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April 21, 2009

Algae Fuel Project Costs and Returns


The lines on the graph depict what are called “zero net present value (NPV)” curves. These lines represent what a project would need to achieve in total installed and O&M costs to be economically viable from a commercial market perspective. Based on the economic assumptions shown in the lower right box, projects that can achieve costs on or below these NPV lines will be capable of providing the required returns to the equity and debt providers— which will ultimately be the financing mechanism for funding such projects.

If your project falls on the line, you will be able to return 30% (average) per annum to equity providers and 12% (average) per annum to debt providers over the 20-year project life. If you are above the line, the project will fail to meet these required returns, while if you are below the line there will be excess profit for the owners of the project. For example, the bottom line (in orange) shows that if your total installed costs are $20k/acre, then your annual O&M costs must be roughly $4k/acre or lower. On the other hand, if your total installed costs drop to $10k/acre, your annual O&M costs can now be as high as $6k/acre and still be economically viable.

Total installed costs and O&M costs will be a major hurdle to future commercialization. Technologies must be developed to reduce costs and increase yields. This can be accomplished only through a focused, comprehensive, and well-funded R&D program. In parallel, the industry should consider business models that not only look at the bioenergy potential of algae through the transportation fuels market, but also consider other higher-value products in order to make the economics achievable.







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