Company in the World by Biofuels Digest for 2010

    An accurate representation of this would have stated that they were the “hottest” bioenergy company according to the magazine.

    I don’t have any problem with the magazine ranking biofuel companies in “hottest”, “sexiest”, “top stock market prospect” type categories, but let’s be clear here Solazyme, in production terms in an ant.

    A cursory scan of the list shows how ridiculous it is.

    http://www.biofuelsdigest.com/…..2009-2010/

    http://www.biofuelsdigest.com/…..r-2009-10/

    Dymanotive, which appears to have stopped financial reporting to regulators after problems in 3Q09 and made almost all of its revenue from technology licensing, is number 46.

    http://www.dynamotive.com/investors/

    Cosan of Brazil, who may have produced near 100,000 times as much biofuel (ethanol) as Solazyme is #90. Khon Kaen Sugar, which produces the equivalent of Solazyme’s 150,000 gallon contract every day, is not on the list. Since they have been doing this for five years, I would guess they have produce over 1000 times the biofuel volume of Solazyme.

    This article says that Cosan currently produces two billion litres of ethanol. This means their annual production may be approaching 10,000 times Solazyme’s cumulative production (on a BTU, not volume, basis) and is growing faster.

    http://www.reuters.com/article…..TW20100201

    The companies hope to more than double ethanol output to up to 5 billion liters a year from about 2 billion now

    http://en.wikipedia.org/wiki/Cosan

    In February 1, 2010 Cosan and Royal Dutch Shell announced the creation of a joint venture that will bring together the operations of sugar, ethanol and the distribution and marketing of fuels in Brazil. The joint venture will form the third largest distribution company in Brazil and the world’s largest bioenergy operation.[4] The company is valued at US$ 12 billion and will start with a revenue of R$ 40 billion.

    am not saying that Solazyme isn’t a great company. Maybe it is. But I have been watching biofuels for a long time and treat red flags very seriously. I think Solazyme’s claim here is a falsehood, and provides an extremely flawed and inaccurate view of the existing biofuel sector. It and should be corrected.

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  7. By perry on October 10, 2010 at 4:19 am

    Solazyme’s process seems a lot like LS9′s and Amyris. They’re using algae, instead of e-coli or other microbes, to produce drop-in fuels from biomass. It sure looks like they’re further along than their competition. Chevron keeps putting money into Solazyme, so they must be doing something right.

    I’ve been reading up on microbial electrosynthesis. It looks like an improvement on microbial/algae fermentation and photosynthesis processes. Way too early to know if it’ll ever get off the ground though.

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  8. By Benny BND Cole on October 10, 2010 at 11:05 pm

    The biofuels industry marries the US military. Hoo-Boy, this is like a heavy gambler marrying a credit card junkie.
    The US military has been growing in cost for decades, a public agency that never has to worry about elimination by private-sector competition. Now, it joins forces with bio-fuels, another industry propped up by taxpayers.
    The enfeebled team up with coprolitic parasites.
    When this done, taxpayers will be out $1,000 a gallon, total cost of actual fuel supplied.

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  9. By perry on October 11, 2010 at 2:51 am

    Norton 360 kept me from this site earlier today. Something about HTTP Fake Scan Webpage 5 and an intrusion attempt from a computer in Moldova. According to Norton, all it takes for the bad guys to hijack someone’s computer is one bad ad.

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  10. By perry on October 11, 2010 at 2:56 am

     

    Here’s more on the threat according to Norton.

     

     

    Drive-By Downloads (what’s this?)

    Threats found: 1
    Here is a complete list: (for more information about a specific threat, click on the Threat Name below)

    Threat Name: HTTP Fake AV Redirect Request
    Location: http://www.consumerenergyrepor…..recession/

     

     

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  11. By savro on October 11, 2010 at 10:30 am

    Looking into it, Perry. Please contact me directly via PM or e-mail (and paste the details) if it pop up again.

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  12. By perry on October 11, 2010 at 10:36 am

    David said:

    One of these days someone is going to have to do a careful analysis of the actual carrying capacity of land to turn biomass into fuel without harming the soil.


     I don’t think ethanol from food crops will go the distance David. Cellulosic from waste biomass probably will. Algae and other methods of pulling CO2 from the air, water, or waste streams, will probably provide most biofuels in the far off future. $400 a gallon algae fuel doesn’t concern me. My concern is whether it can scale up meaningfully. If it can, costs will drop like a rock. They always do.

