They call it the “valley of death”: the period of time between a startup’s initial funding and when it starts bringing in sustainable revenue. And the so-called clean tech scientists and business people looking to help the world lessen its dependence on fossil fuels and non-renewable electricity sources know the topography of that valley well.

Take algae.

The first wave of inspiration for startups that research, develop and implement algae biofuels has crested. Now, local centers like the San Diego Center for Algae Biotechnology, alongside companies like Sapphire Energy, Cellana and Synthetic Genomics, are plugging away at the research that would allow them to get from proving that algae can be turned into fuel for cars, airplanes and ships – which they’ve done – to consistently producing enough fuel for the technology to become a viable replacement for traditional fuel.

There are a few dozen algae biofuels companies in San Diego.

“San Diego is the algae Mecca,” said Martin Sabarsky, CEO of local biofuels company Cellana, at a clean tech symposium Tuesday. The company just signed a big deal with a Finnish oil company, which promised to buy tens of millions of dollars’ worth of the biofuel if Cellana can produce enough in the coming years.

That “if” looms large.

These days, the science of building a biofuel business is as much about converting algae to “green crude,” or a crude oil substitute, as it is about finding marketable uses – animal feed or human nutrition supplements, for example – for the rest of the matter produced in the process.

Investment in clean energy companies is down sharply, more than 55 percent lower than the investment levels in 2004, when the Encinitas-based WilderHill Clean Energy Index began tracking renewable energy’s commercial success.

And while deals like Cellana’s encourage its peers, there’s a clearly long road ahead.

“On the commercial side of things – meaning what’s your cost? – we’re still off by two,” Mayfield said. “Algae fuel is at least twice fossil fuel, maybe more than that.”

A 2011 National Renewable Energy Laboratory report estimated diesel refined from algae would cost $9.30 per gallon. Mayfield said he’s seen more recent estimates closer to $8 per gallon.

Clean-tech innovators in biofuel and solar energy, two sectors with footholds in San Diego, enjoy political mandates from military, federal and state leaders and some local leaders like Mayor Bob Filner. The same San Diego sun that hoteliers trust to draw throngs of tourists to the county makes the region an attractive place to research and install technologies like solar panels and algae ponds – both of which require loads of sunlight.

But the sector is also subject to hype and failure.

Filner’s pledge to use solar power for all city and school district buildings in five years faces big hurdles like cost and finding the space to install all those panels.

Exxon Mobil dumped hundreds of millions of dollars into algae research at Synthetic Genomics, but Exxon CEO Rex Tillerson said in March the venture may not prove successful for 25 more years. A Spanish company that launched U.S. solar panel manufacturing in San Diego a few years ago filed for bankruptcy protection earlier this year.

One plant hyped for its oil-bearing seeds, jatropha, yielded some early disappointments for companies and investors. Though now, a San Diego company, SG Biofuels, is among industry leaders pushing a hybrid version that would produce more of the plant’s seeds that can be crushed to create oil convertible to diesel.

There’s typically an appetite in innovative ventures for failure. But Stephen Mayfield, director of UCSD’s Center for Algae Biofuels, said setbacks are more tolerable when investors have something to hold on to.

“The reason that that failure rate is tolerated in the medical side of things is that Amgen and Genentech and a few other guys did make it,” he said. “There’s no shining light up there to say look, they did it.”

‘They have these mechanisms to put the brakes on’

With loud support from former San Diego Mayor Jerry Sanders, an industry group, CleanTech San Diego, launched in 2007 to help foster relationships and spark inspiration for renewable energy companies, especially focusing on biofuels and solar energy. The region landed a major grant to launch a workforce training program to teach specialized biofuel skills.

The biofuels sector employed more than 450 workers in 2011, more than double its 2009 numbers, according to a study by the San Diego Association of Governments. CleanTech names more than 300 local companies working in biofuels, wind, water and solar energy generation and recycling.

But at a state-of-clean-tech event Tuesday, industry leaders acknowledged a few key hurdles that could sap their momentum:

• Funding that outlasts the “valley of death”

• Expiry of government subsidies to incentivize the use of solar panels and wind generators. (A recent point-counterpoint in the Wall Street Journal weighs the costs and benefits of those programs.)

• Finding ways to persuade people who don’t want these technologies to be installed in their neighborhoods.

Solar-panel company Soitec opened a manufacturing facility in San Diego late last year, where it expects to employ 450 people when the facility is at full strength.

But Clark Crawford, Soitec’s California manager, said there’s a cloud on the horizon.

The industry is at risk of having major projects blocked by community groups that don’t want the solar projects installed in their backyards, he said. San Bernardino County supervisors just put a moratorium on all new solar projects in the unincorporated parts of that county.

If you look at a map of where in the United States receives the most direct sunlight, San Bernardino County is right up there.

Holly Smithson, CleanTech San Diego’s president, said her organization hopes to spark community conversations about integrating solar, wind and other renewable energy policies into community plans – many of which haven’t been updated for decades.

“They have to make decisions about their values. Do they want to be a community that welcomes those technologies?” she said. “They have these mechanisms to put the brakes on.”

This is part of our Quest to find out more about the innovation economy in San Diego. Here’s a good overview of what we wanted to find out, and check out these highlights from the series.

Kelly Bennett

Kelly Bennett is a former staff writer for Voice of San Diego.

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