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Microalgae Biofuels Industry Development Plan: South Australia

S U B M I T T E D T O T H E G O V E R N M E N T O F S O U T H A U S T R A L I A

Prepared by Nyla Sarwar

December 2009

ACKNOWLEDGEMENTSThis study was completed through consultation with international stakeholders groups across the microalgae biofuels value chain. I wish to thank and acknowledge the involvement of all stakeholders, and the project steering committee (with representatives from Department for Trade & Economic Development, Department of the Premier & Cabinet, Department of Transport, Energy & Infrastructure, Department of Further Education, Employment, Science & Technology, South Australia’s R&D Institute, Flinders University and Adelaide University) in the development of this report. It should be noted that this report might, in some cases, reflect the personal views of these individuals.

I wish to express my appreciation to Tim O’Loughlin, Commissioner for Renewable Energy at Renewables SA, at the Government of South Australia; and Dr. Christian Brand at the University of Oxford for their regular guidance and support.

DISCLAIMERThis report has been prepared by Nyla Sarwar on behalf of the Government of South Australia in connection with the Government’s vision to support a microalgae biofuels industry in South Australia. This report takes into account the particular instructions and requirements of the Government of South Australia in relation to proposals for establishing a microalgae biofuels industry in the State. It is not intended to be relied upon by any third party and no responsibility is undertaken to any third party in relation to the report or any part thereof.

Any third party interprets or relies on this report at their own risk. Except where expressly noted, information provided by others has not been independently verified in this report. The views expressed in this report do not necessarily represent the views of the Government of South Australia or its employees.

2 MICROALGAE BIOFUELS INDUSTRY DEVELOPMENT PLAN: SOUTH AUSTRALIA

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ABSTRACT

Microalgae has been hailed as one of the most sustainable feedstocks for biodiesel, and whilst production is technically possible already (at a small scale), commercialisation is expected to be around 5-10 years away if it can be effectively supported by the necessary investment and support. Several commercially driven business models are already being pursued for technology demonstration and optimisation in South Australia, with particular attention to developing low-cost harvesting, dewatering and extraction techniques.

This study explores the role of the State Government in the development of a sustainable and long-term microalgae biofuels industry for the low carbon transition of the transport sector in South Australia; making recommendations to the Government of South Australia to accelerate commercialisation. The study assesses (i) the commercial reality of microalgae biofuels technology (ii) the commercial opportunities and challenges; and (iii) policy and regulatory barriers, to explore South Australia’s competitive advantages for establishing a commercial microalgae biofuels industry.

The study highlights the fundamental market development and flexible policy framework required for accelerating microalgae biofuels commercialisation in South Australia; concluding that there is a significant role for Government to coordinate industry growth and collaborative investment opportunities in the State. The study also finds a requirement for an R&D roadmap, though this is beyond the scope of this report.

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Table of Contents

EXECUTIVE SUMMARY............................................................................................9

MICROALGAE BIODIESEL COMMERCIALISATION..................................................................9LIFE-CYCLE ASSESSMENT (LCA)...........................................................................................10REGULATORY & POLICY FRAMEWORK................................................................................11A SOUTH AUSTRALIAN STRATEGY FOR MICROALGAE BIOFUELS........................................11CONCLUSIONS....................................................................................................................13RECOMMENDATIONS FOR THE GOVERNMENT OF SOUTH AUSTRALIA..............................13

Coordinated R&D Activity............................................................................................................13Market Development...................................................................................................................14Flexible Policy Framework...........................................................................................................17

CREATING A FLEXIBLE POLICY FRAMEWORK......................................................................20

AIMS OF THIS REPORT...........................................................................................22Research Themes.........................................................................................................................22

ASSUMPTIONS AND LIMITATIONS OF THE STUDY..............................................................23

INTRODUCTION.....................................................................................................24

THE AUSTRALIAN TRANSPORT SECTOR..............................................................................24TRANSITIONING TO LOW CARBON TRANSPORT IN SOUTH AUSTRALIA..............................25

BACKGROUND.......................................................................................................27

EXISTING BIOFUELS INDUSTRY & POLICIES.........................................................................27Early Concerns In The Biofuels Market........................................................................................27International Biofuels Industry....................................................................................................27Australian Transport Biodiesel Industry.......................................................................................28South Australia.............................................................................................................................28

TECHNO-ECONOMIC ASSESSMENT OF MICROALGAE BIOFUELS.............................31

Comparison with Land-Based Biofuels.........................................................................................31Prior R&D.....................................................................................................................................32Algae Growth & Productivities.....................................................................................................32Production Systems.....................................................................................................................34Dewatering & Harvesting Microalgae..........................................................................................35Biofuel Quality.............................................................................................................................35

COMMERCIAL OPPORTUNITIES FROM MICROALGAL BIOFUELS PRODUCTION..................36Existing Microalgae Markets........................................................................................................36Bio-energy Production.................................................................................................................36Aviation Bio-jet Fuel Production..................................................................................................36

MICROALGAE APPLICATIONS IN ENVIRONMENTAL PROTECTION......................................37


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GHG Abatement and CO2 sequestration......................................................................................37Life-Cycle Assessment (LCA) and Energy Balance.........................................................................37Integration with Wastewater Treatment (WWT).........................................................................38

ECONOMIC ANALYSIS: COSTS & REVENUES........................................................................39Life Cycle Cost Analysis................................................................................................................39Revenues.....................................................................................................................................40

SOCIAL BENEFITS................................................................................................................41

RESEARCH THEMES...............................................................................................42

THEME 1: EXPLORING THE BENEFITS OF TRANSITIONING FROM FIRST GENERATION BIOFUELS FEEDSTOCKS TO MORE ADVANCED MICROALGAE FEEDSTOCKS...............................................................................43

MARKET TRENDS................................................................................................................43MICROALGAE INDUSTRY PRIORITIES..................................................................................43TRANSITIONING FROM FIRST GENERATION FEEDSTOCKS TO MICROALGAE......................44

Quality Control.............................................................................................................................44

THEME 2: ASSESSING THE COMMERCIAL REALITY OF MICROALGAE BIOFUELS OPPORTUNITIES FOR SOUTH AUSTRALIA..........................................................................................................................47

MAJOR TECHNICAL CHALLENGES & OPPORTUNITIES.........................................................47Strain Selection............................................................................................................................47Harvesting, Dewatering & Extraction...........................................................................................47Integration with Wastewater Treatment (WWT).........................................................................48

LONG-TERM SUSTAINABILITY OF MICROALGAE BUSINESS MODELS..................................51

THEME 3: TO EXPLORE THE COMMERCIAL OPPORTUNITIES AND CHALLENGES FOR PRODUCTION AND UPTAKE OF MICROALGAE BIOFUELS AND BIO-JET FUELS FROM SOUTH AUSTRALIA...........................................52

TARGET MARKETS..............................................................................................................52Aviation........................................................................................................................................52Mining & Agriculture....................................................................................................................53Government Sectors....................................................................................................................53

THEME 4: TO EXPLORE THE COMPETITIVE ADVANTAGES SOUTH AUSTRALIA CAN EXPLOIT TO DEVELOP A SUCCESSFUL, INTERNATIONAL, EXPORT-BASED MICROALGAE BIOFUELS INDUSTRY..................................56

SOUTH AUSTRALIA’S COMPETITIVE ADVANTAGES & CHALLENGES....................................56INFRASTRUCTURE CHALLENGES IN SOUTH AUSTRALIA......................................................56

Microalgae Infrastructure............................................................................................................56Other Infrastructure.....................................................................................................................57Mandates for biofuel production.................................................................................................57

STRATEGIC MANAGEMENT OF INVESTMENTS OPPORTUNITIES IN SOUTH AUSTRALIA.....58REGULATORY FRAMEWORK...............................................................................................61

Development Approval................................................................................................................61Licensing Requirements...............................................................................................................63

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THEME 5: TO IDENTIFY POLICY RECOMMENDATIONS FOR THE GOVERNMENT OF SOUTH AUSTRALIA TO ACCELERATE THE COMMERCIALISATION OF A MICROALGAE BIOFUELS INDUSTRY IN SOUTH AUSTRALIA.......66

EXISTING POLICY FRAMEWORK IN AUSTRALIA...................................................................66CARBON POLLUTION REDUCTION SCHEME (CPRS): POTENTIAL IMPACTS..........................68

Renewable Energy Target (RET)...................................................................................................68

CONCLUSIONS.......................................................................................................69

REFERENCES..........................................................................................................71

APPENDICES..........................................................................................................74Appendix 1 – Microalgae Performance Parameters...........................................................75Appendix 2 – Analysis of Production Systems.....................................................................76Appendix 3 – Existing products and producers of microalgae............................................79Appendix 4 - Integration with Wastewater Treatment.......................................................80Appendix 5 – A Project Based Economic Assessment..........................................................81Appendix 6 – Quality Standards.........................................................................................82Appendix 7 - South Australia’s Competitive Advantage - Porter’s Diamond Analysis.........83

List of FiguresFigure 1 – GHG emissions per litre for microalgae biodiesel compared to canola biodiesel and ULSD

12Figure 2 – Concurrent development will be essential to accelerate commercialisation of the microalgae biofuels industry in South Australia 13Figure 3 – Primary Energy Consumption in Australia by Sector – 2005-06 26Figure 4 - Australian Domestic Transport Emissions (2006) 27Figure 5 - Suitable climatic conditions (those with an average annual temperature of 15C) are highlighted in orange and red, within the blue rectangular box, which outlines the area between 37 degrees north and south latitude, most suitable for microalgae production. 35Figure 6 – Conceptual process for Microalgae Production – adapted from Chisti (2008) 51Figure 7 – A Traditional Project Economic Analysis Used to Assess the Viability of Commercial Algae Production Systems 77Figure 8 – Porter’s Diamond model79

List of TablesTable 1 - Key Stakeholder groups 22Table 2 – Existing Biofuels Policies in Australian States and Territories, 2009 28Table 3 – Summary of Biofuels Activity in Key Biofuels Producing Nations 30Table 4 - Comparison of crop-dependent biodiesel production efficiencies from plant oils 33Table 5 - Comparison of properties of biodiesel from microalgal oil and diesel fuel and ASTM biodiesel standard 35Table 6 - Lifecycle costs of fuel use in Articulated Truck for 1 tonne-km; ‘realistic’ production (productivities of approx. 50t/ha/year) 40Table 7 – Microalgae Biofuels Projects in Australia 46Table 8 - Performance Parameters for Algae Biofuels Production 75Table 9 – Comparison of key performance parameters of open and closed production systems 77Table 10 – Brief Porter’s Diamond Assessment for South Australia 83Table 11 - SWOT Analysis of South Australia as competitive location for microalgae biofuels production 85


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LIST OF ACRONYMS

AFC – Algal Fuels ConsortiumAP-6 – Asia Pacific 6 ProjectARF – Australian Renewable FuelsATSE - Australian Academy of Technological Sciences and EngineeringB5/B20/B100 – 5% biodiesel/ 20% biodiesel/ 100% biodieselBEVs - Battery electric vehicles Bio- SPK – Bio-derived Synthetic Parraffinic KeroseneCO2e – Carbon dioxide equivalentCFPP – Cold Filter Plugging PointCPRS – Carbon Pollution Reduction SchemeCSIRO – Commonwealth Scientific Research OrganisationDAC – Development Assessment CommitteeDRET – Department for Resources, Energy & TourismETS – Emissions trading schemeEU – European UnionGHG – Greenhouse GassesGMOs – Genetically Modified OrganismsHRAPs – High Rate Algal PondsIATA – International Air Transport AssociationIP – Intellectual PropertyJet A1 – Traditional jet fuelLCA – Lifecycle AnalysisLNG - Liquid natural gas LPG - Liquid petroleum gas N – NitrogenNCRIS - National Collaborative ResearchInfrastructure StrategyNSW – News South WalesOEMs – Original Engine ManufacturersP - PhosphorousPBRs – PhotobioreactorsPHEVs - Plug-in hybrid vehicles RET – Renewable Energy TargetREC – Renewable Energy CertificatesRD&D – Research, development & deploymentSWOT Analysis - Strengths, weaknesses, opportunities and threatsSA – South AustraliaSAFUG - Sustainable Aviation Fuel Users GroupSARDI - South Australia’s Research & Development InstituteWWT – Wastewater TreatmentULSD – Ultra Low Suphur Diesel

US – United States

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EXECUTIVE SUMMARY

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EXECUTIVE SUMMARY

Climate change, peak oil and fuel security remain the most significant drivers for the development of renewable technologies to drive the transition to a lower carbon economy in Australia. With 79.1 MtCO2e emitted from the nation’s transport sector in 2006 alone, the transport sector has a fundamental role to play in contributing to Australia’s ambitions for GHG emissions reduction.

Several technologies are currently under development for reducing emissions in Australia’s transport sector. However, some heavy transport sectors (including mining, aviation and construction) are likely to continue dependence on liquid-based fuels in the long-term. Consequently, sustainable biofuels present a long-term opportunity for substitution of fossil fuels in the transport sector using existing engines and transport infrastructure.

In the past, first generation biofuels feedstocks (including land based crops) had presented some cost, quality and sustainability concerns around the world; with further criticisms focussed on the GHG emissions emitted during on-farm fuel, fertiliser and pesticide use, and land clearing. However, there was a lesser impact in Australia, where the main first generation feedstocks are non-food based. Whilst, industry development has seen biofuels emerge as competitive alternative transport fuels,

alternative end markets for tallow have led to significant increases in the feedstock costs in Australia, presenting challenging margins for biodiesel producers nationwide. This has led to widespread capacity being underutilised, with many biodiesel plants being placed in ‘stand-by’ mode (Bethune and Cochran, 2009).

Further RD&D is vital to accelerating the development of more advanced biofuel feedstocks, which provide greater productivities and utilise non-food sources as fuel feedstocks. Microalgae is one such sustainable feedstock, which is expected to have potentially lower cultivation and harvesting emissions, therefore delivering a much more significant emissions reductions. A recent study by ATSE (2008) predicts that replacing 10% of Australia’s diesel consumption with biodiesel derived from microalgae could generate a turnover of $1.9 billion/pa.

It should be noted that support for the current biofuels industry is a critical intermediate step to the long-term development of sustainable feedstocks such as microalgae, to support a transition to a lower carbon economy. The recommendations in this report also identify the role of the Government of South Australia in supporting measures, which promote the ongoing sustainability of the biofuels industry.

MICROALGAE BIODIESEL COMMERCIALISATIONMicroalgae biodiesel production is now closer than it ever has been to commercialisation, with expectations for large-scale, commercial rollout within the next 5-10 years. Major bottlenecks remain in increasing productivities of oil in the algae, and developing low-cost harvesting, dewatering and oil extraction techniques, and significant efforts have been invested worldwide to develop a commercial solution. There is general consensus that the potential advantages of developing microalgae biofuels feedstocks outweigh the disadvantages, and there are no major ‘show-stoppers’ to hinder the commercialisation of the industry (van Harmelen and Oonk 2006; Benemann 1997; Benemann, 2003).

Microalgae biomass also yields valuable co-products, such as nutraceuticals, cosmetic products and chemicals, driving the ‘biorefinery’ model, through production of both bioenergy and other revenue-


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raising bioproducts. Alternative strategies pursued by stakeholders include plans for fuel-only large-scale production, licensing of R&D or process technologies, and the development of joint ventures with large carbon generators to reduce their carbon liabilities, through utilisation of their waste carbon streams.

The most extensive research for microalgae biofuels production in Australia has been carried out in South Australia, Queensland, and Perth. South Australia is recognised as a hub of microalgae research expertise - within South Australia’s Research & Development Institute (SARDI), the University of Adelaide and several groups within Flinders University. The fundamental challenge for microalgae biofuel producers is increasing productivities at low cost, though it is expected that advances in technology and economies of scale will address some of these concerns. Production systems are based on site-specific conditions, and a hybrid/open pond configuration is considered more cost effective for South Australia. Whilst these economic challenges remain, there is optimism among the industry stakeholders that they can be realistically solved through the development of low-cost technologies and economies of scale. Pilot scale facilities will be crucial to demonstrate and optimise suitable configurations, and trial potential low-cost harvesting, dewatering and oil extraction techniques.

South Australia’s natural climate and land availability are the State’s main competitive advantages, effectively supported by wide-ranging expertise in biotechnology, engineering and aquaculture across the State’s three universities, R&D institutes and private sector. Several pilot-scale projects are being deployed in South Australia, with the aim of demonstrating commercial microalgae biofuels production, prior to wider large-scale rollout. This includes projects led by the Algal Fuels Consortium, and other private sector interests.

This report finds that heavy transport and industrial sectors (such as mining and aviation) present significant niche market opportunities for South Australian produced microalgae biofuels. Further opportunities are presented by the prospect of holistic integration with wastewater treatment, or with bioremediation projects, across South Australia. The latter produces purified water and biofuels whilst remediating contaminated sites, and potentially offers an opportunity to concurrently meet South Australia’s water and energy security goals.

LIFE-CYCLE ASSESSMENT (LCA) Microalgae consume CO2 (and emit O2) mostly during daylight hours. Effectively microalgae recycles CO2, which has already been emitted to the atmosphere (supplied in concentrated form from industrial flue gases, for example) unlike fossil fuels, which unlock and release new supplies of CO2 to the atmosphere, contributing to dangerous climate change (van Harmelen and Oonk, 2006; Kanes, 2009).

Estimates range from 1.6-2.2 tonnes of CO2 uptake to produce 1 tonne of microalgae (van Harmelen and Oonk, 2006; Benemann, 2003; Benemann, 1997; Kanes, 2009; Schenk et al, 2008). Algal biomass (dry weight organic matter) contains around 46% carbon, and one third of this can be transferred into methane gas through anaerobic digestion. Therefore 0.5 tons of CO2 can be abated if biogas is substituted for natural gas for example (van Harmelen and Oonk, 2006).

Whilst microalgae don’t offer a permanent sequestration mechanism (as the captured carbon is returned to the atmosphere upon combustion), GHG abatement is achieved through industrial symbiosis. Microalgae biomass production effectively recycles atmospheric CO2 before returning it to the atmosphere. Importunately, it also leads to the substitution of equivalent quantities of fossil diesel production that would have inevitably unlocked and released new and additional sources of carbon to the atmosphere (Benemann, 2003; van Harmelen and Oonk, 2006; Campbell et al, 2009). Furthermore, GHG emissions can be further reduced through the additional production of energy-sparing co-products, such as:

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Negative GHG emissions balance from substitution of fossil fuels, which unlock new sources of carbon, and from biogas production.

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1. Biogas from the remaining biomass (after the oils have been extracted); 2. Valuable chemicals and biopolymers; 3. Bio-fertilisers which can substitute the production and use of harmful nitrogen fertilisers; 4. Animal feeds, and more.

CSIRO recently completed a life-cycle assessment of microalgae biofuels in Australia, finding that, in an ideal case, where all production criteria were met and long-term productivities in excess of 100 tonnes/ha/year were achieved1; the lifecycle GHG emissions were lower in comparison to Ultra Low Sulphur Diesel (ULSD) and canola biodiesel. This is the case even when the algal farm is not co-located with a CO2 supply, requiring CO2 to be trucked in (up to 100km) – see Figure 1 (Campbell et al, 2009).

Campbell et al (2009) add that not only is less fossil energy required to produce the microalgae biodiesel, but the potential production of excess electricity by the anaerobic digestion of the residual biomass (which can be fed back into the electricity grid) means that coal and gas electricity is also substituted.

Figure 1 – GHG emissions per litre for microalgae biodiesel compared to canola biodiesel and ULSD

Source: Beer (2009)

REGULATORY & POLICY FRAMEWORKPoor federal biofuels policies and industry reluctance for wider uptake present significant barriers for the biofuels industry in South Australia. In addition, the complex regulatory requirements for microalgae biofuels projects would benefit from Government-supported early engagement with the appropriate regulatory agencies. This will enable investors to manage the State’s regulatory requirements more efficiently; and streamline the process for regulatory approval, reducing delays and costs that may otherwise jeopardise the project’s viability.

A SOUTH AUSTRALIAN STRATEGY FOR MICROALGAE BIOFUELS

1 It should be noted that productivities of this magnitude are yet to be achieved in natural outdoor environments.


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The microalgae biodiesel market is fast moving and becoming heavily commercial-driven. There are several players interested in the South Australian market, with varying requirements, driven by varying, innovative business models. It is expected that a single policy framework will not effectively support all potential investors in microalgae biofuels systems; and some flexibility might be required to support this dynamic, yet immature industry.

There is an intense level of activity among commercial and research stakeholders in the industry; though often uncoordinated. The fundamental support required to maximise the competitive advantages of the State, demands strong market intelligence, and access to an autonomous investment team, which has access to immediate resources and a competent understanding of the nature of the market to realise market opportunities in South Australia.

The State is already home to a handful of significant projects for microalgae biofuels commercialisation. Most notably the Algal Fuels Consortium’s (AFC) plans for a commercial biorefinery plant at Torrens Island, South Australia; and a partnership between University of Adelaide, Murdoch University and others on an Asia-Pacific-6 project recently announced plans to scale production up to a 1 acre open pond pilot facility in Western Australia.

Government support is vital to establish an inclusive and organised investment environment for microalgae biofuels that promotes commercial innovation in South Australia. It is clear that there are three fundamental areas that need to be simultaneously advanced to accelerate the commercialisation of microalgae biofuels in South Australia – see Figure 2. These are:

1. Coordinated R&D activity to drive low cost technology innovation; 2. Market development to support the establishment of commercial opportunities in South

Australia; and 3. Creation of a flexible policy framework in South Australia to remove regulatory barriers and

attract investment.

Figure 2 – Concurrent development will be essential to accelerate commercialisation of the microalgae biofuels industry in South Australia

R&D is intrinsically bound within commercial microalgae biofuels project development, and in many cases it has moved beyond lab scale investigations of algal strains, to more practical innovation, based on the optimisation of commercial production systems to maintain dominant cultures and maximise productivities.

While strong R&D will be required to underpin the success of this emerging industry, and may generate economic benefits of its own, it would be unrealistic for the Government to wait for R&D breakthroughs such as the development of the perfect algae strain, or the ideal algal harvest system to emerge, before subsequently introducing supportive policies and market support mechanisms, which are likely to be a prerequisite for the roll-out of large-scale production.