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  13. By Oxymaven on October 11, 2010 at 8:30 am

    I can kind of understand the high cost for the algal fuel, but I’m a bit puzzled as to why a food oil from a crop like camelina would cost so much. What is the price of 1) the feedstock camelina oil and 2) the processing costs? I can’t believe the oil itself is going to cost any more than soybean oil, so that shouldn’t be more than $3 or $4/gal?? I know processing for aviation fuels will be more intense, but it can’t be costing $30-$40 per gallon or more, can it? It would be nice for the Navy to clarify the prices here for camelina fuels like Solazymes has for algal.
    Also, happened to stumble on Platts Energy Week TV Sunday morning on a local station, and coincidentally they were interviewing Asst SecNav (energy) about this camelina stuff. He seemed to indicate that current prices would be almost 50% cheaper – $30/gal

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  14. By David on October 11, 2010 at 10:07 am

    One of these days someone is going to have to do a careful analysis of the actual carrying capacity of land to turn biomass into fuel without harming the soil. The issue with biomass isn’t the theoretical amount available but the amount available nearby a plant. There are fixed costs associated with a plant that require large volumes to drive down the cost. As a result, if biomass fuel does become competitive, there will be great pressure on owners of biomass to sell it for fuel rather than returning it to the soil. Biomass is not waste to nature; it is food for earthworms and even algae that live off it and turn its leftovers into humus, vital for thel friability and nutritiousness of the thin layer of soil that green plants and all life on land depend on.

    The old saw, to a man with a hammer, everything is a nail, applies here. Biomass fuel proponents claim that they can farm biomass sustainably. However, they should add the word “theoretically.” If the process becomes cheap, then it will begin being used in developing countries where the cost to a multinational oil company of bribing the local agricultural official (assuming such exists) or elected official is much lower than the cost of bribing the governor of Illinois or Louisiana or an official in the Minerals Management Service?

    When someone uses the word “renewable” in a positive way, that person is likely to minimize the externalities of a “renewable” process just as an oilman does with oil. Robert Rapier is one of the few that has calculated the actual land and biomass requirements for contributing meaningfully to our transportation fuel needs.

    Has anyone in the environmental community complained about the exploitation of developing nations to provide biofuel so we can drive our SUVs? Yes in fact they have:
    http://culturechange.org/cms/i…..p;Itemid=1
    http://www.manhattan-institute…..tm?id=4437

    These issues are not to be dismissed with hand waving or ad hominum attacks. We usually find out too late what we have wrought. While it is possible for humanity to recover from even a Chernobyl disaster thanks to its localized nature, once we start messing with the soil on a worldwide scale, it becomes difficult to get the genie back into the bottle.

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  15. By Kit P on October 11, 2010 at 11:30 am

    “These issues are
    not to be dismissed with hand waving or ad hominum attacks.”

     

    Then why do link
    them David?

     

    “One of these days
    someone is going to have to do a careful analysis…”

     

    There is lots of
    careful analysis if you are interested.

     

    “that require
    large volumes”

     

    Not so large
    actually. If you know what to look for there is huge amounts of
    waste biomass contributing to pollution. Mother nature is very
    wasteful as it turns out. Industrial Ecology looks at how nature is
    organized and adds engineering to.

     

    “environmental
    community complained”

     

    I always wonder who
    owns the environmental community.

     

    “Located in New
    York City, the Manhattan Institute produces ideas that are both
    literally and figuratively outside the Beltway.”

     

    Journalists and
    lawyers, could not find an expert on energy and the environment. I
    am not saying there are not lawyers and journalist who are not
    experts on energy and the environment; I just saying they are not at
    the MI.

     

    And what about Alice
    Friedemann and her 2007 article.

     

    “Fuels made from
    biomass are a lot like the nuclear powered airplanes the Air Force
    tried to build from 1946 to 1961, for billions of dollars. They never
    got off the ground.”

     

    “Better yet,
    Americans can bike or walk, which will save energy used in the health
    care system.”

     

    Very nice Alice!

