While Hawai'i has dropped out of the list of top five states for gasoline prices, it is still No. 1 for diesel fuel prices.

The statewide average Friday for diesel was $5.204 a gallon, a 46 percent increase over a year ago, according to American Automobile Association data.

The rapid rise in diesel prices is not only tough on owners of diesel cars, boats and trucks, but it also hurts those depending on diesel power generators, including most Moloka'i and Lana'i residents.

The climb in diesel prices over the past two years has propelled feverish efforts among several Hawai'i companies to find viable alternatives.

But not just any alternative will do.

Biodiesel, a plant-based alternative which can be used in most existing diesel engines without major modifications, has proven to be problematic.

Several Hawai'i researchers are hoping to avoid those problems by producing fuel from nonfood crops and, in one case, from algae.

The murky colored water flowing around raceway-shaped ponds in Kailua, Kona, doesn't look like much. But this six-acre test facility may represent the new oil fields of the 21st century.

When biodiesel is made from soybeans and other edible crops, it has been blamed for driving up food prices worldwide. Another biofuel, corn-based ethanol — which is widely used as a gasoline additive — has similar problems.

Prominent scientists have also questioned whether growing crops for biofuels produces more greenhouse gases than it prevents.

However, results from the demonstration project in Kailua, Kona, are being monitored by Europe's largest oil company, Royal Dutch Shell Plc, as well as former University of Hawai'i scientists who believe the fast-growing algae holds great promise when it comes to finding a cheaper alternatives to crude oil.

"We have good confidence that it's very viable," said Ed Shonsey, chief executive officer of HR Biopetroleum, a company that is partnering with Shell on the project. That includes believing the processes can eventually produce oil for $30 to $50 a barrel.

"It's looking extremely good."

The marine algae gets a much better yield than many plants. Where the highest producing oil palm farmers get 600 gallons an acre per year, algae can produce 5,000 to 8,000 gallons per acre annually, Shonsey said.

Moreover, algae proponents note it has the attractive environmental side effect of being able to absorb carbon dioxide waste from industrial facilities such as power plants. Thus it's hoped the production of biodiesel and other fuels from algae could reduce global-warming emissions if paired with a nearby power plant.

"That's the exciting thing about algae and why everyone is so interested," Shonsey said. "It's ideal for Hawai'i because no fresh water is required, no ag land is required and it cleans up the environment."

There is also less controversy about crops being in competition with food production since algae production should drive up prices of edible crops.

ALGAE TECHNOLOGY

HR Biopetroleum has joined with Shell on a company, Cellana, that is one of about 20 worldwide looking to commercialize algae technology. Shonsey said Cellana has a leg up on the competition because it already has a patented process and research expertise from HR Biopetroleum that has been developed over nearly two decades. That work has solved contamination problems that can occur while identifying the best algae species for oil production, he said.

Cellana's pilot plant is producing oil now and that a demonstration plant is being built in Kona to scale it up. Within three years it hopes to have its first commercial plant operating and within six years, another five plants.

Shonsey declined to say where the first commercial plant might be located aside from saying the company's priorities for sites are in Hawai'i and the southwest and southeast U.S. Shell previously said it wants to build a full-scale commercial production facility occupying about 50,000 acres.

The Kailua, Kona, facility's production is being tested for use in transport, including jets. The fuel also can be used in power plants.

Shonsey said his group is in talks with several potential partners on building a plant and that he hopes to be making an announcement soon.

"We have a very precise patented process which we now need to scale up," he said. "Now it's a matter of the commercialization."

In addition to the use of algae as an alternative, researchers from the University of Hawai'i and the Hawai'i Agricultural Research Center are looking into the viability of several plants not commonly used for food, including Jatropha trees, Kukui, Pongam and Moringa, also known as Kalamungay.

Michael Poteet, a Hawaii Agricultural Research Center agronomist, cautions that production from these plants won't be happening overnight since it will take time to figure out which crops work best and to get the infrastructure in place to extract the oil and then refine it.

"We'd all like to have a quick answer to this problem," Poteet said. "It's hard to be patient when diesel is $4.50 or over $5 a gallon, but we're working as fast as we can."

LIMITED OUTPUT

Poteet said there are probably 100,000 acres statewide that could be used in the next 10 to 15 years for the crops, with possibly more available over a longer period. But he and others note even if 100,000 acres were planted tomorrow, it would be at least a couple of years before oil seeds could be harvested.

Poteet said only 30 million gallons of biodiesel would be produced by the 100,000 acres if they were planted in crops averaging 300 gallons of oil annually.

That would only account for a portion of the diesel used in Hawai'i. In 2006 about 182 million gallons of diesel were used by nonmilitary consumers in Hawai'i for on- and off-road use, including fishing fleets.

But Poteet said even at that low percentage of total use, the biodiesel effort is worth it. That includes the economic benefits and security issues such as the state having enough fuel during emergency situations in which fuel shipments are restricted.

Anything that lowers diesel prices would be welcomed on Moloka'i where residents have seen the energy cost adjustment charge on their electricity bills rise 60 percent over the past year because Maui Electric Co.'s generators there burn diesel. On Lana'i the energy cost adjustment charge is up 67 percent.

On Maui, a partnership consisting of Blue Earth Biofuels and Hawaiian Electric Co. is pursuing permits for an $81 million facility capable of producing 30 million gallons of biodiesel that will be used by Maui Electric Co. Profits earned by Hawaiian Electric on the project will go into a public trust that will support local biocrop research and infrastructure.

Hawaiian Electric Co. also hopes to burn biodiesel at a new peak demand plant on O'ahu and has a contract with another biodiesel refiner, Imperium Renewables, to provide the fuel. It remains to be seen if Imperium will build a plant here since it canceled a public offering that would have raised money for a plant here and reportedly has been hit by rising prices for soybean oil.

Pacific Biodiesel, the Maui company that is one of the nation's oldest biodiesel producers, has found demand outstrips supply for its biodiesel made from used cooking oil. It is working with the Oceanic Institute on a project looking at local biofuels.

With multiple efforts going on, the state also is looking at what it should be doing from a policy point of view and how biodiesel and other biofuels dovetail with other renewable energy projects such as wind and solar power.

BIOENERGY MASTERPLAN

The state last month kicked off public meetings as it looks at formulating a bioenergy masterplan that will contemplate a host of issues that are part of the biofuel movement, including acreage needed, water use and evaluating what can be grown where.

There are other issues, such as competition for land that produced food crops and how to dispose of some of the processing waste. Others question whether enough water is available depending on the crops.

At the same time, the state is hopeful that the oil's economic drain on the state might be offset by producing some of the energy here while boosting energy security.

In effect, instead of the money going to the Middle East or other oil producing areas, local biofuel production would keep the money here people are hired to tend the crops and process the biofuel."

"We use a great deal of liquid fuel," said Maria Tome, a state Department of Business, Economic Development and Tourism energy engineer.

"To the extent that we can have locally produced alternatives, we can keep the money in the state."