How will America's future Navy be fueled? Photo credit: Flickr/Official U.S. Navy Imagery

Earlier this year, the U.S. Navy sailed around Hawaii in a fleet powered with algae and used cooking grease. The "great green fleet" as it has been called is a triumph for the bioenergy industry. The only problem is that it cost the Navy a lot of green in order to go green, with the green fuels costing it a staggering $26 per gallon.

Counting the cost
We already spend billions to fuel the American war machine each year. In fact, the current price tag is upwards of $20 billion per year on fuel. That's with fuel prices that are currently less than $4 per gallon, and heading even lower in 2014 thanks to the current energy boom.

The thing is, this move isn't about saving money today. It's about fueling America's military of the future. A future that likely won't be fueled by cheap shale oil as the production from those wells decline very steeply in each year. What the Navy doesn't want, according to Dennis McGinn who is the Navy's Assistant Secretary for Energy, Installations and the Environment, is to "find ourselves with our backs against the wall in some future crisis where the availability and price of petroleum-based fuels limits all our options." By investing in its future now, the Navy can avoid high costs later. 

For generations our military has thrived on its ability to adapt and remain flexible. That's why it has always been a first mover in not only trying new technologies, but funding the development of next generation tech. Without a doubt, one of our core competitive advantages as a nation has been the fact that we are the first to develop next generation military technologies. That's why it should come as no surprise to see the Navy now cooking up its next generation fuel supply.

Bringing down the price
The problem many point to is that investing in emerging green fuel technologies has been a fool's errand thus far. ExxonMobil Corporation (NYSE:XOM), for example, planned to invest $600 million in a plan to produce economical fuels from algae. That plan, which began in 2009 now has the energy giant starting over after the first $100 million it spent came up empty. ExxonMobil is now turning its attention to helping Synthetic Genomics, which has narrowed its focus from 20,000 strains of algae to just 10 that it believes have the best potential to produce commercially viable oil. That said, ExxonMobil warned that it might be decades before these investments pay off, if ever.

Still, this isn't stopping biofuel producers like Solazyme Inc (NASDAQ:TVIA) from tying to meet the Navy's ambitious targets. The company worked with the Navy on the current project that delivered the $26 per gallon fuel. However, Solazyme's goal is to lower its production costs down to $1,000 per metric ton of oil, which is the same bulk price as jet fuel. That said, that project is just one example of what Solazyme currently has cooking.

Beyond that there are a number of other private companies working with the Navy to get its fuel costs down. In fact, the Navy is already going full speed ahead with future biofuel purchases. It has already committed to start purchasing 170 million gallons of biofuel a year as part of its goal to get half its energy from renewable sources by 2020. Not only that but, the current administration is investing more than a half billion dollars to help fund the start-up of several advanced biofuel plants. If these investments are a success, it could go a long way to cutting both the cost of fuel and emissions in the future.

Investor takeaway
These are big and risky bets that the Navy is taking. We've already seen ExxonMobil lose a hundred million dollars as part of its biofuels bet. That's why investors might want to watch this space from the sidelines as there are plenty of other ways to make money in the year ahead. That said, if this project is a success America's military forces will hold a distinct competitive advantage as we'll have our own fuel supply at a time when the fight over the world's dwindling supply of oil could heat up again.