Therefore, in order to better position South Australia to commercialise innovative strategies for large-scale commercial microalgae biofuels production ahead of its competitors, the State Government should aim to support the simultaneous development of the three fundamental areas identified above. This will create a more conducive and dynamic investment environment to attract large-scale commercial investments, competitive microalgae (and complimentary) expertise, and a breadth of stakeholders from across the value chain (from early R&D to production and consumption) to South Australia; enabling the strategic establishment of a microalgae biofuels cluster, which continues to drive R&D breakthroughs in South Australia.

In light of this, South Australia should adopt strategies that focus on maximising its natural advantages for microalgae production, by being among the first to implement a large-scale, commercial microalgae biofuels plant.

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The State has established a small microalgae biofuels community already, with high-profile projects being led by the University of Adelaide (in partnership with Murdoch University) and the Algal Fuels Consortium, which brings together SARDI, Flinders University, CSIRO and others. Microalgae biofuels projects have also emerged across Australian, and as the industry matures, pilot projects are expected to successfully overcome current commercial bottlenecks, paving the way for the large-scale rollout.

Through the implementation of the policy recommendations identified in this report, South Australia will be better positioned to be among the first State’s to host a large-scale commercial production of microalgae biofuels, and establish an industry cluster for microalgae biofuels production.

CONCLUSIONSSouth Australia is well endowed with many of the core requirements for microalgae biofuels production, including climate, (unproductive) land, CO2 and nutrient inputs, and intellectual capability; and boasts a favourable environment for encouraging microalgae biofuels innovation and enterprise development. The integration of microalgae biomass production with existing wastewater treatment processes and infrastructure presents a real, near-term and holistic opportunity for commercialisation of microalgae biofuels.

Whilst the industry is still in experimental stages worldwide, South Australia could plausibly be among the first States to host a successful, commercial-scale microalgae biofuels production facility. However, this will require effective support through the creation of an inclusive and flexible investment environment, underpinned by strong R&D, effective market development, and the creation of a flexible policy framework aimed at reducing market barriers and nurturing innovation and opportunities in South Australia. However, the study also finds that dependence on large, industrial, concentrated sources of fossil CO2, required to yield the necessary commercial productivities for microalgae, presents a threat to the long-term sustainability of microalgae biofuels production. In order to avoid, perverse policy incentives, which encourage long-term industrial pollution to maintain large-scale fuel production, the Government should encourage the development of microalgae production solutions based on supplies of organic or atmospheric CO2 only.

Additionally, further independent research will be vital to identify lifecycle GHG benefits of microalgae bio-jet fuels, and up-to-date economic assessments of commercial microalgae biodiesel production systems would provide further contributions to the commercialisation of the industry.

RECOMMENDATIONS FOR THE GOVERNMENT OF SOUTH AUSTRALIA The following recommendations are made to the Government of South Australia to accelerate the commercialisation of microalgae biofuels in the State, through the simultaneous development of R&D activity, market development and the establishment of a flexible and supportive policy framework that encourages innovation.

COORDINATED R&D ACTIVITY There is a significant role for better-coordinated R&D activity across Australia to reduce duplicated efforts, and develop innovative approaches for commercial, large-scale microalgae biomass production. This involves strain and process development, as well as the ongoing optimisation of production systems to develop effective, low cost configurations for cultivation, harvesting, dewatering and oil extraction, whilst increasing productivities and efficiencies.

1. The Government should produce a roadmap for the microalgae biofuels value chain to clearly identify the most significant R&D priorities for South Australia; and provide support to leverage funding for commercially-focused RD&D activities


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In order to accelerate commercialisation in South Australia, R&D must be targeted at the most cost-intensive processes to improve efficiencies through low-cost technology development. There is an opportunity to explore additional opportunities for integration of microalgae biofuels production with existing infrastructure and industries, including the strong prospects of integration with wastewater treatment.

An R&D roadmap should identify the gaps in current capability, supporting the deployment of commercially focused innovative techniques for low cost process development and technology development. Research, and particularly development, will be fundamental in delivering the economic 'game changers' and technology breakthroughs required for microalgae biofuels commercialisation. However, often demonstration projects are limited by funding; and many Governments have offered funding support to producers - particularly in the US and China. The Government of South Australia should stimulate efforts for technology deployment and demonstration in the State, by supporting microalgae producers in leveraging the funding required for commercially focused projects. This might include brokering relationships between microalgae producers, commercial partners and investors; developing new R&D funding programmes to develop commercial production of microalgae biofuels; and coordinating funding opportunities for other eligible Government programmes.

The roadmap should focus on South Australia's strengths and should be supported by value-chain mapping for the biofuels industry in South Australia, to explore the added value from different stakeholder groups. However, RD&D initiatives should, where possible and where appropriate, be aligned with the significantly greater RD&D efforts of other Australian States and Territories, and other nations.

1.1. Establish a Biofuels Research Institute in South AustraliaFurthermore, the Government should investigate the opportunity to establish a Biofuels Research Institute for microalgae biofuels in South Australia to showcase the State’s expertise, and drive the development of an R&D roadmap, as recommended in the recent ATSE report (2008). The Government of South Australia is recommended to endorse the aims of such an entity to support efforts to attract the necessary funding required to drive the practical R&D for commercially focussed microalgae biofuels innovations in South Australia.

2. Facilitation of Skills Development & Retention ProgrammesSouth Australia is already home to an impressive breadth of skills for the microalgae industry; and should actively encourage the retention of these skills to support the establishment of the emerging microalgae biofuels industry. This may involve the facilitation of microalgae related skills development programmes, delivered through South Australian universities.

Investment in skills development would support and nurture further industry growth, and encourage dynamic innovation in South Australia, attracting commercial opportunities to the State.

MARKET DEVELOPMENT Effective market development and investor support will foster real business opportunities at a project level, through collaborative industry growth, reduced market barriers and investment support. The microalgae biofuels market presents several opportunities, and effective industry development will enable these commercial opportunities to be realised in South Australia. 3. The Government should assist in targeting large niche markets for biofuels uptake in significant

quantities through facilitation of testing dialogue with OEMsIn order to compete in the global microalgae biofuels market, South Australia should develop strategies to target niche markets, namely the State’s heavy fuel-using industries, such as mining, construction, aviation and others, which are expected to continue consumption of liquid based fuels in the longer term. These heavy fuel-using sectors are also exploring strategies to reduce their carbon liabilities and improve their environmental credentials in anticipation of emerging carbon pricing policies and fears of peak oil.

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To date, efforts to encourage a switch to biofuels in many of these sectors have been severely hampered by the reluctance of risk-averse OEMs to honour their vehicle/equipment warranties if alternative fuels are used. This presents a significant market barrier for wider biofuels uptake, particularly in sectors, such as the mining industry, where the switchover to using greater quantities of biofuels is not expected to be incompatible. The Government of South Australia is in a position to broker the necessary dialogue between OEMs and biofuels producers to establish a supply of biofuels, which are compatible with existing engine technologies, and support testing to meet the manufacturers requirements.

A seed fund should be made available by the Government of South Australia to enable the State to facilitate this dialogue and the necessary trials or testing required to demonstrate compatibility. This would increase confidence to increase demand for biofuels from these sectors.

The State Government should also assist in the development of significant off-take agreements with these sectors, particularly where there are opportunities to deliver a fuel switch through existing climate change sector agreements.

4. The Government should introduce biodiesel consumption mandates for the State Government fleet and suppliers and contractors

Whilst some public transport busses and trains already use (first generation) biodiesel blends (B5-B20) in South Australia, there is a significant opportunity to widen this scope to all Government vehicles, and to those of Government contractors and suppliers. The Government should commit to a minimum B20 blend (subject to necessary testing) for its train, bus and car fleets, and contractors and suppliers should be required to use a minimum B5 blend. This will not only provide a guaranteed market for biofuels use in the State, providing an off-take agreement opportunities for biodiesel in the State, it will also provide an opportunity for the Government to lead by example to demonstrate compatibility of biodiesel with existing engine technology.

The Government should introduce a biofuels policy to support this commitment for biofuels uptake across the State, outlining a timeline or target for the transition to biofuels use from more advanced feedstocks such as microalgae. The policy should also include sustainability guidelines, stating the minimum GHG reduction requirements in comparison to fossil fuels, similar to the requirements introduced by the European Commission as part of the Renewable Energy Directive 2009. In the absence of a comprehensive biofuels roadmap, a biodiesel mandate for the Government fleet will provide some investor confidence, indicative of the State’s position on the opportunities presented by the biodiesel industry.

5. The State should attract large microalgae biofuels trade and market development organisations to support industry growth in South Australia

The establishment of dedicated and expert microalgae biofuels industry development organisations will provide the supply chain development, and crucial coordination of market opportunities, vital for maximising prospects for accelerating commercialisation of microalgae biofuels in (South) Australia.

To enable the Government to establish South Australia as the hub for microalgae technology and research in Australia, the Government of South Australia should attract and host the Australian branches of already established, microalgae trade organisations, such as the US-based Algal Biomass Organisation or the National Algae Association. These organisations would be charged with developing real project-level opportunities, including negotiations with industry sectors to deliver off-take agreements, collaborative and consortia working, coordination of funding, and international research and (export) trade links with microalgae experts and investors.

An independent market development organisation would also ensure maximisation of market opportunities to support industry growth, dissemination of the latest market intelligence, acceleration of supply chain development, and educated support for development of comprehensive policies. The


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Government of South Australia should work closely with such organisations to facilitate industry growth and development in large-scale microalgae biofuels projects in South Australia, increasing the State’s chances for commercialisation.

6. The State Government should create a comprehensive mechanism for disseminating market information to the biofuels value chain

The Government should establish an interactive ‘knowledge warehouse’ for South Australia, aimed at delivering commercial education to the biofuels value chain – from early stage R&D to industrial consumers. The information should be made accessible to all stakeholders via an up-to-date online website, supported by a well-resourced investment support team.

The website should promote South Australia’s offering to the biofuels value chain, with the aim of maximising industry growth opportunities for the microalgae biofuels industry. The website should also host details about ideal production sites and biofuels testing information.

6.1. The State Government should disseminate site surveys for suitable microalgae production locations in South Australia

The Government should provide appropriate site analysis and GIS mapping information for suitable sites across South Australia, to support potential investors in identifying an inventory of large- and small-scale sites for microalgae biodiesel production. This includes an assessment of the key microalgae growth requirements, and liaison with appropriate parties to facilitate site inspections across South Australia.

6.2. The Government of South Australia should support and encourage the commercialisation strategies of stakeholders aiming to deploy commercially-focused microalgae biofuels pilot plants in South Australia

The Government of South Australia should effectively support and facilitate the development of commercialisation strategies, including the coordination of funding support and commercial partnerships for large-scale pilot projects in South Australia.

7. The Government should embrace the opportunity to be an ‘early mover’ on biofuels sustainability, through the facilitation and roll-out of BQ-9000® and endorsement of Roundtable for Sustainable Biofuels principles in South Australia

Whilst biofuels sustainability standards are being developed by the Australian government, internationally recognised biofuels sustainability standards such as BQ-9000® accreditation and the Roundtable for Sustainable Biofuels present an opportunity for South Australia to be an early mover on independently verified quality standards.

South Australian leadership for the rollout of BQ-9000® accreditation – an American biofuels sustainability standard (See Appendix 6), would increase consumer confidence, and position South Australian biofuels as ‘premium biofuels’ in the market.

Additionally, the Government of South Australia should demonstrate its commitment to biofuels sustainability by joining, and endorsing the international Roundtable for Sustainable Biofuels, which is currently developing a third-party certification system for biofuels sustainability standards, encompassing environmental, social and economic principles and criteria, through an open, transparent, and multi-stakeholder process.

FLEXIBLE POLICY FRAMEWORK The development of a supportive and flexible policy framework, which recognises the opportunities from the contemporary and innovative large-scale microalgae biofuels industry will require the reduction of regulatory barriers and adjustments in consideration of negative incentives created by federal policy framework.

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8. The Government should establish a regulatory consortium, which brings together key regulatory agencies, providing investors with a ‘one-stop’ opportunity for consultation of microalgae biofuels proposals

A large-scale microalgae biofuels production project will be required to submit applications for development approval and an aquaculture (and possibly an EPA) licence. Due to the immaturity of the microalgae biofuels industry at large-scale, it is expected that a wide range of regulatory agencies will have a key interest in the risk management plans proposed to ensure environmental compliance.

The Government of South Australia should form a consortium of key regulatory agencies and NGOs to provide investors with a quick and easy ‘one-stop’ opportunity to engage and consult with these key stakeholders, prior to submission of applications for development and licensing approval. This will promote an inclusive and organised consultation mechanism, reducing delays and costs.

The key agencies and NGOs represented may include DEH, EPA, PIRSA, DPLG, local councils, Natural Resource Management Boards, Coast Protection Board, Native Vegetation Council, Birds SA, Dolphin Protection, aboriginal heritage agencies, and others.

The Department of Trade & Economic Development should be charged with coordinating this agenda, and initial support might be developed through a one-day workshop to identify a package of measures; including

8.1. Introduction of measures to address the timeframes and costs associated with approval processes.

Some policy measure might include guaranteed turnaround timescales for approvals; and fee rebates.

8.2. The establishment of a ‘Microalgae Precinct’ This should be a designated area where regulatory approvals for microalgae biofuels production may more practically be fast-tracked. This would support strategies for cluster development.

9. The Government should adopt strategies to promote the development and retention of industry critical infrastructure and capacity building, to develop the basis for a long term State-wide biodiesel production mandate

Infrastructure development will be a fundamental requirement to support the long-term success of the South Australian biofuels industry, particularly in respect of transitioning from current first generation feedstocks to more sustainable feedstocks. In order to maintain capacity for South Australian biofuels capacity, the Government should support South Australia’s only remaining biofuels plant, the Australian Renewable Fuels (ARF) refinery, currently operating at only approximately 15% capacity, to remain operational through the development of market support measures designed to generate off-take agreements.

The New South Wales and Victorian Governments present examples to demonstrate the different policy approaches to establishing industry critical infrastructure for biofuels. The New South Wales Government has adopted a biodiesel and ethanol mandates, which have led to industry investments in the necessary infrastructure required to meet their obligations within the mandated timeframe. On the other hand, the Victorian Government opted for direct Government support, investing $2 million to establish blending and storage facilities at a Victorian refinery. The mandating approach is likely to be the most readily appropriate policy measure for application in South Australia.

A production mandate represents a strong policy lever for strengthening the biofuels market in the State. The Government should promote its intentions to establish a mandate to support a long-term biofuels industry in South Australia, subject to the attraction and establishment of sufficient investment and capacity to the State. Supported by a biofuels policy and wider uptake of biofuels in


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the Government fleet, this indicative commitment should increase the likelihood of attracting biofuels investors to establish production in South Australia.

9.1. The Government should offer an indenture arrangement to specific large-scale microalgae biodiesel producers

The Government of South Australia is seeking to position the State as an early mover in the commercialisation of microalgae biofuels production at large-scale. This requires investors to take significant investment and market risks, and the State Government should offer some early mover privileges to reward such propositions which offer South Australia a large-scale and commercial investment. This should include an opportunity to negotiate an indenture arrangement for large-scale proposals (subject to specific proposal requirements).

10. The Government should establish an aspirational biodiesel production target of 200ML/year by 2022 to reduce South Australia’s dependence on diesel imports

In order to meet the State’s fuel security goals, the Government should explore the opportunity to introduce a biodiesel target in the absence of a mandate, to attract investments, business opportunities and increase production of biofuels in South Australia. The establishment of a biodiesel production target for the State is likely to attract further investment opportunities to South Australia, and supported by effective market development and ongoing R&D, will encourage wider industry consumption and faster commercialisation of more sustainable feedstocks such as microalgae.

A 200ML/year target for biodiesel production is just over four times the capacity of the current ARF refinery in South Australia, and represents a 16% increase in biodiesel demand in South Australia from 2008 levels. If sufficient capacity can be introduced to the State, a more ambitious mandate should be introduced to exceed this target.

11. The Government should appoint a dedicated Government-based Business Development Manager, supported by an investment support team, to manage market development and investment opportunities.

The biofuels industry is currently under-resourced in commercial development, and a significant role exists to introduce high-level capabilities from a business development manager, to support strategic industry growth for microalgae biofuels in South Australia. This involves liaison between investors, regulatory agencies and other stakeholders to promote South Australia’s biofuels capability. Furthermore, it is anticipated that microalgae biofuels projects are likely to cut across several portfolios and government agencies, and the creation of a central, and single point of contact to effectively coordinate activity will be essential.

Current investigations have demonstrated that further opportunities for industry growth and economic development in the State have emerged from the introduction of a temporary, but dedicated resource, charged with coordinating microalgae biodiesel opportunities for South Australia. This presents a strong case for the permanent appointment of a position responsible for biofuels market and policy development.

The Government should therefore appoint a Microalgae Biofuels Business Development Manager, supported by a dedicated, autonomous and dynamic investment support team, with access to immediate resources and a competent understanding of the nature of the market; to attract commercial investment opportunities for microalgae biofuels to South Australia. The business development manager should be charged with coordinating investor support and maximising opportunities, designed to best exploit South Australia’s advantages for microalgae biofuels production.

Furthermore, it will reduce the requisite for Government investments by ensuring that commercially driven interests are driving industry growth in the State; supporting South Australia’s aspirations to be among the first Australian State to host commercial, large-scale microalgae biofuels production; and create a thriving industry cluster.

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12. The Government of South Australia is recommended to strongly encourage the federal government to extend the excise rebate awarded to biodiesel producers (for the near term)

Biofuels producers currently receive an excise rebate of 38.124c/l; and have become increasingly reliant on this subsidy. Current policies suggest that the rebate will be phased out in five stages from 2011 to 2015, at which point it will stand at just 19c/l. This is likely to present a significant challenge to biofuels producers in itself; however, this planned phase-out also coincides with the proposed introduction of Australia’s CPRS. The cent-for-cent reduction policy proposed in the CPRS means that polluting fossil fuels are not required to pay their carbon costs until July 2014. This 3-year mechanism therefore doesn’t reward the reduced cost imposition of biofuels within the Scheme and presents a lost opportunity to increase biofuels uptake. However, the continuation of the biofuel producers excise rebate for the first 3 years of the CPRS (the duration of the cent-for-cent reduction policy) would allow producers to continue operating competitively, and enable a transition to more advanced feedstocks, such as microalgae. After the first three years of the proposed CPRS, fossil fuels will be required to pay their carbon cost, incentivising wider uptake of biofuels, which are zero-rated under the Scheme; at which point this excise rebate may be phased out at a lesser impact to the Australian biofuels industry.

The Government of South Australia should strongly encourage the Australian Government to extend this rebate until (at least) July 2014. Furthermore, the State Government should aim to form a coalition with investors and influential industry stakeholders, to collectively present a proposal, which aims to address the impact of federal policies on the growth of the biofuels industry. To strengthen this effort, it should be proposed in collaboration with the Governments of other Australian States and Territories, through the Council of Australian Governments (COAG); and should also address the following.

12.1.The development of Australian biodiesel standards for B21-100 The Government should liaise with federal biofuels policy teams to develop Australian standards for B21-B100 blends, to reduce the negative incentives created by the rules within the current heavy fuel users rebate, which only apply to fuels officially classified as ‘diesel’ (i.e. biodiesel blends up to B20 only) within Australia’s fuel standards. This represents a significant market barrier for uptake of B21-100 biodiesel, in industries, such as mining, which may be more likely to switch to greater biofuels consumption in the absence of such policies.

The development of biodiesel standards for B21-B100 might enable these fuels to qualify for the heavy fuel users rebate. However, as biofuels are already excise exempt (through the biofuels producers rebate), biofuels policy teams should identify opportunities to implement amendment to this policy mechanism to effectively incentivise the wider uptake of biofuels among heavy fuel users.

12.2.Develop supportive biofuels policies, particularly influencing changes with relation to the federal tax regime

The State Government should be linked into federal policy settings to ensure the promotion of biofuels industry interests in policy developments, particularly in relation to changes to the tax regime, which impacts upon the wider biofuels value chain, through the creation of excise rebates and exemptions.

CREATING A FLEXIBLE POLICY FRAMEWORKThe report identifies the need for the establishment of a dynamic policy framework, which supports a variety of strategies for accelerating commercialisation of microalgae biofuels in South Australia. Drawing upon national and international experience, it is clear that a single policy framework is unlikely to be supportive of all innovative business models in this emerging industry. Consequently, the Government of South Australia should establish a framework, which presents a diversity of direct and indirect policy levers that can be utilised, as required by specific, complex projects.


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The recommendations in this report aim to establish some direct and indirect policy measures where the Government of South Australia has a clear role for supporting industry growth. Direct measure include the introduction of biofuels in the State Government fleet (role of customer), offering an indenture to significant large-scale commercial investors establishing biofuels capacity in the State (role of infrastructure provider); and establishing a long-term biofuels mandate to create a market for biofuels in South Australia (role of market guarantor). The other recommendations represent options for significant indirect support from the State Government, including regulatory coordination and information provision to support industry growth in South Australia.

Whilst much of this indirect assistance will be crucial for effective market and policy development, it is expected that at least one of the identified measures for direct Government assistance will be required, subject to individual proposals. Therefore, a flexible policy framework demands the availability of all these direct and indirect policy levers, to allow the perusal of a case-specific combination of policy measures, as appropriate, to accelerate commercialisation of large scale microalgae biofuels production in South Australia.

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FULL REPORT

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AIMS OF THIS REPORT

The State of South Australia exhibits some key advantages for large-scale microalgae production – including favourable climate and availability of land. This study aims to assess the State Government’s role in accelerating commercialisation of large-scale, commercial microalgae biofuels production in South Australia, and will explore the following research themes.

RESEARCH THEMES 1. Explore the benefits for transitioning from first generation feedstocks to more advanced

microalgae feedstocks.2. Assess the commercial reality of microalgae biofuels based opportunities for South Australia.3. Explore the commercial opportunities and challenges for production and uptake of microalgae

based bio-jet fuels from South Australia. Note that the non-CO2 impacts of aviation emissions are not accounted for within the scope of this study.

4. Explore the competitive advantages South Australia can exploit to develop a successful, international, export-based industry in microalgae biofuels; and provide an assessment of the major barriers and industry challenges.

5. Identify policy recommendations for the Government of South Australia to accelerate the

commercialisation of a microalgae biofuels production in South Australia.

The research has a distinct commercialisation and public policy focus, and does not aim to provide direction for scientific research, a comparison between different feedstocks, or an assessment of other alternative transport options.

