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Algae.Tec receives green light for biofuels demonstration facility south of Sydney

Renewable oils company Algae.Tec (ASX: AEB, FWB: GZA:GR, ALGXY:US) has been granted development approval for its highly anticipated Shoalhaven One development facility in  Nowra, New south Wales, paving the way for construction to be completed in the March quarter 2012.

In June Algae.Tec signed a collaboration contract with the Manildra Group, Australia's largest ethanol producer, a move which strategically sited its algae photo-reactors next to Manildra's main facility and enables Algae.Tec to take a carbon dioxide feed from the main ethanol fermentors.

The Shoalhaven One facility will demonstrate the company's high-yield enclosed algae growth and harvesting system, producing biofuels designed to replace increasingly expensive fossil fuels.

Algae.Tec's modular system captures carbon dioxide waste from power stations and manufacturing facilities.

Roger Stroud, executive chairman, said "the Algae.Tec algae photo-reactors will be sited next the main facility and take a carbon dioxide feed from the main ethanol fermentors."

The approval has been given under the Shoalhaven City Environmental Planning and Assessment Act and enables Algae.Tec to build the full-scale demonstration plant for third-party validation, process optimisation and marketing of Algae.Tec's technology.

The company has permission to construct "an algae demonstration plant for the evaluation of algae production and processing for alternative fuel and CO2 sequestration," according to the Shoalhaven City Council.

The permit is effective immediately and is valid for the next three years at which time an application can be made for an extension.

Significantly, Algae.Tec is one of only a few advanced biofuels companies globally with technology designed to grow algae on an industrial scale.

Photo reactors are currently being assembled at the company's USA headquarters, the Algae Development & Manufacturing Centre in Atlanta, Georgia, an 18,200 square foot fabrication facility.

Impressively, the Algae.Tec solution is less than one tenth the land footprint of pond growth options, while its enclosed module system is designed to produce algae biomass in virtually any environment in the world.

The enclosed modular system is designed to deliver the highest yield of algae per hectare, and ingeniously solves the problem of food-producing land being turned over for bio-fuel production.

The company is also looking to establish facilities in Asia to develop its high yield enclosed algae growth and harvesting system to tap the enormous potential that exists for Algae.Tec in the region.

Biofuels sector

The global listed biofuels sector has gained significant momentum in the last six-12 months with the U.S. listing of PetroAlgae Inc. (OTCBB: PALG).

Goldman, Sachs & Co., UBS Investment Bank, and Citi were joint managers of the listing in late 2010.  PetroAlgae now boasts a market capitalisation of $1.44 billion.

Another U.S. biofuels company, Solazyme Inc. (NASDAQ: SZYM) recently listed with Morgan Stanley & Co. and Goldman Sachs & Co as joint managers, raising $200 million, indicating the strong interest in the stock. Solazyme currently has a market capitalisation of $575.21 million.

With its current market valuation Algae.Tec provides a cheaper entry into the bio-fuels renewables sector relative to those players for long term investors.

Significant momentum

In September Algae.Tec was the subject of a research report from New York based Arrowhead, which believes that Algae.Tec has "enormous growth potential with a medium risk profile."

Based on intrinsic revenue capacity from 500 modules, the research firm has estimated that the company’s fair share value lies in the AU$1.51 to AU$2.15 bracket.

With Algae.Tec's shares currently trading at $0.37, Arrowhead's valuation represents potential upside of at least four times the current price.