It works, apparently.

The U.S. Navy has signed a deal to get 150,000 gallons of algae fuel from Solazyme. A year ago, Solazyme signed a deal with the Navy to deliver 20,000 gallons of HRF-76 Naval Distillate. It has fulfilled that contract, so this new deal can be seen as a sign that the Navy is happy with the results. The fuel meets the Navy's specifications for a drop-in renewable replacement, says Solazyme.

The Navy has a long-term strategy of getting 50 percent of its fuel from renewable sources by 2020. In August, Secretary of the Navy Ray Mabus gave a great speech in front of the Commonwealth Club explaining why. The federal government consumes 2 percent of all the energy in the U.S., and the Department of Defense accounts for 90 percent of that total.

But more importantly, shipping fuels and other energy sources often places additional burdens on the DoD. The biggest imports into Afghanistan right now are oil and gas, and the Navy has to expend resources and labor hours to keep supply lines humming. Seventy percent of the world's population lives within 100 miles of an ocean coastline, so rising sea levels will have profound security implications.

The Navy, Mabus explained, has always been at the forefront of energy research. In the 1850s, the Navy switched from sail to coal power. Critics in Congress complained that coal supplies were uncertain and the infrastructure needed to deliver it would be costly. The same complaints were sounded later when the Navy switched from coal to oil. Nuclear? A reactor would never fit on a ship or a sub.

"We have a chance to lead this country in new ways of producing energy," he said. "It will make us better in terms of national security. It will also immeasurably aid this planet, which we call home."

Critics countered that Mabus works for a socialist.

Solazyme is an iconoclast in algae. Most companies grow algae in water by feeding it a steady diet of sun and carbon dioxide. They then extract the algae, squeeze their bodily fluids to make fuel and turn their cracked cell membranes into dog food.

By contrast, Solazyme locks its genetically modified algae into a brewing vat with sugars and ferments them. While adding biomass adds cost, Solazyme's process avoids some of the other big headaches with algae, namely, trying to figure out a way to separate the algae from the water (before the squishing and dog-food-production fun can begin). So far, Solazyme has made far more fuel than any other algae company we've found.

Solazyme's algae process results in a lipid, which gets refined into a hydrocarbon. Companies like Joule Unlimited, Amyris and Sapphire Energy claim to have GMO organisms that can produce hydrocarbons, thereby cutting out a step in production. Whether and how all of these technologies scale will be worth watching. Joule today said it recently patented a microorganism that can produce the equivalent of 15,000 gallons of diesel per acre per year.

Like Aurora and others, Solazyme has also branched out into producing oil for the food and cosmetic markets.

Tags: algae, aurora, biodiesel, biofuels, sapphire energy, solazyme, Solazyme, solix