There is clearly a demand for sustainable biofuel production, but whether a particular biofuel will be used ultimately depends not on sustainability but cost efficiency. Therefore, research is focusing on cutting the cost of algal biofuel production to the point where it can compete with conventional petroleum. The production of several products from algae has been mentioned as the most important factor for making algae production economically viable. Other factors are the improving of the solar energy to biomass conversion efficiency (currently 3%, but 5 to 7% is theoretically attainable)and making the oil extraction from the algae easier.
In a 2007 report a formula was derived estimating the cost of algal oil in order for it to be a viable substitute to petroleum diesel:
::C = 25.9 × 10 C
where: C is the price of microalgal oil in dollars per gallon and C is the price of crude oil in dollars per barrel. This equation assumes that algal oil has roughly 80% of the caloric energy value of crude petroleum.
The IEA estimates that algal biomass can be produced for a little as $0.54/kg in open pond in a warm climate to $10.20/kg in photobioreactors in cooler climates. Assuming that the biomass contains 30% oil by weight, the cost of biomass for providing a liter of oil would be approximately $1.40 ($5.30/gal) and $1.81 ($6.85/gal) for photobioreactors and raceways, respectively. Oil recovered from the lower cost biomass produced in photobioreactors is estimated to cost $2.80/L, assuming the recovery process contributes 50% to the cost of the final recovered oil. If existing algae projects can achieve biodiesel production price targets of less than $1 per gallon, the United States may realize its goal of replacing up to 20% of transport fuels by 2020 by using environmentally and economically sustainable fuels from algae production.
Whereas technical problems, such as harvesting, are being addressed successfully by the industry, the high up-front investment of algae-to-biofuels facilities is seen by many as a major obstacle to the success of this technology. Only few studies on the economic viability are publicly available, and must often rely on the little data (often only engineering estimates) available in the public domain. Dmitrov examined the GreenFuel's photobioreactor and estimated that algae oil would only be competitive at an oil price of $800 per barrel. A study by Alabi et al. examined raceways, photobioreactors and anaerobic fermenters to make biofuels from algae and found that photobioreactors are too expensive to make biofuels. Raceways might be cost-effective in warm climates with very low labor costs, and fermenters may become cost-effective subsequent to significant process improvements. The group found that capital cost, labor cost and operational costs (fertilizer, electricity, etc.) by themselves are too high for algae biofuels to be cost-competitive with conventional fuels. Similar results were found by others, suggesting that unless new, cheaper ways of harnessing algae for biofuels production are found, their great technical potential may never become economically accessible. In 2012, Rodrigo E. Teixeira demonstrated a new reaction and proposed a process for harvesting and extracting raw materials for biofuel and chemical production that requires a fraction of the energy of current methods, while extracting all cell constituents.