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A full-scale commercial algae farm using techniques being demonstrated on the Big Island will be built next to Maui Electric Co.'s Maalaea generating station, using carbon dioxide from burning fuel to grow algae to make biodiesel to fuel the plant.

HR BioPetroleum, Alexander & Baldwin Inc., Hawaiian Electric Co. and MECO announced Tuesday the signing of a memorandum of understanding to develop the facility. After environmental and engineering review, the farm could be in operation by 2011, according to Ed Shonsey, chief executive officer of HR BioPetroleum.

The algae, a one-celled marine species, would be harvested for an oil that can be converted into biodiesel. Byproducts could be processed for animal feed. The process is odor-free and produces almost no residue, said Shonsey. "Everything is reusable and renewable." (See related story.)

The cost has not been established, but Shonsey says several local investors have shown an interest and HR hopes to keep ownership as much as possible in Hawaii. The output may be eligible for tax credits.

A&B's Hawaiian Commercial & Sugar Co. will contribute up to 1,000 acres of land (initially probably 300 to 600 acres), now in cane cultivation.

Christopher J. Benjamin, senior vice president and chief financial officer of A&B, says the biodiesel farm will be an addition to the long-range strategy of turning HC&S into an energy plantation.

HC&S already generates electricity from bagasse, and up to now it has talked in terms of converting cane into ethanol if long-term water supplies can be confirmed.

"We have worked to find ways that we can support other green energy initiatives at the same time," Benjamin said.

HR BioPetroleum will finance, build and operate the algae farm. A&B will supply land and may be an investor. HECO and MECO will oversee permitting (including Public Utilities Commission review) and management of the stack gases.

Oil from algae has been a hot prospect in the alternative fuels search because of its enormous efficiency. Algae reproduce much faster than land plants. Shonsey says the potential output is 10,000 gallons per acre per year for algae, compared with 600 gallons from palm oil in the tropics and 48 gallons from soybeans in the Midwest.

However, no one has yet produced such amounts of lipids from algae. Barry Raleigh, a co-founder of HR, said, "I haven't seen anybody advertising algal oil for sale."

Kelly King, vice president at Pacific Biodiesel, which refines used cooking oil on Maui, said: "This is not the first time we have heard an announcement about algae. I hope it works. It would be the first time."

HR believes it has beaten the bane of scaled up algal production schemes by combining two techniques: starting the bugs in closed reactors and letting them multiply in open ponds.

Reactors protect the algal culture from infection by wild species but are too slow. Multiplication in open ponds is fast but tricky. HP's process harvests the ponds every day, which doesn't give enough time for wild species to take hold.

This is not the first time someone has proposed to use Maalaea exhaust for a green project. Tom Reed, who now operates Aloha Recycling, proposed a project to capture exhaust heat about 20 years ago. The heat would have been used to desalinate brackish water as part of a plan to compost green waste to be sold as soil amendments.

Gov. Linda Lingle, who was part of the then-unenthusiastic county government, said of the new proposal: "This innovative partnership can help move Hawaii one step closer to securing energy independence and achieving our goal of having 70 percent of Hawaii's energy come from clean sources by 2030.

"There is no single source of energy that will break our dependence on foreign oil, but investments in renewable projects such as this are part of the comprehensive solution to provide energy alternatives for our state."

MECO is also committed to purchasing biodiesel to be made from oil from land plants (probably African oil palms) by BlueEarth Biodiesel, which is preparing an environmental impact statement for a plant on Maui.

Peter Rosegg, spokesman for HECO, said Tuesday's agreement covers only the recovery of stack gases and production of algal lipids. No commitments have been made about who would refine the oil or where. However, he said, it would not make sense to ship the oil off-island and then bring it back if a refinery were available.

The total expected output was not established, but Shonsey says about 70 percent of the acreage would be available for production and about half of that for the ponds. That would suggest about 350 productive acres which, at 10,000 gallons per acre, could produce 35 million gallons of refinable oil per year.

BlueEarth plans to make 40 million gallons of biodiesel at first, ramping up to 120 million gallons at about the same time that the algal project proposes to start producing lipids.

MECO consumes about 56 million gallons a year of diesel, but HECO also needs biodiesel for plants on Oahu and the Big Island.

The Maalaea farm would be HR's first commercial facility, although it has a small demonstration project at the Natural Energy Laboratory of Hawaii in Kona, where it is constructing a pilot project.

"This agreement is a welcome step in HR BioPetroleum's efforts to accelerate its proven technology toward commercial scale," said Shonsey.

The goal is to produce oil at half the cost of fossil fuel while mitigating carbon dioxide releases into the atmosphere.

HR seeks to locate algae farms next to plants that produce carbon dioxide, like electricity generators and cement kilns. Preferred locations will be in warm, sunny areas that encourage the growth of algae, such as the Southeastern states, developing countries in the tropics and, of course, Maui.

A&B Chairman Allen Doane said: "Alexander & Baldwin has been producing renewable energy in Hawaii for more than 100 years through biomass and hydroelectric generation at its agricultural operations. . . . We are excited about the promise of algae as another renewable energy source."

* Harry Eagar can be reached at heagar@mauinews.com.