Two Arizona alternative energy outfits are joining forces to commercialize a patented technology to produce biofuel from algae.

Diversified Energy Corp. in Gilbert and XL Renewables Inc. in Vicksburg, have formed a partnership and licensing agreement for the use of Simgae, which leverages agricultural technology with algae production. Grown in long, plastic tubes, the algae is fed water and carbon dioxide and later processed for its oil and turned into biofuel.

XL Renewables, formerly known as XL Dairy Group, is building a $250 million, 2,700-acre biorefinery called XL Biorefinery in Vicksburg, 100-miles west of Phoenix. When complete, the dairy plant will produce animal feeds, biofuel, ethanol, fertilizer and milk. It also will produce its own energy and will not be connected to the electrical grid.

Diversified will provide project management and engineering to commercialize the biofuel.

Using algae as a feed source for biofuel will bring down costs associated with production, said Jeff Hassannia, Diversified vice president of business development.

"Algae in particular has enormous yields," he said. "It takes significantly less acreage to grow than other crops like soy beans."

The two companies started working together six months ago to find a way to commercialize XL's Simgae process. Using the technology is expected to lead to 100 to 200 dry tons per acre, with capital costs between $45,000 to $60,000 a year. This is up to 16 times more efficient than competing algae biofuel systems, according to Diversified statistics.

The cost of producing biofuels such as ethanol has been widely criticized because of the affect on corn, soy bean and sugar prices. Other factors that drive up costs include transportation and storage of feed stocks.

Using a feed source like algae, which is outside of the human food chain, could alleviate these issues. Plus, because the algae is grown on site, there are no transportation and storage costs.

Industry analysts claim algae-based biofuel production has nearly 30 times the amount of output as traditional methods. Because of this, algae has become a popular target for new technology and research.

But as the research increases, so does the cost of production, Hassannia said. By partnering with XL and focussing on the basics, costs are mitigated to manageable levels.

"Our opinion is that the marketplace (for algae-based biofuel production) is moving in a direction that may not be that advantageous," he said. "By focussing on the agricultural and irrigation side, we believe the associated costs will be much less."

Diversified and XL will host a demonstration of the new technology in the next few months, Hassannia said.