Solazyme, a startup based in South San Francisco, CA, has developed a new way to convert biomass into fuel using algae, and the method could lead to less expensive biofuels. The company recently demonstrated its algae-based fuel in a diesel car, and in January, it announced a development and testing agreement with Chevron. Late last year, the company received a $2 million grant from the National Institute of Standards and Technology to develop a substitute for crude oil based on algae.

The new process combines genetically modified strains of algae with an uncommon approach to growing algae to reduce the cost of making fuel. Rather than growing algae in ponds or enclosed in plastic tubes that are exposed to the sun, as other companies are trying to do, Solazyme grows the organisms in the dark, inside huge stainless-steel containers. The company’s researchers feed algae sugar, which the organisms then convert into various types of oil. The oil can be extracted and further processed to make a range of fuels, including diesel and jet fuel, as well as other products.

The company uses different strains of algae to produce different types of oil. Some algae produce triglycerides such as those produced by soybeans and other oil-rich crops. Others produce a mix of hydrocarbons similar to light crude petroleum.

Solazyme’s method has advantages over other approaches that use microorganisms to convert sugars into fuel. The most common approaches use microorganisms such as yeast to ferment sugars, forming ethanol. The oils made by Solazyme’s algae can then be used for a wider range of products than ethanol, says Harrison Dillon, the company’s president and chief technology officer.

What’s more, the algae has a particular advantage over many other microorganisms when it comes to processing sugars from cellulosic sources, such as grass and wood chips. Such cellulosic sources require less energy, land, and water to grow than corn grain, the primary source of biofuel in the United States. But when biomass is broken down into sugars, it still contains substances such as lignin that can poison other microorganisms. In most other processes, lignin has to be separated from the sugars to keep the microorganisms healthy. But the tolerance of the algae to lignin makes it possible to skip this step, which can reduce costs.

The process also has significant advantages over a quite different way of using algae to create biofuels–one that makes use of algae’s ability to employ sunlight to produce their own supply of sugar, using photosynthesis. In these approaches, the algae are grown in ponds or bioreactors where they are exposed to sunlight and make their own sugar. In Solazyme’s approach, the researchers deliberately turn off photosynthetic processes by keeping the algae in the dark. Instead of getting energy from sunlight, the algae get energy from the sugars that the researchers feed them.

Solazyme’s process of growing the algae in the dark has a couple of advantages over approaches that use ponds or bioreactors. First, keeping the algae in the dark causes them to produce more oil than they do in the light. That’s because while their photosynthetic processes are inactive, other metabolic processes that convert sugar into oil become active.

Just as important, feeding algae sugar makes it possible to grow them in concentrations that are orders of magnitude higher than when they’re grown in ponds using energy from the sun, says Eric Jarvis, a biofuels researcher at the National Renewable Energy Laboratory, in Golden, CO. (Jarvis is not connected to Solazyme.) That’s in part because the sugar provides a concentrated source of energy. These higher concentrations reduce the amount of infrastructure needed to grow the algae, and also make it much easier to collect the algae and extract the oil, Jarvis says, significantly reducing costs. High capital costs have so far stymied other attempts to make fuel from algae.

In spite of these advantages over other approaches, Solazyme’s method for creating fuel is not yet cheap enough to compete with fuels made from petroleum, Dillon says. Indeed, Jarvis warns that one of the most expensive parts of making fuels from cellulosic sources is processing them to create simple sugars, a part of the process that Solazyme isn’t focused on improving. But in the past 18 months, improvements in the amount of oil that the algae produce have convinced the company that competitive costs are within reach. Solazyme hopes to begin selling its fuel in two to three years, Dillon says.