Research was conducted by way of an international consultation with key stakeholder groups (see Table 1), including Governments, private sector and non-governmental organisations across the microalgae biofuels value chain, to provide recommendations to the Government of South Australia.

Table 1 - Key Stakeholder groups Stakeholder Rationale

1. Carbon Emitters To analyse their strategies and investments in alternative fuels. Also to explore strategies for utilising emissions in algae production.

2. Microalgae Technology Developers

To identify the key constraints and (demonstrable) benefits of the technology, supporting a techno-economic assessment.

3. Existing Biofuels Producers To understand key requirements of biofuel producers and identify availability of potential sites and key requirements in SA.

4. Investment Community To identify ideal market environments to attract investments for the development of algae biofuels.

5. Transport sector To explore innovative solutions adopted by the transport sector to support the widespread uptake of biofuels.

6. Government and Regulators To identify the role of governments in commercialising the algae biofuels industry, through regulation and incentives.

Whilst an initial effort was made to maintain a balanced sample across these stakeholders, it quickly became apparent that there were four key influential stakeholder groups for this study.

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Consequently, whilst added value from the other stakeholder groups was recognised, the research was focussed on responses from (i) the technology developers, (ii) existing biofuels producers, (iii) the investment community, and (iv) Government representatives; to explore both research and commercially focussed business models, techno-economic challenges, regulatory requirements and the role of public policy in accelerating commercialisation of microalgae biofuels in South Australia.


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ASSUMPTIONS AND LIMITATIONS OF THE STUDY

This study assumes: The success of large-scale pilot projects and investments currently planned or underway to

identify native algae strains and low cost production systems, which can be optimised for environments prevalent in South Australia.

The relative accuracy of published data in lifecycle assessment (LCA) and environmental assessments, though they are themselves based on assumptions of productivities and costs.

The study is limited to the responses from the consultation, and information available in published literature, and up-to-date and commercially focussed data regarding productivities, costs and technological challenges remains sparse, due to the levels of commercial confidentiality in this sector.

Additionally, it should be noted that there is both, a lot of optimism and pessimism in the microalgae biofuels industry, and this analysis relies on information provided by the interviewed stakeholders and the balance in published literature, to assess whether this is warranted.

Furthermore, the assessments for aviation bio-jet fuels are heavily based on assumptions, and therefore some caution is required in relation to information provided by corporate stakeholders, which may include biased data adapted to boost share prices and public relations. The lack of independent environmental or LCA data for bio-jet fuels, leads to insufficient data to produce a comprehensive and efficient environmental assessment.

Finally, the intellectual property (IP) and commercial confidentiality issues inhibit collaboration and transparency in the industry, limiting the data available to produce a robust environmental assessment.

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INTRODUCTION

Both the Intergovernmental Panel on Climate Change’s (IPCC) Fourth Assessment Report (IPCC, 2007) and the Stern Review (2006) stress the urgent need to reduce atmospheric levels of CO2e to avoid the devastating impacts of climate change. Additionally, global concerns over energy security and increasing fossil fuel prices are driving R&D to develop renewable energy sources at large-scale; and the development of low carbon fuels remains a central driver for the transport sector (ATSE, 2008; Toth, 2008; Graham et al, 2008; Sims et al, 2008).

Transport accounts for more than half of global oil used worldwide, with emissions expected to increase by over 50% by 2030, doubling that by 2050 (IEA, 2008). The transport sector is one of the fastest growing sectors, representing almost 25% of energy related CO2e emissions worldwide. It is a significant resource-intensive industry, with a wide scope for emissions reduction through the introduction of alternative fuels in the short-term (IEA, 2008).

THE AUSTRALIAN TRANSPORT SECTOR

Transport (and storage) emissions represent 24% of Australian greenhouse gas emissions in 2006 –the nation’s second largest energy-consuming sector - see Figure 3 (Garnaut, 2008). Total GHG emissions in 2006 across all sectors in Australia were 576 MtCO2e; and emissions from transport alone in 2006 were 79.1 MtCO2e, representing 14% of total national emissions (12.1% or 71.1 MtCO2e of total GHG emissions were from motor vehicles), rising by 27.4% (17.0 Mt) from 1990 levels (DCC, 2008; Garnaut, 2009). The majority (57%) are from the residential transport sector, whilst the remaining (43%) emissions are associated with business and industrial sectors.

Figure 3 – Primary Energy Consumption in Australia by Sector – 2005-06

(Source: Garnaut, 2008)

The Garnaut review (2008) suggests that Australian transport emissions will double by 2050, and quadruple by 2100 without efforts to reduce emissions. Figure 4 highlights the nation’s dependence and desire on driving cars. Demand for alternative fuels and vehicles are therefore expected to continue to serve this social characteristic.

As a result of the nation’s current 97% reliance on oil-based fuels for transport, Australia’s current infrastructure is heavily geared at oil-based fuels, and alternative transport fuels account for only 3% of total consumption (Garnaut, 2008; Graham et al, 2008). Calculations suggest that 41% of final energy consumption is used in the transport sector, with energy demand in the sector increasing at a rate of 2.4% per year (Graham et al, 2008).


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Road transport accounts for 75% of (domestic) transport fuel consumption, representing 89% of Australia’s total transport GHG emissions, followed by air transport at 16% consumption and 6% of GHG emissions, shipping at 4% consumption and 3% of emissions and rail at 2% consumption and 2% of emissions.

Figure 4 - Australian Domestic Transport Emissions (2006)

Note: Excludes electric trains and trams. (Source: DCC, 2008a).

TRANSITIONING TO LOW CARBON TRANSPORT IN SOUTH AUSTRALIA

The Government of South Australia is committed to reducing its GHG emissions, and recognises the contribution required from the transport sector to support this. Whilst, stationary energy markets dominate current investments in carbon reduction; sustainable biofuels and electric vehicles are emerging as two of the preferred future transport technologies, among the portfolio of low carbon transport options for South Australia.

Other low carbon fuel options include hydrogen vehicles, battery electric vehicles (BEVs), plug-in hybrid vehicles (PHEVs), liquid natural gas (LNG), liquid petroleum gas (LPG) and biofuels (King, 2008; Graham et al, 2008). However, many of these technologies are still hampered by major techno-economic hurdles. Whilst BEVs and PHEVs require the introduction of completely new infrastructure and engine design, recent technology developments suggest that they are likely to be widely deployed in many nations in the medium-term (King, 2008).

However, some sectors are likely to continue dependence on liquid-based fuels, including heavy-fuel using sectors such as mining and aviation. Furthermore, the demand for liquid transport fuels is likely to decline at a slow rate, and it is therefore unrealistic to assume that liquid fuels for combustion engines will be superseded for many decades (ATSE, 2008). The sectors particularly vulnerable to the difficulties of switching to non-liquid fuels are expected to be mining, agriculture, tourism and aviation (ATSE, 2008; Graham et al, 2008). Sustainable biofuels technologies present a both a transitional and long-term opportunity for substitution of fossil fuels in these sectors.

Advocates of advanced feedstocks have hailed sustainable biofuels as the most realistic transitional technology (Briggs, 2004; Graham et al, 2008; ATSE, 2008). Commercially competitive biofuels can be quickly produced in large quantities today. Importantly, they can also be used in existing engines, as a blend with conventional diesels, without the need for significant engine and/or infrastructure modifications (Briggs, 2004; Graham et al, 2008; ATSE, 2008).

Biofuels are an emotionally charged topic globally, and growing concern (particularly in Europe and the US) over their role in rising food prices, food shortages, accelerating deforestation and land use change, has led to reluctance in their support, from the public and politicians alike. This can often lead

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to some contention in policy choices (Dismukes et al, 2008). Advanced, non-food based feedstocks, such as microalgae are expected to reduce these concerns, and are being developed as a sustainable and high-yielding alternative to first generation biofuel crops (such as palm oil and rapeseed), due to their high oil-content and ability to grow in waste, brackish or saline waters (Miao and Wu, 2005; Carlsson et al, 2007; Biggs, 2004; Alabi et al 2009; Chisti, 2008).


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BACKGROUND

EXISTING BIOFUELS INDUSTRY & POLICIES

Biofuels have been hailed as a solution for global energy security, climate change and rural development. Global ethanol production (from grains or sugar cane) is growing rapidly, and as a share of the world’s total petrol/gasoline output, ethanol occupied just 5.5% in 2008. Biodiesel on the other hand replaces just 0.93% of global diesel fuels’ energy output. Whilst biodiesel has mainly been a European focus, production is now ramping up across Australia, where it is the dominant fuel for industrial transport (Toth, 2008).

Feedstocks for biofuels are wide-ranging, and their costs present the most significant challenges for the biofuels industry. Palm oil is the most productive first generation biodiesel feedstock, delivering a yield of around 4,500L/ha (Toth, 2008). Other common feedstocks include canola, sunflower seeds, and soybeans, reported to produce yields of around 800 – 1,200L of biodiesel/ha (Toth, 2008). More extensive assessments of the global biofuels market have been completed by Toth (2008), and Batten and O’Connell (2007).

EARLY CONCERNS IN THE BIOFUELS MARKET Key concerns for the EU and the US Governments have been the environmental impacts of biofuels and the diversion of feedstocks from food to fuel production, as first generation ‘cash crops’ were charged with increasing global food shortages (and prices) (Toth, 2008; Chisti, 2008). Biofuels were also accused of accelerating deforestation, as virgin forests were cleared in Asia to plant ‘cash crops’ such as oil palm, releasing significant CO2 emissions into the atmosphere. However, a UK study concluded that whilst biofuels made a small contribution to these negative externalities, they were not a driving factor; suggesting that there is plausible scope for further increasing biofuels production to aide transitions to low carbon transport (Gallagher, 2008).

Another concern relates to consistency in biodiesel quality. The feedstocks used in production will impact the stability and performance of the fuel – key considerations for many international fuel standards (Schenk et al, 2008). Whilst many of these concerns have now been addressed; more advanced feedstocks such as microalgae, are expected to provide favourable characteristics which further reduce any potential fuel quality issues.

INTERNATIONAL BIOFUELS INDUSTRY The peak oil phenomenon is hotly debated globally, and ATSE (2008) highlight that oil discovery is slowing down despite increasing demand for liquid fuels worldwide. Additionally, recent increases in oil prices have driven many nations to explore alternative fuels to reduce their dependence on the volatile and unpredictable global oil markets (Batten and O’Connell, 2007; ATSE, 2008).

Brazil has a history of strong government support for ethanol production and is the world leader in production and consumption. There is a current mandatory E20 blend, but 75% of the nation’s passenger vehicles are run on E85 (Toth, 2008; Batten and O’Connell, 2007).

The US is also a large ethanol-producing nation with strong government subsidies. However, the American Recovery and Reinvestment Act 2009 recently awarded US$786.5m to accelerate RD&D for advanced biofuels such as microalgae biodiesel (US DOE, 2009). Biodiesel is also the main production focus in Europe, and the Renewable Energy Directive (2009) set a 10% biofuels target for member states by 2020 – including strict sustainability criteria (Toth, 2008).

Asia is another biodiesel producing continent, with significant quantities produced using palm oil feedstocks in Indonesia and Malaysia (Toth, 2008). An outline of policies in key international biofuel-producing nations is procided in Table 3 (ATSE, 2008). A more detailed assessment can be found in Batten and O’Connell (2007).

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AUSTRALIAN TRANSPORT BIODIESEL INDUSTRY The biodiesel industry in Australia is established with significant increases in biodiesel capacity over the last 3 years. However, capacity is widely underutilised with production of biodiesel at around only 13% of this capacity (Bethune and Cochran, 2009). Despite significant growth over 2005-2007, the emergence of high feedstock costs, poor policy and fluctuating oil prices have led to curtailed operations, with many plants being placed on ‘stand-by’ mode (Bethune and Cochran, 2009).

Installed (but not fully operational) capacity in Australia at the end of 2008, represented a 2.8% of the nation’s diesel demand, or 6.04% of 2008 oil imports at 550 ML (Bethune and Cochran, 2009). However, it is predicted that as much as 465ML of capacity is no longer operational. A similar trend was evident in 2007, which only saw 25% of capacity utilised (ATSE, 2008). Key industry concerns including (i) inconsistent policies, (ii) poor government support, (iii) buyer resistance at the filling station, and (iv) lack of adequate infrastructure. However, critics suggest that process control and product consistency problems were also considerable contributors to the shortfall (ATSE, 2008). Quirke et al (2008) provide an overview of historical policy framework for biofuels in Australia.

Domestic oil supplies have somewhat shielded Australia from international fluctuations in oil prices; however, domestic reserves are expected to have peaked in 2007 (Geoscience Australia, 2005). Consequently, Australia is very vulnerable to changing market conditions (Graham et al, 2008). A study by ATSE (2008) explains that 62% of Australia’s crude oil production was exported in 2005-06, however, Australian demand required additional crude oil imports of $12.4bn– equivalent to 56% of the total cost ($21.5 billion) of energy products imported into Australia; or 31% of the total export value of Australia’s energy products ($39.4 billion). Therefore, sustainably produced biofuels available at a competitive price to fossil oil would present significant energy security benefits as well as a balance of payments to the national economy in Australia (ATSE, 2008). CSIRO’s Future Fuels report (2008) found that microalgae biodiesel could potentially provide up to 30% of Australia’s fuel needs by 2050 (Graham et al, 2008).

A summary of existing biofuels policies across the Australian States and Territories is presented in Table 2.

Table 2 – Existing Biofuels Policies in Australian States and Territories, 2009

State/Territory Policy

New South Wales

2% ethanol mandate from October 2008 4% ethanol mandate to 1st January 2010 10% ethanol mandate from 1st July 2011 (all unleaded petrol to

include ethanol from 2011) 2% biodiesel mandate from 2011

South Australia B5-B20 used in some public transport fleets.Victoria 5% biofuels target by 2010Queensland 5% ethanol mandate for unleaded petrol from 31st December 2010Western Australia 5% biofuels target by 2010Northern Territory UnknownTasmania Unknown

SOUTH AUSTRALIA South Australia is home to an ambitious 33% renewable energy target for 2020 – a challenging ambition, announced by Premier Mike Rann, who is also the State’s Minister for Climate Change. The State is investing in efforts to increase wider uptake of renewable technologies across the economy, to reduce CO2 emissions. Sustainable transport biofuels are expected to play a significant role in transitioning to low carbon transport.

South Australia exhibits the optimal climate and resource requirements for high productivities of microalgae biomass production (see Figure 5), presenting significant market opportunities for the


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State to develop commercial, large-scale microalgae biofuels production to compete in this low carbon emerging, global industry.

Diverse microalgae research, and significant political will to nurture alternative transport technologies in the State, suggests that commercialisation of microalgae biofuels production could be plausibly achieved in South Australia.

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Location Brazil USA Canada European Union (EU) Asia

Policy

Brazil is the world leader in ethanol production and consumption, with strong government support dating back to the 1970’s oil crisis Toth, 2008).

Ethanol had overtaken petrol in market share by the 1980’s, and the recent introduction of flexi-fuel cars has driven further success by allowing consumers to choose between ethanol and petrol (Batten and O’Connell, 2007; ATSE, 2008; Toth, 2008).

The Energy Independence and Security Act of 2007 amends the Renewable Fuels Standard (RFS) signed into law in 2005, growing to 36 billion gallons in 2022.

Government support has subsidised the construction of refineries and feedstock development. The US biofuels industry is growing rapidly, with a 15% increase in the area of corn planted in 2007 from 2006 (ATSE, 2008; Batten and O’Connell, 2007).

In May 2009, the Obama administration announced a boost of US$786.5m from the American Recovery and Reinvestment Act to accelerate RD&D to accelerate commercialisation of advanced biofuels which use non-food based feedstocks - including lignocelulosic ethanol and microalgae for biodiesel (US DOE, 2009).

National target of 5% biofuels by 2010.

Two Canadian provinces have expanded the use of renewable fuels such as biodiesel. Alberta and British Columbia joined Saskatchewan, Manitoba and Ontario have individual renewable fuels standards (RFS).

10% biofuels target. At least 40% of the 10% target must be met by electricity or hydrogen from renewable sources, or so-called 2nd generation biofuels. Strict sustainability criteria for the generation of biofuels were also set2, to dispel concerns over their long-term and knock-on effects (Wang 2008).

The European Biofuels Technology Platform (EBTP) was introduced to facilitate increased biofuels deployment, particularly using feedstocks, which do not compete for food (ATSE, 2008; Batten and O’Connell, 2007).

Indonesia and Malaysia are currently the biggest biodiesel producers in Asia, closely followed by India (Toth, 2008).

Biodiesel

Brazil’s biodiesel industry is in its infancy, but is supported by government-led mandates of 2% by 2008 and 5% by 2013 (Batten and O’Connell, 2007).

The USDA has provided payments to producers to encourage biodiesel production. Plants with capacity under 65 million gallons per year were reimbursed 1 bushel of feedstock for every 2.5 bushels used for increased production (those over 65 million gallons were reimbursed 1 bushel for every 3.5 bushels used for increased production).

Federal renewable fuels standard in mid-2008, which calls for 2% renewable content in diesel fuel by 2012.3

Biodiesel is of most interest in Europe, and whilst some is imported from Brazil, European ethanol production has waned since the introduction of the EU Biofuels Directive discussed above (Toth, 2008).

Use palm oil as a primary feedstock, but also use jatropha, and are increasing their biodiesel exports to the EU (Toth, 2008).

Ethanol

Currently an E20 (20% ethanol) blend is mandatory, and 75% of Brazil’s light vehicles – flexi-fuel cars – are run on E85 (Toth, 2008).

Brazil is the only nation exporting significant quantities of fuel-grade ethanol to the EU, and North America (Toth, 2008).

The US is the world's largest producer of ethanol fuel since 2005. The U.S. produced 9.0 billion US liquid gallons of ethanol fuel in 2008, and together with Brazil, both countries accounted for 89% of the world's production in that year. Most ethanol fuel in the U.S. is produced using corn as feedstock.As of 2007, ethanol market share was about 3% of the U.S. gasoline-vehicle fuel consumption, and capacity reached 9,000 million gallons in 2008.

Canada produced 762ML of ethanol/year in 2005-07, but the OECD-FAO expected this to increase to 1,383ML in 2008 (Toth, 2008).The Government has introduced support measures for increasing fuel-grade ethanol production from grains (Batten and O’Connell, 2007).

Europe produced 56% more ethanol in 2008 than in 2007, according to the European Bioethanol Fuel Association. Producers in the European Union made 2.8 billion litres of ethanol in 2008, up from 1.8 billion litres in 2007. The increase is due in large part to growth in French production, which nearly doubled in 2008 to 1 billion litres, up from 539 million litres in 2007.

Feedstocks include cassava, and sugar cane (Toth, 2008).

Table 3 – Summary of Biofuels Activity in Key Biofuels Producing Nations

2 i.e. Biofuels must make at least a 35% saving of emissions (including importing/exporting), rising to 50% and 60% in 2017.3 http://www.biodieselmagazine.com/article.jsp?article_id=3142


http://www.biodieselmagazine.com/article.jsp?article_id=3142

TECHNO-ECONOMIC ASSESSMENT OF MICROALGAE BIOFUELS

Algae are a diverse group of aquatic, photosynthetic organisms, categorised as either macro-algae (e.g. seaweed) or microalgae (Rosenberg et al, 2008). Microalgae are micro-organisms that are found in marine and freshwater environments. Whilst their photosynthetic structure is similar to that of land-based plants, their simple cellular structure and aqueous environment (better access to water, CO2 and key nutrients) increases their efficiency of solar energy conversion to biomass (Carlsson et al, 2007).

Microalgae contain lipids and fatty acids as membrane components, storage and energy sources. These lipids can be converted into biodiesel using existing processes (such as transesterification), whilst the residual biomass can be used in pharmaceutical, nutraceutical and cosmetic applications; or anaerobically digested to produce additional bio-energy products, feeds and fertilisers (Campbell et al, 2009; Chisti, 2007; Kanes, 2009; Benemann, 2003).

Using microalgae for energy production has been extensively studied worldwide for over 50 years. (Briggs, 2004; Chisti, 2007; Patil et al, 2008). Despite this, few robust techno-economic assessments of microalgae biofuels exist, and those that do are often hampered by uncertainties and assumptions. An assessment is provided here based the studies available in the published literature.

There are over 120,000 species of microalgae known to humankind, categorised based on their life cycle and basic cellular structures. Kanes (2009) descries the four most important classes as:

1. Diatoms – mainly found in oceans, and some fresh and brackish waters. Diatoms store carbon in the form of natural oils.

2. Green Algae – stores carbon in the form of starch, and some oils can be produced under certain conditions.

3. Cyanobacteria (Blue-green Algae) – prokaryotes similar in structure to bacteria, and some play an important role in fixing nitrogen from the atmosphere. They can grow in extreme conditions, both photosynthetically and heterotrophically, and are often found in freshwater.

4. Golden Algae – similar to diatoms, these algae produce natural oils and carbohydrates as storage compounds; and they’re often found in freshwater environments.

To date, the majority of algae used in biofuel production systems fall into the first two classes. Algal biomass can produce a wide range of energy products, including biodiesel, ethanol, hydrogen, methanol, as well as other low-volume, high-value by-products such as feed for aquaculture and animals, beta-carotene, astaxanthin, polyunsaturated fatty acids (PUFAs) and polysaccharides (Carlsson et al 2007, Kanes 2009). Each algae strain has its own characteristics and produces a different combination of products. For example, strains high in fats are suitable for biodiesel feedstocks, those high in carbohydrates are suitable for ethanol feedstocks; strains high in heat content would be more suitable for bioenergy, and strains high in nutrients are most suitable for nutracuticals, dyes, beta-carotene and health foods (Kanes, 2009; Carlsson et al, 2007).

COMPARISON WITH LAND-BASED BIOFUELS Some species of algae are ideally suited to biodiesel production, boasting numerous benefits over first generation land based crops (Briggs, 2004; Chisti, 2007; Kanes 2009; Patil et al, 2008; Campbell et al, 2009) including:1. High oil (lipid and hydrocarbon) content (as much as 40-50% of dry weight of algal biomass,

compared with agricultural soybean and oil palm which have an oil content of less than 5% of total biomass),

2. Rapid growth rates due to short generation times, 3. High productivities (compared to land-based biofuel crops), 4. Ability to re-use GHGs including CO2, NOX and SOX during growth phases,

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5. They do not compete for land or freshwater required for food4/feed/fibre production6. Do not involve the destruction of habitats7. Produce a fuel containing no sulphur, with low toxicity that is highly biodegradable.