     

    David finishes up
    with,

     

    “While it is
    possible for humanity to recover from even a Chernobyl disaster”

     

    What I have noticed
    about people who do not like how their food or energy is produced, is
    they do not produce food or energy. Nor do they protect the
    environment! Nor do they provide any practical alternatives.

     

    If you are looking
    for reasons to be against something Alice will provide many reasons.
    So David what are you for and why?

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  16. By Optimist on October 11, 2010 at 3:33 pm

    Not sure why you are so positive about the Solazyme approach, Robert.

    Yes, they are way ahead of other algal fuel producers, but that’s because they are not strictly speaking an algal fuel producer: the challenge for algal fuel producers is to produce the algal biomass (feedstock) cheaply, and in sufficient quantities to make business sense. Solazyme bypasses all that by using biomass (of any kind, they claim) as a feedstock. That’s great, but in the past (a sometimes critical) RR had been quick to point out that such schemes tend to presume a low, no or even negative feedstock cost. The key question then is this: What is Solazyme allowing for feedstock in the estimated $60 – 80/bbl?

    I also find myself wondering: What exactly is Solazyme’s claim to fame? I see several possibilities:
    1. That algae are better at fermenting cellulose than bacteria or fungi. I’d be mildly surprised if this was true.
    2. That the company has developed a special enzyme that, when used in an algal fermentation, produces higher yields than other fermentation processes. While this may be true, I am skeptical of any approach that involves enzymes.
    3. That the algae (or Solazyme’s patented algal species, or patented process for growing algae) produces a high lipid product, which is fairly easily converted into biodiesel.
    4. That it is the product (lipids) that is a better feedstock for fuel production than other existing biofuels, such as ethanol.
    5. Some combination of the above.

    The generic discussion of technology on Solazyme’s website does little to nothing to inspire my confidence. Generalities, without much details tend to be a sign of a company interested in monetizing hype, as opposed to developing a working technology.

    True, they are producing significant quantities of renewable fuels. It’s just that at this point it is hard to judge whether that is a sign of commercial viability, or the usual generosity of Uncle Sam , delivered via the unquestionable expenses of the Department of Defense.

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  17. By Benny BND Cole on October 11, 2010 at 7:25 pm

    OT, but possible fodder for RR.

    I have no science background, so this looks interesting–not from the standpoint of waste vegetable oil, but for coverting oil from pongamia pinneta trees to diesel.

    See below—

    Brown Chemists Develop Process to Simplify Waste Vegetable Oil to Biodiesel Process, Chart Progress of Transesterification Reaction
    8 October 2010
    Two chemists at Brown University have streamlined the conversion of waste vegetable oil (WVO) into biodiesel, eliminating the need for corrosive chemicals to perform the reactions. In a paper published in the RSC journal Organic & Biomolecular Chemistry, the chemists describe the waste vegetable oil-to-biodiesel conversion in a single reaction vessel using environmentally friendly catalysts and making the conversion six times faster than current methods.

    In a separate yet related paper published in the ACS journal Energy & Fuels, a team led by Brown chemistry professor Paul Williard has created a new technique to chart the progress of the transesterification reaction in which virgin and waste oils are converted into biodiesel fuel. The technique—DOSY, diffusion-ordered nuclear magnetic resonance spectroscopy—observes virgin oil molecules as they shrink in size and move faster in solution during the reaction. The reaction is complete when all of the molecules have been converted into smaller components known as fatty acid esters.

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  18. By Wendell Mercantile on October 11, 2010 at 11:00 pm

    Well, if Solazymes’process is that good, and can process any organic feedstock into oil, then we can dispense with corn ethanol and do corn to algae to biodiesel.

    Paul,

    Any organic feedstock? Apparently the weight of worms in the soil of good pasture land is more than the weight of the animals grazing on that land. No doubt, the same is also true of good industrial, mono-culture corn acreage. As soon as the corn ethanol industry hears that, I’m sure they’ll petition the farm state senators for subsidies to make worm bio-fuel.

    Instead of growing bio-mass to turn into oil, perhaps we should be concentrating on how to do the same with the worms and insects.

    Charles Darwin estimated that arable land contains up to 53,000 worms per acre (13/m²), but more recent research from Rothamsted Experimental Station has produced figures suggesting that even poor soil may support 250,000/acre (62/m²), whilst rich fertile farmland may have up to 1,750,000/acre (432/m²), meaning that the weight of earthworms beneath the farmer’s soil could be greater than that of his livestock upon its surface.

