San Francisco -- The first big test for Sapphire Energy is not that far away.

The company -- which hopes to produce oil with genetically modified algae in open ponds at an economically attractive price -- will soon break ground on a 100-acre facility for growing algae in New Mexico, said Tim Zenk, vice president of corporate affairs at the company, during an interview. Construction time takes about 16 to 18 months, he added.

Sapphire has also completed a good portion of the biotechnology needed to raise organisms that can produce large amounts of hydrocarbons, Zenk noted. Hence, in 18 months or so, the world might have a better idea of whether Sapphire's strategy actually has legs. The pond won't be optimized for commercial production, but it will give a general idea if the company is headed in the right direction. Sapphire has provided algae oil to trials with planes and cars, but the oil did not come from the genetically modified organisms being created by Sapphire, nor did these oils derive from the processes Sapphire hopes to use commercially.

Algae fuel as a concept has already scaled the peaks of hype and plunged into the trough of despair. But guess what comes after that: the emergence of a few commercially viable companies. Sapphire, along with Solazyme and a few others, has always sat in the top tier of the algae world, so the fact that progress is occurring is news. (See How to Rate an Algae Company.)

The market circumstances have also begun to improve slightly for biofuels. Oil prices are inching up again and the U.S. government has not retreated from its biofuel goals, which come to 36 billion gallons by 2022. (The Department of Transportation also has raised the CAFE standards to 35.5 miles per gallon in 2016 and may raise it to 62 miles per gallon in 2025.)

"If we can't do algae, we've got real problems," said Zenk. Algae, in theory, has the potential of producing 5,000 to 10,000 gallons of fuel per acre, higher than most other forms of biomass by a wide margin. Algae can also grow in brackish water on marginal land, so it doesn't compete as directly with food agriculture.

Sapphire's New Mexico farm will consist of three 100-acre facilities made up of ten 10-acre ponds. The first will serve as a test bed for the second 100-acre facility and the second will serve as a test bed for the third. With the third facility, Sapphire hopes to be able to understand how to refine its processes for large-scale commercial production. The cumulative 300 acres of ponds in New Mexico will be capable of generating a million gallons of fuel a year, but in liquid fuels, that's still considered prototype/early commercial demonstration size.

Growing algae will be similar to how rice gets grown in paddies. Worldwide, 375 million acres are dedicated to rice growing. Open ponds -- instead of the closed bioreactors promoted by companies like Solix or the closed fermentation tanks promoted by Solazyme -- will require too much capital to compete with liquid fuels. Sapphire will use a low-energy technique to circulate the water (Solazyme, Solix and others strongly disagree and often note that raising genetically modified organisms in open ponds, where they will have to compete with invasive species, is far more challenging than pond advocates let on.)

Zenk acknowledged some of these issues. Sapphire has figured out ways to optimize the amount of oil that a single organism can produce. Now, researchers are working on ways to give them better defenses to toughen them up for life in the pond.

To extract the algae from the water and to extract the oil from the algae, Sapphire will exploit some in-house technologies as well as equipment from the wastewater industry. Microbiology will come in handy here. When stressed, algae produce a protein that makes them float, and floating algae are easier to harvest. To that end, Sapphire is trying to figure out a way to get its algae to release the protein on command or more readily.

Unlike most other algae companies, it won't sell the proteins, nutrients and other material after the oil is extracted from the cell. Instead, they will be used in-house as algae food.

"We don't let the really valuable nutrients leave the door," he said.

Put another way, Sapphire will kill organisms and suck out their fluids for money, and then feed their remains to their descendants. Just a thought.

Sapphire also has no interest, yet, in selling oils to the pharmaceutical or food industry. Most other algae companies have sprouted food divisions to help bring in revenue now, but Sapphire says it is strictly a fuel company.

But, like Solazyme and others, Sapphire will initially target the Department of Defense, which has ambitious plans to scale up its consumption of renewable fuels, as a customer.

"The military will be the first customer," he said. "Energy has become a strategic necessity."