It should be noted that not all strains of microalgae exhibit all of these characteristics in combination. Some strains high in oil content may have slower growth rates for example. Current R&D efforts are focussed on identifying indigenous strains, which can be cultivated and manipulated to exhibit the most favourable combination of characteristics to produce a commercial biofuel.

PRIOR R&D Microalgae have been extensively studied worldwide for over 50 years, with the most extensive government-funded research programmes in the USA and Japan. The focus of research has shifted from food and feed production, wastewater treatment, and production of nutritional supplements, to bioenergy production (biogas, biodiesel, hydrogen etc), and more recently GHG abatement through biofixation of CO2 from power plant flue gasses.

The US Department of Energy’s (DOE) Aquatic Species Programme (ASP), ran from 1978 to 1996, and investigated the possibilities of using microalgae to sequester CO2 emissions from polluting coal power plants. After it was discovered that microalgae could be used to produce biodiesel however, the focus shifted to developing a production of high lipid-content biodiesel, grown in open ponds, and fed with CO2 from flue gasses emitted by coal power plants (Sheehan et al, 1998; Carlsson et al, 2007).

The ASP created a library of over 3,000 microalgae species, screened based on robustness, oil (lipid) content, growth rate and metabolic efficiency – key factors affecting the economics of large scale and profitable commercialisation (Rosenberg et al, 2008; Sheehan et al, 1998). Larger government-funded Japanese efforts focused on cultivation of microalgae in seawater, and use of actual power plant flue gas CO2 in closed photobioreactors (PBRs), however, the economics of such systems remain challenging (Benemann, 1997; van Harmelen and Oonk 2006).

Whilst practical application in some areas have already been achieved through open pond production systems, widespread uncertainty still remains about the use of microalgae for CO2 biofixation and GHG abatement.

Many organisations have attempted to build upon this past knowledge through smaller scale experiments, which have yielded some very positive results in terms of microalgae cultivation, productivities and species selection. This has prompted optimistic projections of the theoretical potential of microalgae production; with some companies making potentially ‘unrealistic’ claims about microalgae utilisation in bioenergy production. It should be noted however, that this optimism is often based on extrapolations of data and calculations from small-scale and short-term experiments; often assuming major technological breakthroughs, which would deliver higher productivities at lower costs (as well as favourable assumptions about availability of water, land, nearby CO2 sources and infrastructure), and therefore should be interpreted with some caution (Benemann, 1997; van Harmelen and Oonk, 2006).

ALGAE GROWTH & PRODUCTIVITIES The key performance factors for algal growth include access to water, CO2, nutrients -mainly nitrogen (N) and phosphorous (P); and climate (sunlight, temperature and modest variability in seasons). Suitable locations exhibit average temperatures of 15C or higher, and have moderate seasonality, and minimum winter and overnight temperatures. Figure 5 identifies the suitable ‘climate belt’ for high microalgae productivities (Kanes 2009; van Harmelen and Oonk, 2006; Benemann, 1997; Schenk et al, 2008; Dismukes et al, 2008; Chisti, 2008). A more detailed assessment of the key performance parameters for microalgae production systems is provided in Appendix 1.

4 Algae require nutrients for growth, including nitrogen and phosphorous, which are also required for food crops. Therefore there is some indirect competition with food crops, particularly for declining phosphorous supplies.


Figure 5 - Suitable climatic conditions (those with an average annual temperature of 15C) are highlighted in orange and red, within the blue rectangular box, which outlines the area between 37 degrees north and south latitude, most suitable for microalgae production.

Source: IPCC, as cited by van Harmelen and Oonk (2006).

The US Department of Energy (US DOE) projects a microalgae yield of around 15,000 litres of oil/ha, around 30 times more oil/ha than current soybean yields (Kanes, 2009). In addition, Table 4 illustrates the biodiesel production efficiencies of several feedstocks, highlighting the potential smaller land footprint of microalgae biofuels as a result of higher potential productivities (Schenk et al, 2008).

Table 4 - Comparison of crop-dependent biodiesel production efficiencies from plant oils

Source: Schenk et al. (2008)

The maximum theoretical potential is expected to be a productivity of over 300 t/ha/year; however, this has never been achieved in practice (Benemann and Oswald, 1996; Carlsson et al, 2007). The Algal Species Programme suggested that seawater and freshwater algal cultures could achieve productivities up to 100 t/ha/year and this has been the focus of recent R&D efforts (Benemann, 2003). Existing, un-optimised wastewater cultures are already expected to produce in the region of 70 t/ha/year of mixed algae cultures.

However, some commercial producers predict a quality-consistent, reproducible yield of only around 20-50 t/ha/year from particular strains, which is comparable to yields in conventional tropical agriculture, where typical dry biomass yields of 20-25 t/ha/year are not uncommon (Carlsson et al 2007; Dismukes et al, 2008; Benemann, 1997). Control of nutrient supply can be used to manipulate

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the biological composition of the microalgae however, allowing them to accumulate oils in the starved cells as an energy store (Rosenberg et al, 2008; Kanes, 2009).

A range of interacting issues, solutions for which may be mutually exclusive, limit the productivities of open raceway ponds and closed PBR systems. These issues include (i) photosynthetic efficiency (ii) culture depth and mixing to increase light exposure and (iii) cultivation procedures (i.e. batch, continuous or multi-stage) (Carlsson et al, 2007; Schenk et al, 2008). Significant R&D will be required to overcome these and other challenges (including respiration), which inhibit productivities (Carlsson et al, 2007; Benemann, 2003).

A fundamental limiting factor for microalgae productivity is the light saturation problem – where large amounts of pigments and chlorophyll in algal cells result in cells closer to the surface absorbing more light than their photosynthetic apparatus can effectively use. This excess is wasted, and as a result not available to cells deeper in the pond. Mixing can help reduce these issues, exposing more algal cells to the light, but it can be very energy intensive. Another approach to overcome this might be the genetic manipulation of cells to reduce the contents of light harvesting pigments. Studies cultivating algal cultures with reduced pigment contents have shown higher productivities and photosynthetic rates than normal cells, at high light intensities and dense cultures (Benemann, 2003).

PRODUCTION SYSTEMS The main production systems explored for large-scale microalgae production are: 1. Open Raceway Ponds – open shallow ponds, which feed on nutrients from nearby land or

effluent channelled from water treatment plants. The water is kept in motion and mixed by a paddle wheel (Carlsson et al, 2007; Alabi et al 2009). However, the significant evaporation challenges presented by shallow raceway ponds systems, which are widely favoured for South Australia, present a significant hurdle for large-scale production.

2. Closed Photobioreactors (PBRs) – these are different types of tanks or closed systems with transparent container walls, allowing the simultaneous cultivation of monocultures of microalgae. Water, nutrients and CO2 can be provided in a controlled way, but excess oxygen must be removed (Carlsson et al 2007; Alabi et al, 2009).

3. Hybrid Systems - Most commercial operations are adopting the hybrid production system, which combines the above two systems for cost-effective algal production. A series of PBRs of increasing size (and decreasing sophistication – i.e. costs) are used to produce a modest amount of inoculum culture (about 1-2% of total biomass), enough to effectively establish the desired strain, which is introduced to the raceway pond before unwanted species take residence (van Harmelen and Oonk, 2006; Schenk et al, 2008; Benemann, 2008). However, contamination of the open pond is considered inevitable, and Schenk et al (2008) recommend that cleaning and flushing the pond be adopted as part of the aquaculture routine, to minimise contamination issues.

Whilst costs for closed systems are expected to be approximately twice that of open systems, research shows that in some cases, closed systems can provide double the productivities in terms of dry weight biomass (g/m2/day) (Benemann, 2002; van Harmelen and Oonk, 2006). Many commercial producers now favour hybrid systems, some of which use a closed system for initial inoculum stages, and in some cases, an open raceway pond system for the main growth and cultivation stages. Fully closed systems are likely to be completely inappropriate and unsuitable for Australia. Microalgae production demands a regionally appropriate production system; and it would be a missed opportunity not to capitalise on Australia natural advantage of favourable climatic conditions. Despite contamination risks and high evaporation challenges, open ponds systems are considered more cost effective for climatic conditions prevalent in South Australia, which is close to the temperature threshold for optimum cultivation climates, as highlighted by van Harmelen and Oonk (2006) in Figure 5. As a result, co-location with a power station, would not only supply a concentrated


CO2 supply, but also a (waste) heat source, which might be required to sustain productivities during SA’s winter months.

A detailed comparative analysis is provided in Appendix 2, whilst Figure 6 provides a visual representation of the conceptual process for microalgae production.

DEWATERING & HARVESTING MICROALGAE The dilute nature of microalgae biomass presents significant challenges for low-cost harvesting and dewatering at the biomass recovery stage. Although strategic selection of more easily harvested strains can help, there are trade-offs in the end product (Schenk et al, 2008; Benemann, 2003). The dewatering and harvesting process is considered to have the highest potential for cost reduction (Campbell et al, 2009).

In current commercial production, the most common harvesting methods are flocculation, micro screening and centrifugation, but these are too cost and energy intensive for production of (low-value) biofuels (Schenk et al, 2008). Other, low-cost harvesting technologies currently being investigated include bioflocculation, co-bioflocculation and feeding the microalgae to talapia fish, which take minimal nutrients from the micro\algae, and allow harvesting through their sedimented droppings (Schenk et al, 2008; Benemann, 2002).

BIOFUEL QUALITY Table 5 demonstrates the more favourable fuel characteristics of microalgae biodiesel, in comparison to diesel and international ASTM D6751 biodiesel standards (Miao and Wu, 2005). Importantly, the data from the table indicates that some strains of microalgae produce a biodiesel, which has a low Cold Filter Plugging Point (CFPP), the temperature at which the fuel begins to solidify and block the fuel filters of an engine (a key concern for many biofuels users) (Schenk et al, 2008).

Table 5 - Comparison of properties of biodiesel from microalgal oil and diesel fuel and ASTM biodiesel standard

Source: Miao and Wu (2005)

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COMMERCIAL OPPORTUNITIES FROM MICROALGAL BIOFUELS PRODUCTION

Commercial production from some microalgae strains has already been achieved for some high-value product markets, but the economic margins are much smaller for microalgae biofuels production due to their lower market value (Schenk et al, 2008).

EXISTING MICROALGAE MARKETS The dominating species of microalgae currently in commercial production include Isochrysis, Chaetoceros, Chlorella, Arthrospira (Spirulina) and Dunaliella salina (Carlsson et al, 2007). Estimates of the worldwide annual production of algal biomass range from 5m kg/year with a market value of US$330/kg (Rosenberg et al, 2008) to 5,000 tonnes/year of dry matter generating a turnover of around US$1.25bn/year (Pulz and Gross 2004). This demonstrates the scale of the high-value, low-volume global market that already exists for microalgae production. Almost half of this is open pond production from China, with the rest from Japan, Taiwan, United States, Australia and India (Kanes, 2009).

Campbell et al (2009) and Benemann and Oswald (1996) argue that whilst microalgae are aquacultured worldwide to produce high value products (See Appendix 3), the methods they use are not considered effective for large-scale, commercial biofuels production. Existing production of Dunaliela salina in South Australia, for example, is based on unmixed ponds, which do not maximize biomass production. Smaller pond systems in California and Israel utilise raceway ponds with paddle wheel mixing, considerably increasing yield per hectare.

Many large (~250 acres) open ponds around the world also use algae in wastewater treatment; and their ability to recover nutrients from wastewaters, and capture of CO2 from flue gasses, is seen as their most effective near-term application (van Harmelen and Oonk 2006; Benemann, 2003; Schenk et al, 2008).

BIO-ENERGY PRODUCTION Like most first generation biodiesels produced today, microalgae oil can be converted to biodiesel using a transesterification process (Benemann, 2003; Campbell et al, 2009). In addition, microalgae biomass high in sugars can be used to produce ethanol via yeast fermentation. The remaining biomass can then be anaerobically digested to recover the residual energy content as biogas – a mixture of around 60% methane and 40% CO2, which could be used to offset power requirements on site, or fed back into the electricity grid as green power (Campbell et al, 2009; van Harmelen and Oonk, 2006; Benemann, 2003).

Furthermore, the nutrient-rich residue from the digesters can be either sold as fertilisers, feeds, or recycled back to the algal ponds (van Harmelen and Oonk, 2006; Benemann, 2003; Schenk, 2008). As a result, Campbell et al (2009) suggest that a microalgae production plant may be better referred to as a ‘biogas power plant’, which produces biodiesel as a by-product, due to the amount of electricity produced from the biomass digestion.

AVIATION BIO-JET FUEL PRODUCTION The aviation sector accounts for around 2% of global aviation emissions – around 677mtCO2 in 2008, expected to grow to 3% by 2050 (IPCC, 2007; ATAG, 2009). Whilst increasing efficiencies have reduced emissions, these have been outstripped by emissions increases due to industry growth; consuming around 150m litres of Jet A1 fuel per year. The aviation sector has few alternative fuel options; hence bio-jet fuels present a strong long-term GHG reduction and fuel security opportunity for the sector. Furthermore, as emissions trading schemes (ETS) are introduced around the world the aviation sector is recognising the economic impact of its carbon liabilities and exploring strategies to reduce their GHG emissions (ATAG, 2009; Taylor, 2009). A further discussion is provided in Theme 3.


Negative GHG emissions balance from substitution of fossil fuels, which unlock new sources of carbon, and from biogas production.

MICROALGAE APPLICATIONS IN ENVIRONMENTAL PROTECTION

GHG ABATEMENT AND CO 2 SEQUESTRATION Microalgae consume CO2 (and emit O2) mostly during daylight hours, potentially supplied in concentrated form from power plant flue gases (van Harmelen and Oonk, 2006; Kanes, 2009). Estimates for CO2 uptake by microalgae range from 1.6-2.2 tonnes of CO2 to produce 1 tonne of microalgae biomass (van Harmelen and Oonk, 2006; Benemann, 2003; Benemann, 1997; Kanes, 2009; Schenk et al, 2008). Algal biomass (dry weight organic matter) contains around 46% carbon, and one third of this can be transferred into methane gas through anaerobic digestion - so 0.5 tons of CO2 can be abated if biogas is substituted for natural gas for example (van Harmelen and Oonk, 2006).

Whilst microalgae don’t offer a permanent sequestration mechanism (as the captured carbon is returned to the atmosphere upon combustion), GHG abatement is achieved from the substitution of fossil fuels with microalgae biofuels, and through the production of energy-sparing co-products, such as biogas, biopolymers, fertilisers and animal feeds (Benemann, 2003; van Harmelen and Oonk, 2006; Campbell et al, 2009).

LIFE-CYCLE ASSESSMENT (LCA) AND ENERGY BALANCE Few studies have considered the life-cycle assessment of microalgae biofuels production, but a recent CSIRO study (2009) in Australia represents the best example. Campbell et al (2009) found that productivities of around 109.6t/ha/year (which they describe as their optimistic ‘ideal’ case) could be achieved if the practical logistics of land and infrastructure could be resolved. In this case the lifecycle GHG emissions remain lower in comparison to ultra low sulphur diesel (ULSD) and canola biodiesel, even when the algal farm is not co-located with a CO2 supply, requiring CO2 to be trucked in (up to 100km) – see Figure 1 (Campbell et al, 2009).

Figure 1 – GHG emissions per litre for microalgae biodiesel compared to canola biodiesel and ULSD

Source: (Beer, 2009)

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Campbell et al (2009) add that not only is less fossil energy required to produce the microalgae biodiesel, but the excess electricity produced by the residual biomass (which is fed back into the electricity grid) means that coal and gas electricity is also substituted.

INTEGRATION WITH WASTEWATER TREATMENT (WWT) The integration and optimisation of microalgae production with open ponds municipal wastewater treatment systems is considered the nearest-term practical application of microalgae biomass production, using existing infrastructure (Schenk et al, 2008; Benemann, 2003; Carlsson et al, 2007; Kanes, 2009). Nutrient-rich wastewaters are essential for large-scale production, and microalgae are already used in WWT to provide dissolved oxygen for the bacterial decomposition of the organic matter. As the microalgae grow, they utilise the CO2 emitted by the bacterial breakdown, and extract the nutrients from the effluent, purifying the water and reducing incidents of eutrophication (Benemann, 2009; van Harmelen and Oonk, 2006).

Treatment of domestic and municipal wastewaters using microalgae provides a low carbon and sustainable treatment technology. The requirement to meet discharge requirements and opportunity to further exploit opportunities from the algal biomass present dual incentive for harvesting the biomass.

High rate algal ponds (HRAP), which can be optimised to promote algal growth, allow much higher loadings than standard, unmixed facultative ponds, and have been used for over 50 years. They present a potential opportunity for microalgae co-production, however, further R&D is needed to optimise and integrate these systems. In some existing designs, large settling or maturation ponds to reduce pathogenic bacteria follow HRAPs, producing irrigation waters or groundwater recharge (Benemann, 2002; Fallowfield and Garrett, 1986). Studies suggest that there is a potential to develop more intensive and smaller footprint systems using HRAPs, for the development of this holistic and sustainable approach to wastewater treatment, GHG abatement and production of valuable ‘bio-products’ (Benemann, 2002; Fallowfield and Garrett, 1986; Shilton et al, 2008).

Benemann (2002) proposes a “controlled eutrophication process” known as the Partitioned Aquaculture System (PAS) as a process that is not constrained by such harvesting challenges. The method, which has been proposed for California’s Salton Sea, requires feeding microalgae grown in HRAPs to tilapia fish, which is then converted into solids (faeces), allowing low-cost and simple harvesting of the biomass, through sedimentation (Schenk et al, 2008). The biomass could then be anaerobically digested to produce biogas, with the residues converted to fertilisers or aquaculture feeds. Further demonstration of this technology is required, and has been proposed in the US. A further discussion is provided in Appendix 4.

Other environmental applications using microalgae include further removal of nutrients and heavy metals from wastewaters, although the latter has been out-competed by ion exchange resins in commercial applications (Benemann, 2002).


ECONOMIC ANALYSIS: COSTS & REVENUES

LIFE CYCLE COST ANALYSIS The economic challenges associated with the capital and operating costs of reliably cultivating microalgae to produce oils at productivities high enough to generate a commercial biofuel is the critical issue for microalgae commercialisation. However, current commercial microalgae production is very small-scale and inefficient; and therefore it can plausibly be argued that economies of scale and advances in technology could reasonably bridge this gap as the industry matures (Benemann, 2009).

The lack of robust economic data for commercial microalgae biofuels systems presents a significant barrier for production of a rigorous assessment of the likely timescales for commercialisation. Further research and pilot scale technology demonstration and deployment will be essential for ongoing assessment and development of commercialisation strategies to address the techno-economic challenges. Many of the key costs and revenues associated with microalgae production systems will be site-specific and therefore difficult to generalise. Hence, assumptions on productivity, median costs and revenue figures are often used. The following analysis provides a summary of the available economic data available in the published literature for open pond systems of typically 400ha (Benemann, 2003; van Harmelen and Oonk, 2006).

Current cost estimates by Benemann and Oswald (1996), van Harmelen and Oonk (2006) and Campbell et al (2009) suggest figures for total capital investment in the range of $93,000 - $215,000, and $9,600 - $44,000 for total operating costs. The significant standard deviations in these figures illustrate the inherent uncertainties.

As an example, capital costs for a 400ha open pond microalgae production system, would include (i) The construction of ponds, (ii) Ancillary costs (paddle wheels, harvesting, processing, piping, infrastructure, water

supply); and (iii) Ongoing operational costs, including energy use, maintenance and labour (Benemann

and Oswald, 1996; van Harmelen and Oonk, 2006).

It should be noted however, that these calculations are for the production of the algal biomass only, and do not include the additional costs incurred for waste treatments or further processing for the production of co-products (van Harmelen and Oonk, 2006).

A recent CSIRO study by Campbell et al (2009) considers three separate configurations of microalgae biofuels production in Australia, and provides an encouraging assessment based on both optimistic productivities of 100t/ha/year, and more realistic productivities of 50t/ha/year. Campbell et al (2009) claim that with optimistic productivities of 100t/ha/year and favourable assumptions of oil extraction rates, the lifecycle costs of all three cases of microalgae production considered would be cheaper than ULSD and biodiesel from first generation canola feedstocks.

However, the study (2009) claims that with more realistic productivities of 50t/ha/year (based on current technologies), with the nearest CO2 source being 50km (or more) away, the lifecycle costs would be likely to increase substantially, increasing the final sale price, and therefore reducing its competitiveness with ULSD and canola biodiesel - see Table 6 (Campbell et al, 2009).

Current estimates put the cost of production at as much as $15/l for microalgae biodiesel, with one Australian group claiming to have reduced this to around $3.5/l. The target is to produce a fuel that is cost competitive with fossil fuels, at around $1/l. The most significant costs are expected to be associated with the harvesting, dewatering and extraction processes, and developments in low cost technologies to address these bottlenecks will be crucial for the economic feasibility of microalgae production in such configurations.

Opportunities for the holistic integration of the microalgae production with existing industries such as wastewater treatment present significant economic benefits. Existing infrastructure can be utilised or

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adapted to reduce capital costs, and the production of various co-products, including reclaimed waters for irrigation or groundwater discharge and organic fertilisers provide further revenue streams.

Table 6 - Lifecycle costs of fuel use in Articulated Truck for 1 tonne-km; ‘realistic’ production (productivities of approx. 50t/ha/year)

Source: Campbell et al (2009)

A recent CSIRO lifecycle analysis of biodiesel from microalgae grown in photobioreactors (PBRs) provides the most up to date economic projections for the Australian market. The study suggests that a 100ha PBR, with a lifespan of 20 years is likely to have a capital cost between A$290,000-A$310,000/ha – considerably more than previous estimates from published literature (Flesch et al, 2009).

REVENUES Microalgae biomass production can provide a diverse range of products catering to a variety of commercial markets. In the case of microalgae biodiesel production, specific microalgae strains can be developed to produce saleable co-products, which may initially serve to offset higher costs of microalgae biodiesel production in some business models.

The recovery of specific co-products is dependent on the characteristics of the microalgae strains, as well as the harvesting systems. Specific strains will be strategically cultivated and harvested by producers to target particular end markets. Some of the potential co-products from microalgae biomass include pharmaceuticals, nutraceuticals, cosmetics, bio-energy, bio-plastics, chemicals and more.

