Shares of Solazyme (NASDAQ:TVIA) have fallen by a third over the past year and are down 57% from their 52-week high as concerns over dilution and a heavy cash burn create the perception it will have difficulty surviving.

High cost of going green
Solazyme came in for a lot of criticism last year, when it was revealed that the U.S. Navy paid somewhere in the neighborhood of $26 per gallon for its biofuels while conventional fuel was going for $4 a gallon. While proponents say that's not a fair comparison, since it includes new equipment and didn't take into account commercial-scale production, MIT found that even under optimal conditions, algae-based fuel would still go for around twice the price of conventional fuel. A study from the University of Virginia says algae-based fuels require more land to develop, generate more greenhouse gases, and lead to greater environmental degradation than other types of biofuels.

Worse, the Department of Energy's Pacific Northwest National Laboratory points out that while algae-based fuels could eliminate nearly half of this country's need for foreign fuel, it would require more than 5% percent of the available land area in the continental U.S. while consuming about three times the water currently used to irrigate crops. Algae-based fuel production is water-intensive if nothing else.

Still, the Institute of Electrical and Electronic Engineers calls algae the most promising sustainable source of energy we have, noting, "An acre of corn can be used to generate 300 gallons of ethanol per year, while an acre of algae can produce 6,000 to 10,000 gallons of light sweet crude oil annually."

Solazyme also has a powerful ally in the White House, as President Obama is a big backer of algae-based fuels, and he wrangled important concessions last month from congressional Republicans, who dropped opposition to the military's developing and purchasing of biofuels as part of a $633 billion defense authorization bill. While that should have provided an impetus for Solazyme's stock, as it removed uncertainty and gave a sense of stability for future investments, the stock has fallen 20% since then.

Go big or go home
Biofuels like Solazyme's algae fuel suffer from the same fatal conceit that ethanol makers do: It uses food crops as the feedstock for producing fuel, which can drive up the cost of food for consumers. Where Archer Daniels Midland uses corn, Solazyme's biomass fuels are fed with sugar cane from partner Bunge's (NYSE:BG) nearby fields. Cosan (NYSE:CZZ) does them one better making sugar cane-based ethanol. Admittedly, Solzayme's technology does allow for use of renewable cellulosics as a feedstock, too.

Whatever the criticisms of such biofuels as Solazyme's are, it was able to reach commercial-scale production at ADM's Iowa plant. The goal is to initially target production of 20,000 metric tons of oil in 2014, and then increase that number to 100,000 metric tons later on.

Commercial-scale production capabilities, while not the Holy Grail of renewable fuels, represent an important milestone nonetheless that brings the industry one step closer to viability. To do that, however, companies need to further optimize production processes so they're able to derive more gallons of fuel per ton of raw materials at lower operating costs. Like having the Navy paying four, five, or six times the cost of conventional fuel sources, unless biofuels are competitive on price and are able to do so without being subsidized, there probably won't be widespread adoption.

Even then it will still be problematic, as we've seen with natural gas, which, despite being much cheaper than oil and enjoying massive investments in both engines and infrastructure, finds broad acceptance is moving at a glacial pace.

Lead by example
There is sense to the notion that we should pursue alternative energy for our future needs, but the private sector is where the action should be, not government subsidies to connected businesses or favored industries. In fact, oil companies are already leading the way in new alt-fuel technologies, but they're not the only ones. Where Chevron is the world's largest geothermal energy producer and ExxonMobil is developing algae-based biofuels, General Motors is investing in a wood waste-to-ethanol producer.

That's a process similar to that being pursued by KiOR (NASDAQOTH:KIORQ), which is also racing to scale up to commercial production, hoping to soon pump out 13 million gallons of its cellulosic fuel. In fact, FedEx, Weyerhaueser, and Chevron have signed on to purchase its output.

Green with envy
As a political favorite, Solazyme is a step ahead of its rivals, though that hasn't stemmed the bleeding of cash and the need to hit the equity markets. It just announced the other day that it intends to offer $100 million in convertible notes, though its relationship with Bunge softens the blow as Brail just agreed to loan its joint venture $120 million to build a commercial-scale production facility there. They intend to expand production capacity from 100,000 metric tons to 300,000 metric tons globally by 2016.

I still find Solazyme too risky to invest in, preferring instead those companies using waste products like wood, corn, and cellulosic biomass, and I believe they'll be the preferred choice in the future. Because when it comes down to it, having to choose between putting affordable food on the table or filling up the gas tank is a no-brainer. But let me know in the comments section below if you think Solazyme will be able to rise above the green slime edging the biofuels debate.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Chevron, FedEx, and General Motors and owns shares of ExxonMobil and Solazyme. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.