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  19. By rrapier on October 11, 2010 at 11:07 pm

    Not sure why you are so positive about the Solazyme approach, Robert.

    What I have said before is that you can’t knock it out on the same basis as the open pond or PBR approaches. So it isn’t that I am so positive about it, it is that I haven’t identified a knockout factor.

    The other thing to note is that they have produced substantial quantities of fuel with their approach. Whether it is cost effective in the long run is the big question, but at least they are producing fuel that can be tested. The other guys are mostly still at the theory stage.

    RR

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  20. By Wendell Mercantile on October 12, 2010 at 10:29 am

    <em>…perhaps we should be concentrating on how to do the same with the worms and insects.</em>

    I’ve had second thoughts on using the tons of worms and insects in each square mile of soil to make bio-fuels.  The EROEI of churning up all that soil to get at the worms and insects would no doubt be prohibitive.Cool

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  21. By Optimist on October 12, 2010 at 1:41 pm

    So it isn’t that I am so positive about it, it is that I haven’t identified a knockout factor.

    Maybe. I tend to be suspicious of firms that put “magic enzyme thingy” as their technology breakthrough.

    The EROEI of churning up all that soil to get at the worms and insects would no doubt be prohibitive.

    No need for that: Wait for a rain event, and harvest;-)

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  22. By jim w on October 16, 2010 at 12:27 pm

    GreenGas.cc can produce zero emission fuel for less cost than gas and diesel.. why are we not using that technology ???

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  23. By paul-n on October 16, 2010 at 2:07 pm

    Because, at best,  ammonia is an inefficient energy carrier, and, at worst, GreenGas is just a scam to lure money out of “investors”.  Thank goodness the Cdn government has had the sense to not go near it.

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  24. By Dave on October 18, 2010 at 5:05 pm

    Regarding the cost of feedstock, here’s a data point:
    Purdue economists have estimated that farmers wouldn’t harvest corn cobs unless they receive ~$100/ton (see Purdue Extension’s #ID-417-W.pdf). Presumably this is at the “farm gate.”
    They also suggest 70 gallons of ethanol per ton of cobs..That’s below theoretical limits, but consistent with numbers produced by NREL. On an energy-equivalence basis, that’s about 35 gallons or 5/6th of a bbl of diesel-grade fuel .
    That means the open-market feedstock cost, before conversion into sugars and fermentation of sugars into final product, is roughly $120/bbl.
    So not only must the feedstock be adjacent to the plant, but it must be a “stranded” resource & not available on the open market.

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  25. By paul-n on October 18, 2010 at 5:51 pm

    Dave, that is not a great data point.

     

    The assumption here is that the cobs are useful for something, in this case being cellulosic ethanol.  And if you have a cellulosic ethanol process, then you can use much more than just the cobs, like the whole plant, or other specially grown plants.

     

    That study concluded it is “more expensive to hravest than initially thought”.  Not surprising, when you need to spend $28k on a machine to harvest corn cobs that have low sale value!  But very good for the makers of said machine.

     

    Much better then, to go around the field with a forage harvester  and just chop everything, into a bin, and send that away.  Why limit just to cobs?

     

    If someone was offering even $50/ton, at the farmgate, for cellulosic feedstock, I’ll bet they would have lots of takers, as long as the feedstock can include switchgrass, miscanthus, poplar trees, etc.

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  26. By benoit on August 11, 2012 at 11:14 pm

    80$ a baril?

    Hum…1g of wood is about 18KiloJoule

    about 60% containt sugars that algae can use as substrate. Let’s say that 11KJ per gram of biomass can be use. 1 ton of wood cost 100$ (for cutting and transporting the biomass to the plant), add 200$ to treat biomass to have access to fermentiscle sugars (acid prretreatment + cellulases) and you will have a cost of sugars (the substrate) of about 27$ per Giga Joule. Fermentation yield are, in best case, about 60% so that the total cost of substrate will be 45$ per GJ. 1 baril of oil is equal 5.7GJ so that, the only cost of substrate will be equivalent to 256.5$.

    Add the cost of the plant, oxygen, nutrients, labor, depreciation, capital….I don’t see the cost below 400$ the baril

     

    Benoit

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