It is expected that biopolymers and animal feeds are likely to have an average value of around €1000/t, and organic nitrogen fertilisers could generate around €50/tonne, although prices for the latter remain uncertain. These co-products represent around 20% of the biomass, the rest of which can be processed to produce bioenergy. Large quantities of biogas can be produced, at an estimated rate of 12GJ/tonne with values ranging from €70-120/tonne (Campbell et al, 2009; van Harmelen and Oonk, 2006).

A study by Hassania (2009) provides an economic assessment of microalgae biofuels production from a true market perspective. The assessment (See Appendix 5) highlights the inherent need for the low-cost development of harvesting and extraction systems to support the economic viability of commercial production.

SOCIAL BENEFITS


The establishment of a thriving microalgae biofuels industry in South Australia will deliver significant economic and social benefits. Replacing just 10% of Australia’s mineral diesel with microalgae biodiesel is expected to create around 5000 jobs across the value chain – from extensive R&D, increased commercial scale production, distribution, consumption and through a variety of co-product markets.

Many microalgae production sites may also be located in rural areas, providing economic development benefits in these areas. Campbell et al (2009) suggest that up to 60 positions could initially be created for a single 400ha open pond microalgae production site - both technical and administrative. Additionally, Felsch et al (2009) add that using a PBR system, it is likely that 1 position will be created for every 4ha of PBR production.

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RESEARCH THEMES

RESEARCH THEMES


The following themes are presented in this section.

THEME 1: Explore the benefits for transitioning from first generation feedstocks to more advanced microalgae feedstocks.

THEME 2:Assess the commercial reality of microalgae biofuels based opportunities for South Australia.

THEME 3: Explore the commercial opportunities and challenges for production and uptake of microalgae based bio-jet fuels from South Australia.

THEME 4:Explore the competitive advantages South Australia can exploit to develop a successful, international, export-based industry in microalgae biofuels; and provide an assessment of the major barriers and industry challenges.

THEME 5:Identify policy recommendations for the Government of South Australia to accelerate the commercialisation of a microalgae biofuels production in South Australia.

MARKET TRENDS

Diesel fuel consumption is growing more rapidly than petrol in the Australian retail market; with the nation’s transport fuel needs rising to 19GL of petrol and 16GL of diesel for road transport in 2007. Whilst a portfolio of future transport solutions will need to be deployed to transition to a low carbon transport sector, it is believed that microalgae feedstocks present the most realistic biofuels technology to meet some of this growing demand.

The Australian biofuels industry is established, but widely underutilised due to high feedstock costs and waning demand. The industry in Australia has had a lesser impact from the food vs. fuel debate, compared to Europe and the US, as the quantity of feedstocks consumed by Australia’s biofuels industry do not compete strongly with human food or animal feed. However, industry expansion threatens to change this trend, as alternative feedstocks would be needed to meet increasing demands if biofuels are to provide a significant (>20%) of Australia’s transport fuels. Efforts are ongoing to develop feedstocks from waste, and non-food producing sources and microalgae present a good opportunity for this type of industrial symbiosis.

Australia’s primary feedstock for biodiesel, tallow, has rapidly increased in price as a result of high demand from Chinese soap makers; forcing a number of biodiesel producers to shut down. Remaining producers are now trying to diversify their feedstocks, and it is widely regarded by industry representatives that the future of microalgae biofuels commercialisation (expected to be 5-10 years away) would secure the future of the biofuels market.

Additionally, research into alternative fuel technologies in the US market shows an increasing focus on ‘drop-in’ fuels such as Renewable or Green Diesel – which have the same specifications as fossil diesel, offering a direct substitute for their fossil equivalents; via a separate patented conversion process. They require no major infrastructure changes, and are considered an advanced biofuels alternative, allowing 100% uptake. Test flights and road tests have been completed using this drop-in fuel, yielding positive results.

This presents an alternative route for microalgae oil – but market investments will dictate how the oil is used. The economics and efficiencies of the conversion process may differ from transesterification however; and further independent research is needed to investigate its lifecycle GHG benefits. However, the ‘drop-in’ nature of the fuel presents a financially attractive proposition for a market reluctant to make significant investments in infrastructure costs. Therefore it could offer a low carbon, incremental transitional opportunity, subject to GHG analyses.

MICROALGAE INDUSTRY PRIORITIES

Despite almost $1bn spent on microalgae-based research over the past 50 years, the debate about where research is best targeted, still remains rife. Some stakeholders argue that much more basic research is still needed on the biology of microalgae strains and behaviour. However, most stakeholders believe that the production is technically feasible alongside ongoing research to optimise large-scale production systems to drive commercialisation, rather than to find the ‘perfect’ strain.

Whilst the distinction between research driven, and commercially driven aims is to some degree inherent in published literature; this study finds that the R&D priorities for commercialisation of microalgae biofuels remains inconclusive among the industry stakeholders. However, it is clear that the theoretical potential debated in small-scale lab experiments and in published literature, requires large-scale demonstration – a move away from lab-based research to commercially focused outcomes.

Furthermore, funding made available by the Australian government (a $15m R&D grant programme

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THEME 1: EXPLORING THE BENEFITS OF TRANSITIONING FROM FIRST GENERATION BIOFUELS FEEDSTOCKS TO MORE ADVANCED MICROALGAE FEEDSTOCKS.

for generation-2 feedstocks, including microalgae), cannot match the $85m funding made available by the US Government for microalgae biofuels commercialisation. Whilst Australia cannot match the hive of activity and venture capital investment culture prevalent in the US, there are significant projects and opportunities being produced at a large enough scale to keep Australia in the race for microalgae biofuels commercialisation – See Table 7 for further details about microalgae biofuels projects in Australia. Collaboration between commercial and research partners will be crucial to ensure success, and establishing a healthy level of competition between groups would also support efforts to accelerate commercialisation.

TRANSITIONING FROM FIRST GENERATION FEEDSTOCKS TO MICROALGAE

In order to maintain a successful and sustainable biofuels industry in South Australia, the State Government should aim to support the needs of the existing biofuels industry. There is a need to strengthen the market, and establish efficient infrastructure, enabling the producers to transition to more advanced feedstocks as they become commercial. This may involve R&D support to commercialise microalgae biofuels for wider production, as few biofuels producers have capital to invest in further research. Certainty of biofuels policy would enable existing producers to make an easier, incremental transition to more sustainable feedstocks such as microalgae, regardless of whether the Government chooses to support the industry through implementation of mandates, or grants and subsidies for infrastructure establishment. However, the industry must be self-sustaining to survive in the long-term, so Government support should be viewed only as a short-term boost.

Some of the specific infrastructure requirements will be determined by the microalgae production system adopted. This may vary from raceway ponds, co-located with a power plant to pipe in CO2, closed systems, which can be operated remotely; or hybrid systems which require both lab-based and open pond facilities. Transport infrastructure will be important, and access to roads, rail or shipping terminals may present significant logistical challenges for some sites. Supporting the development and growth of the first generation biofuels industry in Australia and in South Australia, will provide an established infrastructure and path to market to support the transition to microalgae feedstocks.

QUALITY CONTROL Biodiesel producers stress the need to increase quality standards for Australian biofuels, and argue that minimum CFPP values should be included in the federal biodiesel quality standard, similar to the European standards. This would reduce the sale of not-fit-for-purpose biodiesel, which can damage the demand for biodiesel. Additionally, the introduction of externally verified, comprehensive voluntary quality standards, such as the ‘BQ-9000 accreditation’ emerging from the US market, would allow South Australian biodiesel to position itself as high quality premium fuels, subject to client requirements.

Furthermore, the Roundtable for Sustainable Biofuels is currently developing an international, third party certification system for biofuels sustainability standards, encompassing environmental, social and economic principles and criteria, through an open, transparent, and multi-stakeholder process. The New South Wales Government has encouraged biofuels producers within its jurisdiction to endorse its principles; and there is an opportunity for the Government of South Australia to support similar efforts across South Australia too.


RECOMMENDATIONS:

The Government should embrace the opportunity to be an ‘early mover’ on biofuels sustainability, through the facilitation and roll-out of BQ 9000 and endorsement of Roundtable for Sustainable Biofuels principles in South Australia



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RECOMMENDATIONS:




Table 7 – Microalgae Biofuels Projects in Australia

Project Project Lead State Description Co-Products Timescale

Asia Pacific-6 (AP6) Project

Led by Michael Borowitzka, Murdoch University & David Lewis, and University of Adelaide.

$2m federal grant

WA / SA

Murdoch University is focusing research efforts on optimising strain selection and cultivation for large-scale production systems, whilst the University of Adelaide is leading the R&D on the harvesting, dewatering and extraction processes.

2m2 raceway ponds have been running for 6 months in Adelaide, and for 18months in Perth. They've not suffered any contamination yet, and have produced an average of 20-30kg/m2/year.

Native strains are used from Loch Ness Island, which are increasing in lipid content as they grow. The pilot plant site has been identified in Karratha, WA, where 1 acre of ponds will be built (for 18 months). Plans are to

scale this further to 500 hectares if successful. Other partners include Parry Nutraceuticals (India) and South China Institute of Technology.

Plan to commence construction of 1-acre ponds at Karratha, WA, in 2010.

Algal Fuels Consortium

(AFC)

South Australia’s Research & Development Institute (SARDI)

$2.2m federal grant

SA The Algal Fuels Consortium is a South Australian initiative, made up of the following partners, and aims to accelerate microalgae biofuel commercialisation.

Project Partners: (i) Sancon Recycling Pty Ltd (commercial partner), (ii) SARDI (algal production), (iii) Flinders University (bioprocessing), (iv) CSIRO (post combustion carbon capture), and (v) Flinders Partners (commercialisation).

Sancon Recycling has committed $4.5m and the AFC was awarded a $2.274m federal grant on 5th August 2009 to progress development of their pilot scale plant at Torrens Island.

Plans are to scale up to a 10 ha pilot facility by 2014, and small-scale commercial facility (30ha) by 2016.

Animal feeds, nutraceuticals, bioenergy and others.

The AFC will build a proof of concept (1 ha) by 2010,

PSRF Biorefinery

Project

SARDI, Flinders University, & 2 industry partners $4.2m

SA Awarded 1.16m by for 3 years by the SA Premier’s Science and Research Fund (PSRF) to explore the benefits of using a biorefinery approach for the production of microalgae fuels and co-products.

2 industry partners have committed $1.2m - Sancon Recycling ($1.1m) and United Water International ($0.1m)

Exploring a variety of co-products

2009-2012

SQC Pty LtdSA Exploring strategies for solutions and commercial applications of innovative microalgae technologies, in conjunction with

Flinders University and Parry Nutraceuticals (India).

Biomax

Smorgan Group VIC Small algae pond at Hazelwood power station, Victoria. Interested in transition feedstocks and consider algae commercialisation to be 5-6 years away. They have reduced funding for algae research although they are still continuing some algae ponds etc.

Their focus for the shorter term has been on mustard seeds from arid areas.

University of Melbourne

Bio Fuels Pty Ltd

$1.24m

VIC Looking at biofuels from microalgae involving the efficient separation, processing and utilisation of algal biomass at Hazelwood Power Plant, Victoria.

MBD Energy

VIC MBD are developing agreements with several power stations, including Loy Yang power station in the Latrobe Valley, Victoria, which emits 19mt/CO2e/year (total CO2 from Victoria are 33MtCO2e/year)- requiring a PBR of 10,000 ha.

They’ve projected a 3-phase demonstration process – display (current stage), pilot stage and demonstration – with ambitious scale up and productivities. They expect productivities to double and oil content to increase from one stage to the next, whilst increasing depth and harvesting rates at the same time.

The initial set up investment for the facility is expected to be ~$25m.

Animal feeds, bioenergy

Ongoing

James Cook University

MBD Energy & James Cook University

QLD MBD has an exclusive research agreement with James Cook University. By Aug 2009 expect to have biggest R&D algae facility in the Southern hemisphere – producing 50kg/day of microalgae

biomass, to be used in cattle trials; with the aim of reducing methane from cattle, and oil production. Chosen a PBR system for its smaller ‘footprint’, greater control – but also considering a hybrid approach. Expect a cost of

$250-400/ha. Aiming for 30c/l with large-scale demonstration if animal feed can be sold at $400/tonne (current market price is $5-600/tonne); or 60c/l without meal sales.

Animal feeds, bioenergy

Pilot plant has been operational for 6-12 months


MAJOR TECHNICAL CHALLENGES & OPPORTUNITIES

Several techno-economic challenges still exist for microalgae biofuels commercialisation. The current focus is on higher revenues from the biomass – through strategic strain selection and improved yields. The industry will need some economic “game changers” for commercial viability of microalgae biofuels in the next 5 years, as its difficult to make the production of microalgae economic based on current yields (reported as 25-50t/ha/year). Without significant government incentives and technology investments, commercial production of microalgae biofuels is expected to be more than 10 years away.

STRAIN SELECTION It is widely believed that existing strains of microalgae are suitable for large-scale cultivation, and further efforts should be targeted at the simultaneous development of market and policy development. It is unrealistic to wait for researchers to find the ‘perfect’ strain or harvest system before research into subsequent stages is pursued seriously. However, some stakeholders argue that few microalgae strains can produce economic quantities of both oil and high value co-products. As a result, investors may simultaneously cultivate strains specifically for the production of high value products in the short term, to subsidise the optimisation of strains cultivate for the recovery of oils for biodiesel.

Additionally, in the case of the integration of microalgae biomass production with wastewater treatment, it is likely that the wastewaters cultures will host monocultures of microalgae; and this presents several challenges, as dominant strains may not produce the desired end products. However, the optimisation of these production systems would also support strategies employed to reduce contamination of open pond cultures.

The majority of technology developers in the market suggest however, that initial market analysis shows vast scope for sustained revenues in these high value markets through a ‘biological biorefinery’ approach, as adopted by the Algal Fuels Consortium. However, some product markets are at more risk of market saturation than others, and therefore effective market analysis will be crucial to ensure that the revenue enhancing effect on biodiesel profitability from these biological co-products is not lost. As a result of such market risks, the AP-6 project led by the University of Adelaide and Murdoch University, has eliminated the prospect of such a biorefinery approach, despite the consortia’s extensive expertise in this area.

HARVESTING, DEWATERING & EXTRACTION Cost-effective harvesting, dewatering and oil extraction processes present the biggest economic challenge for the microalgae biofuels industry. Whilst centrifugation works in theory, it is too cost- and energy-intensive for large-scale commercial production of (low value) biodiesel. RD&D into alternative harvesting and dewatering technologies is underway, and includes sedimentation/settling, filtration, flocculation, cell destruction, pre-heating, drying and more. Other techniques such as bio-flocculation, micro-flocculation and electro-flocculation are also being tested. Origin Oil claim to have developed an innovative technology, which uses a single step extraction process to separate the oil, water and biomass – similar to a dissolved air floatation process.

Some strains of microalgae can be easier to harvest than others, and therefore strategic strain selection will be significant in overcoming some of the harvesting challenges. In addition, effective pilot and large-scale demonstration production of microalgae biofuels focussed on the development and optimisation of low-cost harvesting, dewatering and extraction techniques will be crucial for commercialisation. INTEGRATION WITH WASTEWATER TREATMENT (WWT) The freshwater treatment plant at Bolivar, South Australia, presents an opportunity to utilise 60ML of wastewater/day for microalgae production. However, the existing 2m deep WWT ponds are not

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THEME 2: ASSESSING THE COMMERCIAL REALITY OF MICROALGAE BIOFUELS OPPORTUNITIES FOR SOUTH AUSTRALIA.

optimised for microalgae production, as microalgae require a greater surface area to increase their efficiency. High Rate Algal Ponds (HRAP) on the other hand, are optimised for algal productivity, and could be introduced at Bolivar to better integrate the production of microalgae biomass, alongside water purification operations (Fallowfield, 2009). This could present a near-term solution for microalgae biofuels commercialisation, particularly as South Australia is still home to approximately 70 open pond (microalgal) WWT systems, yet to be upgraded to more modern engineered system designs.

Speculations and projections from studies dating back to 1985 still form the major referenced material for integrating wastewater treatment with microalgal production, even today. South Australia has wastewater treatment infrastructure that could be adapted for dual purposes – wastewater treatment and microalgae biomass production. A microalgae biofuel production system could potentially produce irrigation waters, oils for biofuels production, and biogas for use as green power on site or in local communities.

One of the advantages of wastewater culture of microalgae is that the organic carbon within the wastewater is respired as CO2 by the heterotrophic bacteria. This CO2 is then available to the microalgae; and some studies have demonstrated that this source of organic CO2 reduces the CO2

inhibition, which often occurs in ‘clean’ microalgae cultures, due to the rate of algal photosynthesis, and the uptake of CO2 exceeding the rate at which CO2 is replenished by atmospheric diffusion. However, some highly pre-treated wastewaters (e.g. activated sludge) may reduce the availability of organic derived CO2, requiring additional CO2 supplementation from flue gases to increase productivity – this approach could potentially increase algal productivity by 20% in some wastewaters (Fallowfield, 2009)

Whilst the infrastructure and quantities of wastewaters limit the opportunity from integration with WWT, at the current scale, it remains significant nonetheless. It represents a near-term opportunity and alternative business model for accelerating commercialisation on a medium scale at low cost; and promotes the holistic optimisation and integration with existing infrastructure, though blending stations and refining capabilities may still be needed in the State.


RECOMMENDATIONS:

The Government should produce a roadmap for the microalgae biofuels value chain to clearly identify the most significant R&D priorities for South Australia; and provide support to leverage funding for commercially-focused RD&D activities

In order to accelerate commercialisation in South Australia, R&D must be targeted at the most cost-intensive processes to improve efficiencies through low-cost technology development. There is an opportunity to explore additional opportunities for integration of microalgae biofuels production with existing infrastructure and industries, including the strong prospects of integration with wastewater treatment.

An R&D roadmap should identify the gaps in current capability, supporting the deployment of commercially focused innovative techniques for low cost process development and technology development. Research, and particularly development, will be fundamental in delivering the economic 'game changers' and technology breakthroughs required for microalgae biofuels commercialisation. However, often demonstration projects are limited by funding; and many Governments have offered funding support to producers - particularly in the US and China. The Government of South Australia should stimulate efforts for technology deployment and demonstration in the State, by supporting microalgae producers in leveraging the funding required for commercially focused projects. This might include brokering relationships between microalgae

producers, commercial partners and investors; developing new R&D funding programmes to develop commercial production of microalgae biofuels; and coordinating funding opportunities for other eligible Government programmes.

The roadmap should focus on South Australia's strengths and should be supported by value-chain mapping for the biofuels industry in South Australia, to explore the added value from different stakeholder groups. However, RD&D initiatives should, where possible and where appropriate, be aligned with the significantly greater RD&D efforts of other Australian States and Territories, and other nations.

Establish a Biofuels Research Institute in South Australia

Furthermore, the Government should investigate the opportunity to establish a Biofuels Research Institute for microalgae biofuels in South Australia to showcase the State’s expertise, and drive the development of an R&D roadmap, as recommended in the recent ATSE report (2008). The Government of South Australia is recommended to endorse the aims of such an entity to support efforts to attract the necessary funding required to drive the practical R&D for commercially focussed microalgae biofuels innovations in South Australia.

BUSINESS MODELS FOR MICROALGAE PRODUCTION

Most business models for commercial production promote collaboration between academic research expertise, commercial partners, governments/regulators and potential consumers in a public-private partnership, to maximise revenue potential and reduce risks.

The chemical / biological biorefinery model is among the most widely adopted model for commercial microalgae biofuels production, integrating biodiesel production with the recovery of several high value co-products, which offer an opportunity to balance the economics – see Figure 6. However, as mentioned earlier, there are potentially significant risks of market saturation in some high value product markets, which might threaten the long-term sustainability of such business models. As a result, some caution, and a thorough market analysis, is vital.

Figure 6 – Conceptual process for Microalgae Production – adapted from Chisti (2008)

Most commercial business plans also expect to utilise concentrated industrial sources of CO2 such as a flue gas, to increase productivities, presenting an opportunity for industrial carbon emitters to pass on their liability to the microalgae producer.

South Australia has a history of water scarcity concerns, which threaten drinking water supplies to the growing population of 1.1m people. The prospect of using microalgae production systems to produce irrigation, and potentially potable quality, waters presents a holistic approach to water and fuel security goals; and is potentially the best short-term commercial application for microalgae biomass production in South Australia.

In addition, South Australia is also home to the majority of the nation’s mining reserves, including the world’s single largest known deposit of uranium at the Olympic Dam mine. This mine is also the world’s fourth largest remaining copper deposit, and fifth largest gold deposit. Early discussions suggest that microalgae production might also assist in bioremediation of mining sites (including Olympic Dam) and other contaminated waters – although further discussions around this opportunity remain commercially confidential at the time of writing.Using microalgae as a bioremediation method to clean up the State’s mine’s and contaminated

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discharge waters presents a significant environmental opportunity for South Australia. The State Government therefore has a vested interest to support the integration of solutions that achieve dual goals for environmental protection – fossil fuel mitigation through biofuels production; and bioremediation of contaminated waters at mining operations.

Hence, business models in South Australia may most plausibly be geared more towards integration with WWT and co-production of biofuels, recovery of high value products and reclaimed waters; and/or integration with bioremediation of mining sites, to address local environmental challenges and priorities. The most effective strategy is likely to be one that maintains revenue diversity through simultaneous cultivation of several strains to generate a range of valuable end products, which offset the costs of biodiesel production in the short term; with regular research to assess future market trends and risks.

LONG-TERM SUSTAINABILITY OF MICROALGAE BUSINESS MODELS

Microalgae biofuels offer an opportunity to: (i) ‘Re-use’ CO2 already emitted to the atmosphere, (ii) Substitute the equivalent quantity of fossil diesel for transport, and (iii) Substitute other petroleum based chemicals or energy products.

The clear difference with fossil fuels is that they unlock and release new and additional sources of CO 2

to the atmosphere. There is debate among some stakeholders about whether microalgae feedstocks produce a renewable fuel if they use industrial CO2 sources for optimising productivities. Within the European policy framework, microalgae biofuels are not considered renewable if they use fossil CO 2

from industrial sources, during growth stages. As the CO2 is not from the natural carbon cycle, the consumption of this CO2 simply represents an improvement in carbon intensity, as the gas is ‘recycled’ before inevitably being re-emitted to the atmosphere, contributing to dangerous climate change.

