Lee Stein, the founder of venture capital investment firm Prize Capital, announced in October of 2009 that his firm is offering a prize of $10 million to the first person or group that invents the process of producing commercially fuel from algae in such a way that the process does not compete with the production of food crops. Although the final prize amount might change as there are not currently very many contest rules, the current $10 million dollar offer is modeled directly on the Ansari X Prize that was given as an incentive to create the first commercially available reusable flight vessel capable of leaving the Earth’s atmosphere and then safely re-entering and returning.

Fuels derived from algae can be made by using water that is unfit for human consumption and they can be made all around the planet. This would allow people all around the world to make their own fuel on the spot.

Currently, to win the prize the person or group must produce 3,000 gallons, net, of biodiesel fuel at a cost of no more than $3 per gallon.

Stein says of his firm’s incentive “We want to work with third-generation biofuels: Land that cannot be used for food. That was our primary concern. There’s an intersection between the developed world and the developing world. 1.2 billion people are living on a second dollar a day. When they get that second dollar, it’s all going to energy or food that requires energy.”

However, in March of 2009 chemists from New York announced that they had developed the first economically feasible method for converting algae oil to biodiesel fuel. They call it their “continuously flowing fixed-bed” method, and it has the advantage of producing zero wastewater.

“This is the first economical way to produce biodiesel from algae oil. It costs much less than conventional processes because you would need a much smaller factory, there are no water disposal costs, and the process is considerably faster,” said lead researcher Ben Wen, Ph.D., VP of United Environment and EnergyLLC, Horseheads, NY. Wen believes that algae has algae has an “oil-per-acre production rate 100 to 300 times the amount of soybeans, and offers the highest yield feedstock for biodiesel and the most promising source for mass biodiesel production to replace transportation fuel in the United States.”

Wen also says that, depending on the size of the production plant and the amount or size of machines used, it’s possible for a company to produce as much as 50 million gallons of algae biodiesel each year using his company’s method. Will Wen win the Algae Fuel Prize? Time will tell.