However, some stakeholders argue that there is little difference between growing canola and microalgae – as the CO2 is taken from the atmosphere in both cases; the industrial source just concentrates the atmospheric CO2 supply, to allow higher productivities of the microalgae biomass to be achieved. Without this concentrated supply of CO2, productivities are expected to be as little as just 5-10t/ha/year using atmospheric CO2 – under 10% of the productivities required for commercial production of biofuels. The use of industrial CO2 is therefore considered an economic matter, and not an environmental hurdle (Campbell, 2009).

However, this casts serious doubts upon the policy implications and the long-term sustainability of microalgae production not previously considered, and demands appropriate carbon accounting. The development of an industry, which would secure the State’s fuel security goals by effectively incentivising the continued production of industrial CO2 emissions on a large scale (to support the quantities/scale required for fuel production), would not be consistent with long-term sustainable development principles, or carbon emissions reduction strategies adopted by South Australia. In fact, it is likely to shift the State’s fuel dependence from foreign imports of fossil oil to large, industrial suppliers of concentrated CO2 emissions. Existing strategies and goals for GHG emissions reduction in South Australia, combined with the State’s ambitious 33% renewable energy generation target, are incentivising a move away from such polluting energy supplies, potentially reducing the number of industrial CO2 suppliers available in the State. This would shift the State’s dependence to just a handful of influential polluters.

This reflects potential perverse incentives related to large-scale microalgae biofuels production, even if biofuels only remain a medium-term transport solution. South Australia should promote R&D efforts to investigate the opportunities to produce microalgae biomass using atmospheric CO2 alone; to seal the environmental credentials of microalgae biofuels as renewable fuels.


TARGET MARKETS

The most appropriate markets for microalgae biodiesel in South Australia are likely to be the heavy, industrial sectors, which are large consumers of diesel. Whilst there is demand for diesel within domestic road transport, the industrial sectors represent easier uptake sectors, which should be strategically targeted in the short term, particularly as they become more aware of their carbon liabilities within Australia’s proposed CPRS.

AVIATION The aviation sector needs a drop-in solution to work with existing infrastructure and engines, which represent significant investments, locking-in the major operators. Aviation fuels account for around 2% of the world oil market, and are more expensive than petroleum fuels, at around $75/tonne. The sector is therefore particularly vulnerable to fluctuations in oil prices and supply, and consequently as flight traffic continues to increase, key drivers for diversification of jet fuels are fuel security, climate change and financial drivers for low-cost fuel.

Qantas, Virgin Blue, and Air New Zealand are the largest operators in the Australian market. The airlines are keen to reduce their emissions and believe microalgae bio-jet fuels could provide a 65-80% GHG reduction in ‘well-to-wing’ emissions compared to Jet A1 fuel. Qantas’s global fuel consumption is estimated at 5bn litres/yr; with domestic consumption in Australia is an estimated 1.5bn litres/yr – dominating 67% of the domestic Australian market. It is the largest single consumer of oil in Australia consuming 5% of the market. The other major operator in the domestic market is Virgin Blue, using approximately 600m litres/year.

Along with technological improvements in aircraft, sustainably produced bio-jet fuels are considered the most viable long-term alternative fuel for the aviation sector, which has fewer alternative fuel options than road transport (ATAG, 2009). The industry is aiming for carbon neutral growth, with some airlines aiming to operate their fleet on 25% biofuels by 2025 (ATAG, 2009). Whilst the aviation sector is exploring a variety of locally produced, competing and sustainable oil-producing feedstocks, it is strongly believed that “algae [bio-jet fuel] is the future”. Efforts in the aviation sector are being led by the Sustainable Aviation Fuel Users Group (SAFUG), headed by Boeing; and the International Air Transport Association (IATA). The international ASTM D6751 fuel standard for aviation is currently under review, with considerations to include bio-jet fuels based on a 50:50 blend.

Bio-derived oils from microalgae feedstocks are converted into a ‘drop-in’ bio-jet fuel, via a patented hydrogenation procedure, which produces ‘bio-derived synthetic paraffinic kerosene’ (Bio-SPK) (Taylor, 2009; Boeing, 2009). Test flights have been undertaken using bio-SPK, most notably by Virgin Atlantic, Air New Zealand, Continental Airlines and Japan Airlines using blends of jatropha, camelina and microalgae (2% blends of microalgae were used in the latter two) (ATAG, 2009, Boeing, 2009).

Microalgae biofuels therefore have the potential to play a major role in the long-term sustainability of the aviation sector. The major challenges for microalgae-based bio-jet fuel production are expected to be production at a scale appropriate for aviation consumption, whilst increasing productivities and decreasing cost per hectare (ATAG, 2009).

Results from recent test flights and studies by Boeing (2009) suggest that microalgae bio-jet fuels provide better fuel specifications than current Jet A1 fuel, including a higher heat combustion, which increases the aircraft’s fuel burn, potentially by as much as 1%. Microalgae-derived jet fuel is therefore considered a “premium fuel”, which presents a significant financial savings for the airlines. Additionally, as biofuels are zero-rated in Australia’s proposed CPRS, a 100% bio-jet fuel would generate a zero carbon liability for the airlines. Other feedstocks being explored for bio-jet fuel production include camelina, jatropha and pongamia pinata.

The aviation sector is expected to be an ‘early adopter’ of microalgae biofuels, and presents a niche market opportunity for South Australian microalgae biofuel production. However, an important point

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THEME 3: TO EXPLORE THE COMMERCIAL OPPORTUNITIES AND CHALLENGES FOR PRODUCTION AND UPTAKE OF MICROALGAE BIOFUELS AND BIO-JET FUELS FROM SOUTH AUSTRALIA.

to note is that Adelaide airport – South Australia’s main airport – is considered to represent only a small percentage of flight movements in Australia; with the significant airport hubs being Sydney, Melbourne and Brisbane. This presents a logistical challenge for the distribution of South Australian produced bio-jet fuel. Whilst a small supply may be delivered to Adelaide airport, additional transportation may be required (increasing emissions) to supply to one of the larger airports in the eastern states.

The oil industry is a global export-based industry however, so there is significant scope for exporting microalgae bio-jet fuel from South Australia, subject to a minimum GHG reduction; particularly to Sydney and Melbourne airports – which are the closest cities. Furthermore, depending on the priorities of the airlines and the impact of carbon policies for the industry, the supply of sustainable bio-jet fuel from Adelaide might also influence increased flight traffic through the State’s main airport to take advantage of the State’s supply of low carbon fuel.

Further research into the lifecycle assessment of microalgae bio-jet fuels (including the hydro-cracking process for conversion) is still required to effectively assess their green credentials. SAFUG has partnered with CSIRO to deliver such research, but further independent analysis is also required.

MINING & AGRICULTURE Both mining and agriculture are large, sophisticated fuel-using sectors, and provide key markets opportunities for microalgae biodiesel. Biodiesel presents significant environmental benefits over their full lifecycle, producing 78% less GHGs, and 60% less carcinogenics, and provide an opportunity for significant GHG emissions reduction in the mining and agricultural sectors.

Importantly, most of the OEMs supplying vehicles and machinery to these industries already support use of B100, suggesting an easy switch to use 100% biofuels in the same engines. However, poorly designed policy incentives from the federal policy framework (see Theme 5) have limited wider uptake of biofuels, despite the opportunity they present to reduce the carbon liabilities in these industries.

The incentives created by the federal policy framework, which aims to support nationally significant and emissions intensive industries (such as mining) will need to be balanced with the incentive to support a long-term, sustainable biofuels industry to drive further uptake of low carbon fuels in heavy fuel using industries. If achieved, the mining sector presents significant potential off-take agreements and supply contract opportunities for biofuels producers. However, significant changes will be required to amend the federal biofuels policy framework. Whilst it is often argued that, subject to the carbon price, the trade-off between tax incentives and carbon liabilities as part of the CPRS might be sufficient to create a clear incentive for wider biofuels uptake; the cent-for-cent reduction policy within the proposed CPRS is likely to defer such trade-offs until at least 2014 – See Theme 5.

GOVERNMENT SECTORS Increased biofuels use in the Government fleet would also support the wider uptake of biofuels, by providing a signal to consumers, indicative of the Government’s support for the long-term sustainability of the biofuels industry.


RECOMMENDATIONS

The Government should assist in targeting large niche markets for biofuels uptake in significant quantities through facilitation of testing dialogue with OEMs


In order to compete in the global microalgae biofuels market, South Australia should develop strategies to target niche markets, namely the State’s heavy fuel-using industries, such as mining, construction, aviation and others, which are expected to continue consumption of liquid based fuels in the longer term. These heavy fuel-using sectors are also exploring strategies to reduce their carbon liabilities and improve their environmental credentials in anticipation of emerging carbon pricing policies and fears of peak oil.

The State Government should create a comprehensive mechanism for disseminating market information to the biofuels value chain



The State Government should disseminate site surveys for suitable microalgae

SOUTH AUSTRALIA’S COMPETITIVE ADVANTAGES & CHALLENGES

South Australia is home to a wealth of expertise in biotechnology, engineering and aquaculture – complementing microalgae production – across the State’s three universities, research institutes and private sector. The State’s natural climate and land availability lend itself well to large-scale microalgae production and form South Australia’s competitive advantages. Table 7 highlights some of the current investment activity in South Australia, and nationwide, though some projects remain confidential at the time of writing.

South Australia presents a favourable environment for microalgae production; and is already home to a large-scale commercial microalgae production site, which targets the health food markets. Based in Whyalla, Cognis‘s Betatene production site, along with a second site in Western Australia, supply around 80% of the world’s beta-carotene market - a safe source of pro-vitamin A, which is used as a food colouring in drinks and food products. However, this production system is based on large unmixed ponds, which are not optimised for (low-value) biofuels production.

Microalgae requires high solar radiation, warm average temperatures, potentially large areas of flat land; a concentrated CO2 supply, salty or nutrient rich waters (e.g. seawater or wastewater) and some key nutrients – and these factors can all be found in abundance in South Australia.

As a result, the most attractive option for South Australia would be to adopt strategies, which maximise these competitive advantages, by being among the first to host a commercial scale production of microalgae biofuels in Australia. There are a variety of stakeholders focussed on the early stage research and proof-of-concept, and this will be a vital step for commercialisation; but South Australia’s strengths are likely to be best utilised through the optimisation of large-scale production systems. Additionally, this approach is likely to bring together commercial investments in the State, and is therefore less reliant on Government funding.

Despite these advantages, South Australia does not yet have any demonstration or pilot facilities to demonstrate commercial scale microalgae biofuels technology. The federal Government Department for Resources, Energy & Tourism (DRET) recently awarded a grant of $2.274m to the Algal Fuels Consortium (AFC), led by SARDI and Flinders University, for their pilot plant at Torrens Island (South Australia). Whilst this is not expected to commence operation for another year, it is likely to be the State’s first large scale pilot.

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RECOMMENDATIONS



In order to compete in the global microalgae biofuels market, South Australia should develop strategies to target niche markets, namely the State’s heavy fuel-using industries, such as mining, construction, aviation and others, which are expected to continue consumption of liquid based fuels in the longer term. These heavy fuel-using sectors are also exploring strategies to reduce their carbon liabilities and improve their environmental credentials in anticipation of emerging carbon pricing policies and fears of peak oil.

The State Government should create a comprehensive mechanism for disseminating market information to the biofuels value chain



The State Government should disseminate site surveys for suitable microalgae

THEME 4: TO EXPLORE THE COMPETITIVE ADVANTAGES SOUTH AUSTRALIA CAN EXPLOIT TO DEVELOP A SUCCESSFUL, INTERNATIONAL, EXPORT-BASED MICROALGAE BIOFUELS INDUSTRY.

Key competitor markets include Queensland, which has provided government support for value chain mapping and business development; and States along the west coast of the US – where there are significantly more companies engaged in microalgae biofuels commercialisation. A further Porter’s Diamond assessment and SWOT analysis to explore South Australia’s competitive advantages is provided in Appendix 7.

INFRASTRUCTURE CHALLENGES IN SOUTH AUSTRALIA

MICROALGAE INFRASTRUCTURE South Australia is home to a new $5 million National Collaborative Research Infrastructure Strategy (NCRIS) National Photobioreactor Facility, located at SARDI in Adelaide. The NCRIS facility provides the capability for clients to research microalgal growth in experimental pilot scale photobioreactors and raceways and in real time, to manipulate and monitor the system’s operational parameters and algal photophysiological parameters whilst optimising the production of algal biomass and overall lipid (oil) yield.

The microalgae culture systems include:

1. The pilot-scale photobioreactor system comprises a 3.5m3 Algaelink Solutions, tubular bioreactor, which is illuminated with natural sunlight. A regulated automated injection of nutrients (particularly inorganic sources of nitrogen and phosphorus) and carbon dioxide (dissolved in the water) can be achieved.

2. Three 20m2 (10 x 2 x 0.5m) raceway ponds.3. A controlled environment room where manipulative small-scale physiological experiments can be

carried out in a 15L Applikon Autoclavable photobioreactor or flasks.

The facility also provides a range of microalgal harvesting systems (e.g. centrifuges) and facilities to store and process the harvested algal biomass.

The overall facility therefore includes testing and optimisation of microalgae growth, lipid and carbohydrate production, harvesting and dewatering technologies and extraction systems.

OTHER INFRASTRUCTURE Exxon Mobil recently announced their plans to dismantle their closed refinery at Port Stanvac, South Australia, leaving a single struggling biodiesel plant in the State – the Australian Renewable Fuels (ARF) facility based in Adelaide, which is currently in ‘stand-by’ mode. As a result, the State Government and biofuels industry have a vested interest in the ARF facility remaining operational to support current and longer-term developments in the biofuel industry in South Australia.

The ARF plant, established in 2006 with support from a federal grant of $7.15m, processes around 40,000 tonnes of feedstock every year, and has a maximum annual capacity for production of 45m litres of biodiesel. ARF is currently diversifying its range of feedstocks to support business sustainability in the biodiesel market. The facility currently does not have the infrastructure required to handle extraction of oils from dry algal biomass, allowing processing of the algal oil only, though research projects for microalgae oil extraction are being explored.

In the absence of any refining and fuel blending capacity in the State, the attraction of key refining interests to the State will be a priority for the longer term production of biofuels as the industry matures and production increases. However the development of such infrastructure should be encouraged through the private sector, and market forces will dictate private investment in this sector.


MANDATES FOR BIOFUEL PRODUCTION The New South Wales (NSW) and Victorian examples of biofuels policy present different approaches to establishing industry critical infrastructure in their respective states. NSW adopted supply mandates to boost the growth of its biodiesel and ethanol industries, obligating the industry to invest in necessary infrastructure. On the other hand the Victorian Government offered large grants (approximately $2m) to establish blending and storage facilities at a Victorian refinery. Queensland is expecting to introduce a combined approach – the Government has invested approximately $6m in support for conversions at fuelling stations and awareness raising marketing; and their planned ethanol mandate is expected to commence in 2011.

The limited biofuels production, driven by lack of demand for biofuels in South Australia presents significant challenges for the existing industry, if a mandate were introduced. However, several biodiesel stakeholders believe that the introduction of a mandate would revive the biodiesel industry in South Australia. However, though mandates can be effective in boosting infrastructure investments and establishing a demand (through off-take agreements), they require an established (or planned) production capacity to satisfy the policy requirements in the short-term.

The mandating approach is likely to be the most readily appropriate policy measure for application in South Australia to attract investments in infrastructure and increase capacity in the State.

STRATEGIC MANAGEMENT OF INVESTMENTS OPPORTUNITIES IN SOUTH AUSTRALIA

The microalgae biodiesel market is fast moving and is becoming heavily commercial-driven. There are several players, with varying requirements, driven by their diverse business models. There are likely to be winners and losers, driven by the lack of available sites in the State; and it is therefore expected that a single policy framework will not support all potential investors; and some flexibility might be required to support this dynamic, yet immature industry.

There is an intense level of activity among commercial and research stakeholders in the industry. The fundamental support required to maximise the competitive advantages of the State, demands strong market intelligence, and access to an autonomous and fast-moving investment support team, which has a competent understanding of the nature of the market. This may be in the form of an independent industry development body, charged with fostering greater collaboration between microalgae biofuels efforts nationwide, developing market opportunities, attracting investment, developing industry-specific skills and commercial education, and promoting international linkages with influential commercial partners to attract resources and encourage technology transfer.

A significant challenge for the industry is in the appraisal of varying investment opportunities, and the robustness of commercial business models developed by young, but innovative companies. It is expected that they are likely to be vying for the same 2-3 suitable sites identified in the State, and some mechanism will be required to pick winners. An independent expert panel or industry organisation may be better placed than many Government departments to appraise these opportunities.

Protection of intellectual properties (IP) presents another market barrier for commercialisation of microalgae biofuels. Independent management of an IP pool may provide an acceptable solution that promotes knowledge exchange and collaboration to compete. Again, this may be co-ordinated by an independent, expert industry body.

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RECOMMENDATIONS

The State should attract large microalgae biofuels trade and market development organisations to support industry growth in South Australia


To enable the Government to establish South Australia as the hub for microalgal technology and

An independent market development organisation would also ensure maximisation of market opportunities to support industry growth, dissemination of the latest market intelligence, acceleration of supply chain development, and educated support for development of comprehensive policies. The Government of South Australia should work closely with such organisations to facilitate industry growth and development in large-scale microalgae biofuels projects in South Australia, increasing the State’s chances for commercialisation.

The Government should adopt strategies to promote the development and retention of industry critical infrastructure and capacity building, to develop the basis for a long term State-wide biodiesel production mandate

REGULATORY FRAMEWORKIn order to maximise the benefits and fully exploit the commercial opportunities from microalgae biofuels strategies, the State should develop a supportive and favourable investment environment, to attract investors despite the perverse incentives that exist in the federal biofuels policy framework (See also Theme 5).

DEVELOPMENT APPROVAL The process for obtaining Development Approval varies according to the type of development proposed. Microalgae biofuels production operations will require development approval to ensure consultation and due consideration is given to any environmental or social impact, as well as impact on neighbours. The methods for submission and assessment of development applications are outlined in the Development Act 1993 (Sections 32-56A) and Development Regulations.

The Development Act (1993) defines 'development' as: A change in the use of land or buildings; The creation of new allotments through land division; Building work (including construction, demolition, alteration and associated excavation/fill); Cutting, damaging or felling of significant trees; Specific work in relation to State and local heritage places; Prescribed mining operations.

The Development Authority for microalgae projects is likely to be either the local council or the Department of Planning and Local Government (DPLG) (including the Development Assessment Commission (DAC)), dependent on the form of application lodged. The three potential routes for microalgae biofuels projects, under the Development Act 1993, are discussed below.

It should be noted, that some microalgae pilot plants may be considered as an ‘accessory’ to an existing (WWT) activity or ‘minor works’, therefore subject to their size, some small projects may be granted a development exemption. It is expected that using existing ponds at a wastewater treatment site would not require planning approval, as it is not considered a land use change. However, erection of new buildings and structures would be classed as development. Further advice should be sought from the development authority.

SUBMISSION OF AN APPLICATION FOR A CROWN INFRASTRUCTURE PROJECT

Detailed under section 49 of the Development Act (1993), this is often used for government, public infrastructure projects, but can be used by the private sector for public infrastructure projects, subject to sponsorship by a crown agency.

Manufacture of (microalgae) bioenergy may be considered as manufacture of energy for the State, and therefore public infrastructure. However, it should be noted that the co-products also extracted from the microalgae biomass (i.e. fertilisers, animal feeds, cosmetic/pharmaceutical products and others) would not be considered public infrastructure, and therefore applications would need to clarify the significance of these products within the proposed operations.


RECOMMENDATIONS

The State should attract large microalgae biofuels trade and market development organisations to support industry growth in South Australia


To enable the Government to establish South Australia as the hub for microalgal technology and

An independent market development organisation would also ensure maximisation of market opportunities to support industry growth, dissemination of the latest market intelligence, acceleration of supply chain development, and educated support for development of comprehensive policies. The Government of South Australia should work closely with such organisations to facilitate industry growth and development in large-scale microalgae biofuels projects in South Australia, increasing the State’s chances for commercialisation.

The Government should adopt strategies to promote the development and retention of industry critical infrastructure and capacity building, to develop the basis for a long term State-wide biodiesel production mandate

The Government should appoint a dedicated Government-based Business Development Manager, supported by an investment support team, to manage market development and investment opportunities.

The biofuels industry is currently under-resourced in commercial development, and a significant role exists to introduce high-level capabilities from a business development manager, to support strategic industry growth for microalgae biofuels in South Australia. This involves liaison between investors, regulatory agencies and other stakeholders to promote South Australia’s biofuels capability. Furthermore, it is anticipated that microalgae biofuels projects are likely to cut across several portfolios and government agencies, and the creation of a central, and single point of contact to effectively coordinate activity will be essential.

Current investigations have demonstrated that further opportunities for industry growth and economic development in the State have emerged from the introduction of a temporary, but dedicated resource, charged with coordinating microalgae biodiesel opportunities for South Australia. This presents a strong case for the permanent appointment of a position responsible for biofuels market and policy development.

The Government should therefore appoint a Microalgae Biofuels Business Development Manager, supported by a dedicated, autonomous and dynamic investment support team, with access to immediate resources and a competent understanding of the nature of the market; to attract commercial investment opportunities for microalgae biofuels to South Australia. The business development manager should be charged with coordinating investor support and maximising opportunities, designed to best exploit South Australia’s advantages for microalgae biofuels production.

Furthermore, it will reduce the requisite for Government investments by ensuring that commercially driven interests are driving industry growth in the State; supporting South Australia’s aspirations to be among the first Australian State to host commercial, large-scale microalgae biofuels production; and create a thriving industry cluster.

Facilitation of Skills Development & Retention Programmes

South Australia is already home to an impressive breadth of skills for the microalgae industry; and should actively encourage the retention of these skills to support the establishment of the emerging microalgae biofuels industry. This may involve the facilitation of microalgae related skills development programmes, delivered through South Australian universities.

Investment in skills development would support and nurture further industry growth, and encourage dynamic innovation in South Australia, attracting commercial opportunities to the State.

Furthermore, as is may be unlikely that initial pilot scale operations will be connected to the energy grid, generating energy for the State, it is recommended that a comprehensive planning application is submitted, demonstrating the intention of the proponent to scale-up operations and generate energy for the State in subsequent stages. This would reduce concerns over whether a small-scale pilot project would qualify as public infrastructure if it were a research-based stage, not generating energy for the State.

The benefits of submission of a development proposal under section 49 of the Development Act (1993) include: There is no third party appeal process – the merits of the decision cannot be challenged,

providing certainty for investors. The planning authority has regard for zoning laws, but is not limited by them; providing greater

flexibility in the location of public infrastructure projects. The decision for approval is taken by the Minister for Urban Development & Planning (supported

by the DAC) rather than a local planning authority; and therefore the decision is likely to be taken with a broader view of South Australian Strategic Plan objectives.

Once the proposal has been submitted, the DAC will consult with relevant government agencies, which may include the Coast Protection Board, EPA and others. If the project value is above $4m, the DAC is obligated to publish an article in news print to consult the community, the results of which may influence Minister’s planning decision, or lead to amendments or conditions.

If there is expected to be a substantial community impact, applicants may be expected to go beyond the statutory requirements for consultation. This might involve a public forum to inform stakeholders of the scale and degree of potential impacts and more.

Consultation with the various stakeholders, prior to submission of applications, would speed up the process for obtaining development approval. It is expected that due to the immature nature of microalgae biofuels production technology on a large scale, a response to application might be expected to take between 3-5 months.

SUBMISSION OF AN APPLICATION FOR A MAJOR DEVELOPMENT PROCESSDetailed under section 46 of the Development Act (1993), this process is fully transparent, with a thorough and comprehensive, high level public consultation. The applicant is required to undertake an environmental impact statement (EIS) and prepare any supportive analyses to address potential environmental and social threats posed by the development.

This type of application is likely to take a minimum of 12 months to process, with the final decision taken by the Governor, on advice from State Cabinet. Furthermore, development approval through section 46 is also recognised under the commonwealth environmental assessment (unlike Section 49 applications). There is no appeal or judicial review against a Governor’s decision.

SUBMISSION OF AN APPLICATION TO THE LOCAL PLANNING AUTHORITYIn the case of microalgae biofuels projects, development applications submitted through this process will be considered by the local council; or the DAC if located in whole or partly outside a council area, given the likely coastal interface of any development and DAC’s general planning jurisdiction below the high water mark.

Once an application is submitted, the local council will release a public notice if the site chosen is zoned for use inconsistent with the proposal (e.g. a residential zone). If given notice, any third party appeals here may present delays in obtaining development approval. A potentially significant drawback of this process is that the decision-maker cannot override zoning objectives; and this may present a challenge for the strategic selection of suitable land appropriate to the scale required for commercial microalgae biofuels production.

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Though this process is less costly, timescales are unpredictable subject to complexities of the project and the efficiency of council planning teams, particularly if the chosen site is zoned for a use inconsistent with the proposal.

The major projects application may be considered too lengthy and costly for microalgae biofuels projects, whilst the submission of development applications to local planning authorities may in some cases be unpredictable. The most efficient development approval process for microalgae biofuels projects therefore, is likely to be with the submission of a development approval application for a crown infrastructure projects. The approval decision is taken by the Minister, within the context of broader economic, environmental and energy security objectives for the State, enabling the project to be effectively judged alongside other large-scale energy policy goals for the State.

Effective stakeholder engagement to produce a thorough and comprehensive risk assessment and management plan, prior to submission of the application is recommended to demonstrate due attention to location-specific environmental priorities. It would also strengthen applications and speed up the process for approval.

LICENSING REQUIREMENTS The large-scale production of microalgae biofuels in South Australia will require an Aquaculture licence, though it may also require an EPA licence in addition as described further below.

AQUACULTURE LICENCE

The licensing authority for the aquaculture licence is the Department of Primary Industries and Resources South Australia (PIRSA) Aquaculture Division. PIRSA Aquaculture’s role is the regulation of the aquaculture industry in South Australia, including zoning in the marine environment, leasing, licensing, and ongoing monitoring of aquaculture activities under the Aquaculture Act (2001).

Initially, the applicant will be required to submit an expression of interest (EOI) to PIRSA Aquaculture, stating the proposed details of the project. This will allow PIRSA Aquaculture to identify that the project will firstly fall under the requirements of the Aquaculture Act (2001) and also whether the project is feasible. If it is deemed that the applicant will require an Aquaculture license, the category of license will be determined and a license application form will be issued to the applicant. Once the application form is received by PIRSA Aquaculture, a risk based Ecologically Sustainable Development (ESD) assessment is then undertaken to determine if the development poses any significant environmental risk and how this can be appropriately managed. Once the license is approved, this is renewed on a periodic basis (generally annually for land-based sites), but requires the licensee to complete an annual Environmental Monitoring Programme (EMP) as directed by PIRSA Aquaculture.

The environmental issues relevant to aquaculture activities assessed for the aquaculture license include:

Water Quality – including discharge waters, proximity to waterways and flooding, culture/settlement/evaporation ponds – must be constructed to prevent seepage into the groundwater;

Marine Ecology (if discharging to the marine environment) Biodiversity – displacement of fauna or flora of significance Waste Management – including management of contamination Chemical Use and Storage Biosecurity – spread of disease or pest species Impacts on neighbours (e.g. noise and odour)

Whilst applications for an aquaculture license are processed by PIRSA Aquaculture, in accordance with section 59 of the Aquaculture Act (2001), all licence applications must be referred to the Environmental Protection Authority (EPA) before the licence can be approved.


In assessing an Aquaculture Licence application, the EPA need to ensure that any discharges into the aquatic environment must not result in environmental harm as specified in Clause 12 of the Environment Protection (Water Quality) Policy 2003, including

A loss of seagrass or other native aquatic vegetation; or A reduction in numbers of any native species of aquatic animal or insect; or An increase in numbers of any non-native species of aquatic animal or insect; or A reduction in numbers of aquatic organisms necessary to a healthy aquatic ecosystem; or An increase in algal or aquatic plant growth; or The water to become toxic to vegetation on land; or The water to become harmful or offensive to humans, livestock or native animals; or An increase in turbidity or sediment levels.

Furthermore Clause 13 of the Environment Protection (Water Quality) Policy 2003 requires that discharge waters do not cause receiving waters to exceed applicable water criteria specified in Schedule 2. In cases where they are already exceeded (through natural or other causes), discharge waters should not cause those to be exceeded further.

Other areas of concern for the EPA would include the proximity of the base of any ponds to the water table, disposal of waste streams, and the risk of algal blooms arising from the input of nutrients or contamination due to leakage of algal strains. Whilst the EPA is interested in all aspects of operation, its primary concern remains with pollution based environmental issues.

It should be noted that the Environment Protection (Water Quality) Policy (2003) is under review at the time of writing, with some amendments expected in the near future.

EPA LICENCE

An EPA licence may also be required, if the discharges from the operation:4. Raise the temperature of the receiving waters by more than 20C at any time at a distance of 10

metres from the discharge point OR5. Contain antibiotic or chemical water treatment (including fertilisers); AND6. Exceed 50 kilolitres per day.

This determination of whether an EPA licence is required will be made during the EPA’s assessment of the development application or the aquaculture licence application. The applicant will subsequently be informed of the EPA Licence application process if a licence is required. To date no aquaculture licensees in South Australia have as yet required an additional EPA license for their aquaculture activities.

SUMMARYPIRSA Aquaculture and the EPA have identified that the nature of large-scale microalgae biofuels projects could present some uncertainties requiring the commissioning of further research; which would inevitably delay the licence approval process. For example, particularly with coastal sites there is a high chance of sites having some degree of impact on native vegetation of significance or habitats imperative to the lifecycle of protected fauna, which may pose an issue. Early engagement with the PIRSA Aquaculture Division and the EPA is recommended to ensure the application process is efficient as possible. This is especially important when proposing to discharge wastewater from the site into a receiving water body. Therefore appropriate site selection and design are two factors that are imperative to ensuring the licence assessment process can be undertaken within a timely manner, meeting all regulatory requirements imposed by both the PIRSA Aquaculture Division and the EPA.

Applicants are recommended to: Submit an Expression of Interest for an (aquaculture) licence in the first instance. This will allow

PIRSA Aquaculture to identify that the project will firstly fall under the requirements of the Aquaculture Act 2001 and also whether the project is feasible.

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Once provided with a response on the Expression of Interest, submit the Aquaculture Licence Application and development approval application(s) simultaneously. The Development Approval process and PIRSA Aquaculture licence assessment process are closely linked; with Aquaculture licences will only being issued when development approval has also been granted.


RECOMMENDATIONS

The Government should establish a regulatory consortium, which brings together key regulatory agencies, providing investors with a ‘one-stop’ opportunity for consultation of microalgae biofuels proposals

A large-scale microalgae biofuels production project will be required to submit applications for development approval and an aquaculture (and possibly an EPA) licence. Due to the immaturity of the microalgae biofuels industry at large-scale, it is expected that a wide range of regulatory agencies will have a key interest in the risk management plans proposed to ensure environmental compliance.

The Government of South Australia should form a consortium of key regulatory agencies and NGOs to provide investors with a quick and easy ‘one-stop’ opportunity to engage and consult with these key stakeholders, prior to submission of applications for development and licensing approval. This will promote an inclusive and organised consultation mechanism, reducing delays and costs.

The key agencies and NGOs represented may include DEH, EPA, PIRSA, DPLG, local councils, Natural Resource Management Boards, Coast Protection Board, Native Vegetation Council, Birds SA, Dolphin Protection, aboriginal heritage agencies, and others.

The Department of Trade & Economic Development should be charged with coordinating this agenda, and initial support might be developed through a one-day workshop to identify a package of measures; including

Introduction of measures to address the timeframes and costs associated with approval processes.

Some policy measure might include guaranteed turnaround timescales for approvals; and fee rebates.

The establishment of a ‘Microalgae Precinct’ This should be a designated area where regulatory approvals for microalgae biofuels production may more practically be fast-tracked. This would support strategies for cluster development.

December 2009

EXISTING POLICY FRAMEWORK IN AUSTRALIA

The existing biofuels industry in Australia is driven by tax incentives, which often conflict with opportunities for environmental benefit, including:

1. An excise rebate of 38.124c/l for biofuel producers. The rebate is only expected to run until 2011 when it will be phased out in five stages, until it stands at just 19c/l in 2015. The industry is considered to be too weak to survive without it, and the likely phase-out is also expected to coincide with the proposed introduction of Australia’s CPRS – presenting further challenges.

2. An excise rebate for heavy fuel using industries – including farming and mining companies (75% of the diesel consumers in the market), can claim a tax rebate on fuel, which qualifies as biodiesel in accordance with Australia’s fuel standards. It can be argued that these industries are sophisticated fuel users, and many of their engines can use biodiesel up to B100 blends, positioning the industry as a potential early adopter due to minimal switching concerns.

Biofuels uptake in many of these fuel-using industries is driven by the incentives created by the heavy fuel users tax rebate, which only applies to fuels classified within Australian fuels standards. This includes biodiesel blends up to B20, but excludes B21-B100. As a result, B100 is 38.14c/litre more expensive than a B20 blend. This creates an incentive for heavy fuel users to limit biodiesel usage to a maximum of B20 blends.

Furthermore, current heavy fuel users can claim the rebate for 100% of their fuel use – even if they have used a biodiesel blend. E.g. a B20 blend is made up of 80% diesel and 20% biodiesel, the latter of which is tax-free as the producers receive a full tax rebate. Therefore by claiming tax on fuel that doesn’t charge any tax, heavy fuel users are profiting from this ‘double-hit’. It is expected that this is likely to change as fuel standards for B21-B100 (currently under production) are introduced.

At the time of writing there are currently two major policy reviews under way in Australia, which are likely to influence the federal biofuels policy:

1. The Henry Tax Review – commissioned to simplify the current tax regime; and the2. Energy White Paper – The transport fuels section will influence federal fuels policy, but the

impression is that the budget will not change.

MICROALGAE BIOFUELS INDUSTRY DEVELOPMENT PLAN: SOUTH AUSTRALIA 63

THEME 5: TO IDENTIFY POLICY RECOMMENDATIONS FOR THE GOVERNMENT OF SOUTH AUSTRALIA TO ACCELERATE THE COMMERCIALISATION OF A MICROALGAE BIOFUELS INDUSTRY IN SOUTH AUSTRALIA.

RECOMMENDATIONS

The Government of South Australia is recommended to strongly encourage the federal government to extend the excise rebate awarded to biodiesel producers (for the near term)

Biofuels producers currently receive an excise rebate of 38.124c/l; and have become increasingly reliant on this subsidy. Current policies suggest that the rebate will be phased out in five stages from 2011 to 2015, at which point it will stand at just 19c/l. This is likely to present a significant challenge to biofuels producers in itself; however, this planned phase-out also coincides with the proposed introduction of Australia’s CPRS. The cent-for-cent reduction policy proposed in the CPRS means that polluting fossil fuels are not required to pay their carbon costs until July 2014. This 3-year mechanism

therefore doesn’t reward the reduced cost imposition of biofuels within the Scheme and presents a lost opportunity to increase biofuels uptake. However, the continuation of the biofuel producers excise rebate for the first 3 years of the CPRS (the duration of the cent-for-cent reduction policy) would allow producers to continue operating competitively, and enable a transition to more advanced feedstocks, such as microalgae. After the first three years of the proposed CPRS, fossil fuels will be required to pay their carbon cost, incentivising wider uptake of biofuels, which are zero-rated under the Scheme; at which point this excise rebate may be phased out at a lesser impact to the Australian biofuels industry.


The development of Australian biodiesel standards for B21-100

The Government should liaise with federal biofuels policy teams to develop Australian standards for B21-B100 blends, to reduce the negative incentives created by the rules within the current heavy fuel users rebate, which only apply to fuels officially classified as ‘diesel’ (i.e. biodiesel blends up to B20 only) within Australia’s fuel standards. This represents a significant market barrier for uptake of B21-100 biodiesel, in industries, such as mining, which may be more likely to switch to greater biofuels consumption in the absence of such policies.

December 2009

CARBON POLLUTION REDUCTION SCHEME (CPRS): POTENTIAL IMPACTS

The proposed Carbon Pollution Reduction Scheme (CPRS) is expected to be Australia’s first cap-and-trade scheme, which will aim to reduce the nation’s emissions by 5-25% by 2050 (2000 baseline) by applying a carbon price (capped at $10/tonne for the first year), incentivising a move to a lower carbon economy. Expected to commence on 1st July 2011, it is a market-based solution, designed to deliver emissions reductions at least cost, and biofuels are zero-rated in the scheme (despite emitting small amounts of CO2, methane and nitrous oxide).

To protect motorists from escalating fuel costs, the federal government has proposed a ‘cent-for-cent’ reduction in fuel tax for the first 3 years of the scheme. As offsets are based on diesel emissions (1 litre of diesel = 2.7kg/CO2e), which are slightly higher than petrol emissions (1 litre of petrol = 2.5kg/CO2e), the net impact on biodiesel is likely to be zero, whilst petrol will receive a small overcompensation. So at a carbon price of $10/tonne of CO2e, the excise will be 38.124c – 2.7cents = 35.424cents/litre. This provision was developed during the oil price spike in 2008, and was designed to protect the domestic consumer – though this only represents 15% of the biodiesel market.

This evidence suggests that 85% of the biodiesel market – consisting of sophisticated industrial users - is sheltered by this ‘consumer protection mechanism’, which reduces the incentive of wider biodiesel uptake in these industrial markets, many of which are capable of using up to B100. This effective exemption of fuels from the CPRS in the first three years of the scheme, doesn’t level the playing field for biofuels by recognising the lower GHG emissions and resultant lower CO2 cost imposition they present. Furthermore, in an industry where oil prices can fluctuate as much as 10c/litre/week, a 2.7c/litre price increase (from a $10/tonne carbon price) is likely to have a negligible impact on large-scale uptake of biofuels; and won’t make up the deficit left by the withdrawal of the 38.124c/l excise rebate.

Some stakeholders predict that a carbon price of $180/tonne might be needed to appropriately level the playing field, allowing biofuels to compete with fossil fuels. However, a price of $60-80/tonne of CO2e might be all that’s necessary to generate a significant impact on the fuel choices of motorists and heavy industrial fuel users, incentivising wider biofuels uptake, to reduce carbon liabilities.

Furthermore, coverage of the agricultural sector (the source of most first generation feedstocks and a major diesel consumer) is uncertain within the scheme rules. As a result, the sector is likely to continue consuming fossil fuels in order to maximise the economic benefits from the heavy fuel users excise rebate. Whilst other industrial sectors, such as the mining sector is most likely to be captured by the scheme rules, the initial capped carbon price of $10/tonne is likely to be much lower than the abatement costs of switching to biodiesel – so the most cost-efficient decision is likely to remain with use of diesels which qualify for the tax rebate – i.e. biodiesel blends up to B20 only.

Additionally, current rules in the CPRS suggest that only geo-sequestration and forestry are recognised as eligible sequestration options. This rules out the potential for sequestration provided by converting algal biomass into bioplastics or biochar in the CPRS, although they may still become eligible under voluntary carbon offset schemes.

RENEWABLE ENERGY TARGET (RET) Depending on the carbon feedstock used, there may be a potential to utilise algal biomass, methane from digestion, or the direct combustion of biodiesel to generate electricity under the Renewable Energy Target.

For instance, using atmospheric CO2 alone, or CO2 from a biomass plant for microalgae biofuels production may be considered a renewable energy source. However, using CO2 from a CPRS covered emissions source (e.g. a coal fired power station) is not likely to be considered a renewable fuel. Therefore depending on the CO2 feedstock used in microalgae production, microalgae based products may or may not be eligible for Renewable Energy Credits (RECs).


therefore doesn’t reward the reduced cost imposition of biofuels within the Scheme and presents a lost opportunity to increase biofuels uptake. However, the continuation of the biofuel producers excise rebate for the first 3 years of the CPRS (the duration of the cent-for-cent reduction policy) would allow producers to continue operating competitively, and enable a transition to more advanced feedstocks, such as microalgae. After the first three years of the proposed CPRS, fossil fuels will be required to pay their carbon cost, incentivising wider uptake of biofuels, which are zero-rated under the Scheme; at which point this excise rebate may be phased out at a lesser impact to the Australian biofuels industry.


The development of Australian biodiesel standards for B21-100

The Government should liaise with federal biofuels policy teams to develop Australian standards for B21-B100 blends, to reduce the negative incentives created by the rules within the current heavy fuel users rebate, which only apply to fuels officially classified as ‘diesel’ (i.e. biodiesel blends up to B20 only) within Australia’s fuel standards. This represents a significant market barrier for uptake of B21-100 biodiesel, in industries, such as mining, which may be more likely to switch to greater biofuels consumption in the absence of such policies.

December 2009

CONCLUSIONS

Climate change and fuel security present significant drivers for reducing emissions across the economy, and the transport sector, which represents 14% of Australia’s emissions, must make a significant contribution to achieving this goal. Whilst long-term alternative fuels and technologies, including BEVs, are being developed for the road transport sector, sustainable biofuels present a long-term opportunity, particularly for heavy fuel-using sectors expected to be dependent on liquid fuels in the longer term, such a mining and aviation.

First generation biofuels have been hampered by quality and sustainability concerns; however, second-generation biofuel feedstocks such microalgae are being hailed as a sustainable solution to offset fossil fuels. Microalgae can produce 6-10 times higher yields than their first generation counterparts, and do not compete with food for freshwater or productive land (Chisti, 2008).

The current commercial market for microalgae biomass is based on the extraction of high value pharmaceutical and nutraceutical products; and South Australia is home to the world’s largest production of beta-carotene from microalgae. Microalgae biodiesel production is now closer to commercialisation that it has ever been, with a commercial solution expected within the next 10 years. There are a variety of innovative approaches driving commercialisation of large-scale microalgae biofuels production, with many business plans are integrating the revenue diversity from high-value co-products. However, major challenges remain in optimising production, particularly in increasing yields and developing low-cost harvesting, dewatering and extraction systems.

Opportunities for microalgae biofuels production in South Australia also exist in the integration of production systems with WWT and bioremediation of mining sites. Both configurations could potentially provide irrigation (and possibly potable quality) waters as an output; and therefore contribute to South Australia’s water security goals. South Australia boasts natural advantages for microalgae production, supported by research expertise in related industries; and the photobioreactors and raceway ponds installed through the NCRIS facility at South Australia’s Research & Development Institute provide world class infrastructure and expertise to researchers to progress the practical R&D required for microalgae commercialisation in South Australia.

The study finds that there is a significant role for Government to ensure better coordination and commercially driven business development for attracting collaborative investment opportunities to South Australia. The existing federal policy framework presents perverse incentives for the wider uptake of biofuels in Australia; and the effective ‘exemption’ of fuels from the proposed CPRS for the first three years as a result of the cent-for-cent reduction policy, serves to further exacerbate market conditions for biofuels in the short term.

It is clear that there are three fundamental areas that need to be effectively supported simultaneously to accelerate the commercialisation of microalgae biofuels in South Australia. These are: (i) Coordinated R&D activity to drive low cost technology innovation; (ii) Market development to support the establishment of commercial opportunities in South

Australia; and (iii) Creation of a flexible policy framework in South Australia to remove regulatory barriers and

attract investment.

The study highlights a requirement for strong market development and the creation of a flexible policy framework to accelerate microalgae biofuels commercialisation in South Australia. Government support is vital to establish an inclusive and organised investment environment for microalgae biofuels that promotes commercial innovation.

The study identifies the need for an R&D roadmap, though this is beyond the scope of this report. While strong R&D will be required to underpin the success of this emerging industry, and may generate economic benefits of its own, it would be unrealistic for the Government to wait for R&D breakthroughs such as the development of the perfect algae strain, or the ideal algal harvest system


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to emerge, before subsequently introducing supportive policies and market support mechanisms, which are likely to be a prerequisite for the roll-out of large-scale production.

Therefore, in order to better position South Australia to commercialise innovative strategies for large-scale commercial microalgae biofuels production ahead of its competitors, the State Government should aim to support the simultaneous development of the three fundamental areas identified above. This will create a more conducive and dynamic investment environment to attract large-scale commercial investments, expertise and a breadth of stakeholders from across the value chain (from early R&D to production and consumption) to South Australia, enabling the strategic establishment of a microalgae biofuels cluster, which continues to drive R&D breakthroughs in South Australia.

In light of this, South Australia should adopt strategies that focus on maximising its natural advantages for microalgae production, by being among the first to implement a large-scale, commercial microalgae biofuels plant.

Additionally, the study also finds that long-term sustainability of microalgae biofuels production is threatened by a potential dependence on large, industrial, concentrated sources of fossil CO2, required to yield the necessary commercial productivities for microalgae. In order to avoid, perverse policy incentives, which encourage long-term industrial pollution to maintain large-scale fuel production, the Government should encourage the development of microalgae production solutions, which are based on supplies of organic or atmospheric CO2.

Future independent research to identify lifecycle GHG benefits of microalgae bio-jet fuels, and up-to-date economic assessments of commercial microalgae biodiesel production systems would provide further contributions to the commercialisation of the industry.

This study outlines some key policy recommendations to enable the Government of South Australia to effectively support and accelerate the commercialisation of microalgae biofuels production in the State. These include an aspirational biodiesel target of 200ML by 2022 and proposals to introduce a biodiesel mandate if sufficient investment can be attracted to the State; encouraging industry adoption; establishing industry development organisations in the State; the appointment of a dedicated business development manager; and the establishment of a policy framework which aims to streamline regulatory requirements and forge closer working relationships with federal biofuels policy teams.

Through the implementation of these policy recommendations South Australia will be better positioned to be among the first Australian State’s to host a large-scale commercial scale production of microalgae biofuels and create a microalgae biofuels industry cluster.


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APPENDICES

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APPENDICES


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APPENDIX 1 – MICROALGAE PERFORMANCE PARAMETERS

Key performance parameters for large-scale commercial microalgae biofuels production are presented in the table below.

Table 8 - Performance Parameters for Algae Biofuels Production

Performance Parameter Comment

Suitable Climatic ConditionsLocations with long periods of sunlight, average temperatures between 15-25C and low rainfall would be optimal, to reduce costs associated with artificial heating or lighting required for optimal algal growth.

Suitable Climatic Conditions

Water requirements will be fundamental to algal growth, and are likely to be species dependent. Most strain development activity in Australia is focussed on saline strains, often referred to as ‘extremophiles’ – i.e. they reduce the risk of contamination, as many encroaching species cannot survive in these extreme saline environments.

Availability of CO2 supply and nutrients

Availability of key nutrients will be essential for high productivity algal growth. CO2 may be supplied from the flue gas of a nearby power or ammonia plant, or many be transported in from further afield.

Wastewaters offer the nutrient-rich (N, P, CO2) conditions required for algal growth, and present opportunities for co-production.

Availability of Suitable Land

Suitable, low cost, and flat land will be required for the construction of large-scale open pond systems (e.g. 400ha plant will require at least 500ha to build roads, buildings, dewatering and extraction facilities etc). In addition, clay soils (no percolation) will reduce costs of lining the ponds.

Productivity/ Harvest-ability/ Processing

This is an ongoing R&D priority and low-cost technologies and solutions will be needed to support commercial microalgal production systems.

Productivity/ Harvest-ability/ Processing

This range from biofuels – ethanol/diesel, biogas (and electricity), GHG abatement, animal feeds, nutraceutical products, cosmetic products, omega-3 food supplements, fertilisers, reclaimed water and more. Not all strains and processes produce all these products. Research is ongoing to cultivate wastewater and saltwater algae strains, which produce valuable combinations of products – improving the economic viability of the production system.

Whilst current R&D is focussed on developing methods to manipulate the molecular composition of algal strains, current economic assessments are based on the assumption that productivities of algal biomass will be in the region of 100t/ha/year can be achieved. Some studies assume a more realistic case to be 50t/ha/year (Campbell et al, 2009; Benemann, 2003).


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APPENDIX 2 – ANALYSIS OF PRODUCTION SYSTEMS

There are two types of production systems in which microalgae are cultivated – open and closed; and these are explored in more detail in this section.

Open PondsThe most common open systems are set up as large, shallow, open raceway ponds, which utilise nutrients from run-off water or wastewaters. The water is kept in motion by a paddle wheel, with a flow rate of 10-25cm s-1 (Campbell et al, 2009). This ensures sufficient mixing of nutrients and CO2, and reduces shadowing of the algae as they grow, maximising light exposure and hence productivities (Carlsson et al, 2007). Often the ponds are unlined where there are clay soils (reducing the costs of lining ponds), but some are lined with plastic or cement. They usually operate at water depths of 15-35cm to ensure sufficient light exposure, and productivities of 60-100 mg/l a day are possible. Native strains of algae are usually introduced to the ponds to support production from indigenous species (Schenk et al, 2008; Kanes, 2009).

The ponds are continually fed with water and nutrients, whilst mature microalgae are harvested at one end. Kanes (2009) argues that the productivity of raceway ponds can be up to 10 times higher than unmixed ponds –which are the design of choice for most current cultivation of Spirulina, and other high value products. It’s often argued that these unmixed ponds are not true microalgae production systems, as they do not maximise the biomass production, and rarely harvest. Where the biomass is harvested, the presence of chemical by-products often renders it unsuitable for biofuel production (Kanes, 2009; Benemann, 2003).

The major disadvantages of open systems are the issues of evaporation, and increased risks of contamination from unwanted species or zooplankton grazers, which can cause pH and salinity imbalances, inhibiting growth (Kanes, 2009; Benemann, 1997). Ponds would be inoculated with the desired algal strains, but due to the open nature of the pond and their nutritious content, they are more susceptible to predation. Unwanted species will inevitably be introduced, significantly reducing yields, which may in some cases even out-compete the inoculated species. Once such competitors take residence in a pond, they can be increasingly difficult to eliminate. The Aquatic Species Programme found no species, which could continually dominate the pond and maintain desirable biofuels properties, and this remains a significant area of research for open pond systems (Schenk et al, 2008; Dismukes et al, 2008).

Sustained and reliable cultivation of monocultures can be achieved through cultivation of robust strains (often referred to as ‘extremophiles’), which thrive in high pH or hyper-saline environments. Few other species can co-exist in these conditions, and therefore the risks of contamination are reduced (Dismukes et al, 2008; Schenk et al, 2008). Spirulina survives and grows at high pH concentrations, ranging from 9-11.5, and is often the dominant species in soda lakes. For example, Australia is the largest producer of Dunaliella salina worldwide; a species, which thrives in hyper-saline waters (Schenk et al, 2008; Campbell et al, 2009).

The size of open raceway ponds varies from just a few hectares to 400 ha, but they can easily scaled up further. In addition, they are much cheaper to build and operate, making them the most common method of choice for commercial production (Benemann, 2008).

Closed SystemsClosed systems are mainly in the form of tubular photobioreactors (PBRs) or fermentors using heterotrophic microalgae (Kanes, 2009; Carlsson et al, 2007; Chisti, 2007; Benemann, 2008).

PBRs are either in the form of small diameter (5cm) plastic tubes or large diameter (>10cm) flexible bags. The significant advantage of closed systems is that they offer greater control and manipulation of microalgae growth conditions than open systems do, allowing microalgae to be grown in colder conditions, with limited risks of contamination.


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Some PBRs allow optimal light to reach the microalgae by allowing them to float in the clear horizontal tubes, by directing light through a fibre optic matrix, or utilising tubes that channel light through solar collectors. Water, nutrients and CO2 can be supplied in a controlled way, while the build up of oxygen has to be removed, as it can inhibit algal growth (Carlsson et al, 2007; Kanes, 2009). Schenk et al (2008) argue that not only do PBRs reduce use of water, chemicals and nutrients, they also provide five-fold higher productivities, and therefore have a smaller ‘footprint’ on a yield basis – a key driver of PBR/closed system research.

However, the significant costs of closed systems (estimates range from double to as much as 10-fold higher than open raceway ponds) have led to many organisations ruling out the use of completely closed systems in microalgae commercialisation. Further disadvantages include, operating challenges such as overheating and fouling, and the difficulties in scaling up the system for an individual growth unit beyond a 100m2, due to limitations of gas exchange. A large-scale closed system would therefore require thousands of repeating units, presenting significant economic, operation and maintenance challenges (Kanes, 2009; Schenk et al, 2008). Carlsson et al. (2007) compare the key performance parameters of open ponds and photobioreactor systems in Table 9.

Table 9 – Comparison of key performance parameters of open and closed production systemsParameter or issue Open ponds and raceways Photobioreactors (PBR)

Required space High For PBR itself low

Water loss Very high, may also cause salt precipitation Low

CO2 loss High, depending on pond depth Low

Oxygen concentration

Usually low enough because of continuous spontaneous outgassing

Build-up in closed system requires gas exchange devices (O2 must be removed to prevent inhibition of photosynthesis and photo-oxidative damage)

Temperature Highly variable, some control possible by pond depth

Cooling often required (by spraying water on PBR or immersing tubes in cooling baths)

Shear Low (gentle mixing) High (fast and turbulent flows required for good mixing, pumping through gas exchange devices)

Cleaning No issue Required (wall-growth and dirt reduce light intensity), but causes abrasion, limiting PBR lifetime

Contamination risk High (limiting the number of species that can be grown)

Low

Biomass quality Variable Reproducible

Biomass concentration

Low, between 0.1 and 0.5 g l-1 High, between 2 and 8 g l-1

Production flexibility

Only few species possible, difficult to switch High, switching possible

Process control and reproducibility

Limited (flow speed, mixing, temperature only by pond depth)

Possible within certain tolerances

Weather dependence

High (light intensity, temperature, rainfall) Medium (light intensity, cooling required)

Startup 6 – 8 weeks 2 – 4 weeks

Capital Costs High ~ US $ 100,000 per hectare Very high ~ US $ 1,000,000 per hectare (PBR plus supporting systems)

Operating costs Low (paddle wheel, CO2 addition) Very high (CO2 addition, pH-control, oxygen removal, cooling, cleaning, maintenance)

Harvesting cost High, species dependent Lower due to high biomass concentration and better control over species and conditions

Current commercial applications

5000 t of algal biomass per yearLimited to processes for high added value compounds or microalgae used in food and cosmetics

Source: Carlsson et al. (2007)

The high capital costs of microalgae cultivation in PBRs remains the main challenge for commercialisation of such systems (Borowitzka, 1999). Open raceway ponds are more cost-effective,


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but require large cultivation areas for microalgae growth and absorption of CO2 from flue gasses, due to a lower productivity per hectare. However, it has been pointed out that improvements in productivity could be achieved through improving control of limiting parameters in open ponds (such as temperatures and contamination), which could be reduced by using transparent covers over the pond, like a greenhouse (Hase et al, 2000).

Selection of production systems must be closely matched to the purpose of production and climatic conditions of the location. Closed systems would not be suitable for wastewater treatment, for example, as the high costs are not justified by the low value added during the production process. However, it could plausibly be argued that they are better suited to the production of low-volume, high-value products in colder climates, sold to specialist markets (Carlsson et al, 2007). Completely closed systems would not be appropriate for Australia, where optimal sunlight and climatic conditions exist naturally.

Kanes (2009) highlights that currently 98% of commercial microalgae is produced in open systems, and an NREL study has concluded that the open pond design is the most economic choice for future development. Whilst it seem this view is adopted as the general consensus in the industry, most commercial activity suggest the adoption of a hybrid model, where closed systems, are integrated into the production system at the early stage to produce the inoculum which will be introduced into the open ponds (Carbon Trust, 2009; Benemann, 2003.

Hybrid SystemsExtensive industry debate is ongoing to identify the best method for large-scale cultivation. Whilst it hasn’t stopped investment into PBRs in the US, there is a wide consensus that due to the high capital costs of producing microalgae, the economics of closed systems will represent a barrier to commercialisation. Despite the issues of predation, contamination from rival strains or indigenous algal species, bacteria and viruses, which impact the quality of production, open ponds are still the most cost effective way to farm microalgae (Rosenberg et al, 2008; Biggs, 2004; Alabi et al, 2009; Carlsson et al, 2007).

Open systems are considered a more cost-effective and efficient method of cultivating microalgae (than PBRs), but suffer high risks of contaminated. On the other hand, closed systems are ideal for maintaining monocultures, but set-up costs can be as much as ten-times higher (Carlsson et al, 2007; Benemann, 1997).

As a result most commercial operations adopt the hybrid model, which combines the two systems for cost-effective algal production. A series of PBRs of increasing size (and decreasing sophistication – i.e. costs) are used to produce a modest amount of inoculum culture (about 1-2% of total biomass), enough to effectively establish the desired strain, which is introduced to the raceway pond before unwanted species take residence (van Harmelen and Oonk, 2006; Schenk et al, 2008; Benemann, 2008). However, contamination of the open pond is inevitable, and Schenk et al (2008) recommend that cleaning and flushing the pond be adopted as part of the aquaculture routine, to minimise contamination issues.

A hybrid model, which combines the benefits of both systems, seems to be the most logical and cost-effective method of cultivating microalgae for commercial biofuels production, using current available technology.


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APPENDIX 3 – EXISTING PRODUCTS AND PRODUCERS OF MICROALGAE

Source: Resenberg et al. (2008)


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APPENDIX 4 - INTEGRATION WITH WASTEWATER TREATMENT

Studies suggest that there is a potential to develop more intensive and smaller footprint microalgae systems using HRAPs, for the development of this holistic and sustainable approach to wastewater treatment, GHG abatement and production of valuable ‘bio-products’ (Benemann, 2002; Fallowfield and Garrett, 1986; Shilton et al, 2008).

Benemann (2002) proposes a “controlled eutrophication process” known as the Partitioned Aquaculture System (PAS) as a process that is not constrained by such harvesting challenges. The method, which has been proposed for California’s Salton Sea, requires feeding microalgae grown in HRAPs to Tilapia fish, which is then converted into solids (faeces), allowing low-cost and simple harvesting of the biomass, through sedimentation (Schenk et al, 2008). The biomass could then be anaerobically digested to produce biogas, with the residues converted to fertilisers or aquaculture feeds. Further demonstration of this technology is required, and has been proposed in the USA.

Other environmental applications that microalgae have been proposed for, include further nutrient removal, and the removal of heavy metals from wastewaters, although the latter has been out-competed by ion exchange resins in commercial applications (Benemann, 2002).


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APPENDIX 5 – A PROJECT BASED ECONOMIC ASSESSMENT

Hassania (2009) claims that the NPV curves in the graph below represent the total installed and O&M costs a project would need to achieve in order to be commercially successful. If a project falls on the line, it will return on average 30% to equity providers, 12% to debt providers (as per the stated assumptions below). If the project falls above the line it will fail to meet the criteria needed to satisfy the financiers, and if it falls below the line, there is potential for excess profits.

The orange net present value (NPV) line represents the scale of the challenge facing the industry. Very few projects have discussed installed costs of less than $40,000/acre, but the orange NPV line shows that if total installed costs fall to $30,000/acre, O&M costs could remain as high as $8,000/acre and still remain economically viable.

The solid green NPV line represents an microalgae strain, which produces a combination of oil for biofuel and biomass for animal/fish feeds. Assuming a sales price of $2/gallon for the oils and $0.10/lb for the remaining biomass, this would equate to revenues of $266/tonne for the biomass (Hassania, 2009).

However, the O&M costs of the project can present significant challenges against such revenues. Hassania (2009) claims the cost of nutrients could be as high as $4,000/acre/year, and with added costs for pumping water, capture and delivery of CO2, harvesting and extraction – the O&M costs can often render a project economically unfeasible.

The blue and dashed green NPV lines begin to represent the possibilities of a multi-product business models or price spikes in the oil market, allowing the sale of the algal oil for values in excess of $6/gallon (Hassania, 2009). This combination of higher productivities and co-generation of higher value products from the algal biomass (to offset some of the high costs), is likely to be the most successful business model for microalgae biofuels commercialisation. Whilst it is possible in theory, large-scale commercial demonstration, focused and well-structured and funded R&D will be essential to accelerate commercialisation.

Figure 7 – A Traditional Project Economic Analysis Used to Assess the Viability of Commercial Algae Production Systems


December 2009

APPENDIX 6 – QUALITY STANDARDS

BQ-9000® AccreditationBQ-9000® is a voluntary biodiesel standard and, combined with ASTM D6751, provides a quality system that includes storage, sampling, testing, blending, shipping, distribution, and fuel management practices.

In the US, the National Biodiesel Accreditation Program is a cooperative and voluntary program for the accreditation of producers and marketers of biodiesel fuel called BQ-9000®.5

BQ-9000® is currently open to any biodiesel manufacturer, marketer or distributor of biodiesel and biodiesel blends in the United States and Canada, and the Government of South Australia should investigate the opportunities to introduce this to the South Australian biofuels market to support wider uptake of its biodiesel.

BQ-9000® helps companies improve their fuel testing and greatly reduce any chance of producing or distributing inadequate fuel. To receive accreditation, companies must pass a rigorous review and inspection of their quality control processes by an independent auditor. This ensures that quality control is fully implemented.

Further details can be found at www.bq-9000.org

The Roundtable on Sustainable BiofuelsThe Roundtable on Sustainable Biofuels6 (RSB) is an international initiative coordinated by the Energy Centre at the Swiss Federal Institute of Technology in Lausanne that brings together farmers, companies, non-governmental organizations, experts, governments, and inter-governmental agencies concerned with ensuring the sustainability of biofuels production and processing.

The RSB is developing a third-party certification system for biofuels sustainability standards, encompassing environmental, social and economic principles and criteria, through an open, transparent, and multi-stakeholder process. Participation in the RSB is open to any organisation working in a field relevant to biofuels sustainability.

5 http://www.bq-9000.org/description/ 6 http://cgse.epfl.ch/page77270.html


http://cgse.epfl.ch/page77270.html

http://www.bq-9000.org/

http://www.bq-9000.org/description/

December 2009

APPENDIX 7 - SOUTH AUSTRALIA’S COMPETITIVE ADVANTAGE - PORTER’S DIAMOND ANALYSIS

Porter’s Diamond model is often used to demonstrate the comparative advantage of nations, and it is used here briefly, to explore South Australia’s global comparative advantage. Traditional economic theory suggests that comparative advantages reside in the factor endowments that the nation is lucky enough to inherit (Martin and Porter, 2000) – in South Australia these include land, climate, natural resources, skilled labour and expertise, and a local population, which serves as a primary market for the microalgae fuel. However, Porter (1998) argues that a nation can enhance these comparative advantages, through the creation of advanced factor endowments such as skilled labour, technology commercialisation, government support/policy and culture. Figure 8 illustrates the four inter-relating factors, which impact a nation’s comparative advantage, and these factors are briefly applied to South Australia for microalgae biofuels commercialisation in Table 10, whilst Table 11 provides a S.W.O.T analysis of South Australia’s market position.

Figure 8 – Porter’s Diamond model

Source: Martin and Porter (2000)

Table 10 – Brief Porter’s Diamond Assessment for South Australia

Factor Conditions Demand ConditionsFirm Strategy, Structure

& RivalryRelated Supporting

Industries

1. Suitable land availability

2. Favourable climate

3. Availability of CO2, waste/brackish/saline waters and other nutrients

4. Scarce water supplies lead to water security driven innovation

5. Local expertise and innovation in microalgae biomass revenue maximisation

6. Fuel security / Peak oil drivers

7. Demand for long-term, sustainable and locally produced ‘premium’ microalgae bio-jet fuel

8. An opportunity to reduce carbon liabilities under the CPRS for heavy fuel using sectors

9. Competitive race for commercialisation – intense commercial confidentiality and IP, increasing pressure to innovate.

10. Research & engineering driven business models

11. Complementary skills in aquaculture, WWT, global nutraceutical and pharmaceutical markets and more; supporting supply chain development for microalgae biofuels.


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This evidence highlights that whilst factor demand conditions exist, the remaining two factors could benefit from further development of supply chains and related industries; and better co-ordinated efforts (through a commercialisation roadmap) to guide firm strategy, structure and rivalry.

Porter (1998) adds that Government should be a catalyst, challenging companies to raise their aspirations to compete in a global market, and the Australian federal government has achieved this through biofuels quality standards. Governments should also focus on developing specialised factor creation; promoting rivalry to encourage innovation; and stimulate early demand for products – in the case of biofuels, through off-take agreements, R&D ‘roadmapping’ and marketing campaign’s to inform and educate consumers.


December 2009

Table 11 - SWOT Analysis of South Australia as competitive location for microalgae biofuels production

STRENGTHS WEAKNESSES

1. SA’s competitive advantages - natural climate, land availability, access to key nutrients and waste/saline/brackish waters.

2. Track record and expertise in biotechnology, engineering and aquaculture, which complement microalgae cultivation.

3. Strong State Government support to attract commercial investments.

4. SA is already home to an existing commercial microalgae industry – for beta-carotene products. Expertise in microalgae cultivation already exists, which could be optimised for fuel production.

1. Biofuels industry is disparate - would benefit from better coordination to support healthy competition and commercially driven opportunities.

2. Australia offers little Government funding for large-scale microalgae biofuels demonstration production, and therefore may struggle to compete with large, government-funded US projects.

OPPORTUNITIES THREATS

1. SA is attracting major investment opportunities, including many from the US.

2. Several potential sites for large-scale microalgae biofuels production exist in SA, including (i) Torrens Island, (ii) locations close to Port Augusta power station, (iii) Port Pirie, (iv) Whyalla, (v) (Santos’s gas station at) Moonba, (vi) the Olympic Dam mining site. However, detailed assessment of the suitability of the sites is still needed.

3. Opportunities for integration with the 70 existing open pond WWT systems in the State, and/or with bioremediation for contaminated mining sites – significant opportunities for this water stressed State.

4. Supply chain development through development of international networks

5. Potential opportunity to utilise closed Exxon Mobil refinery at Port Stanvac.

6. Potential opportunities for economic development and job creation.

1. Indigenous land ownership and rights might present a significant and potential delay for particular locations in SA.

2. Potential investment opportunities might be poached by the eastern states, which have better established and co-ordinated biofuels industries than SA.

3. SA has only one refinery - the State has a vested interest in ensuring this remains operational until microalgae biofuels commercialisation.

4. The immaturity of the biofuels industry in South Australia may deter some investors, who may invest in the eastern states, which have a better-established market and infrastructure.

5. Freshwater is a scarce resource in SA, and small amounts may still be required for microalgae production - will need to be closely monitored and controlled.

6. The prospect of “peak phosphorous” is likely to limit the supply of this key nutrient for algal growth but nutrient-rich wastewaters from the State’s WWT systems could be utilised instead.

This SWOT analysis of South Australia’s competitive advantages enables a further analysis of South Australia’s comparative advantage in the global microalgae biofuels industry.


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